Parmalat, one of Europe's biggest food firms, is facing possible bankruptcy after admitting to an enormous black hole in its accounts.
Parmalat said that its bank had said company documents certifying 4bn euros (£2.8bn; $5bn) in assets were false.
The firm's shares slumped on Friday as its board held an emergency meeting to discuss ways of resolving the crisis.
It is not yet clear whether the documents were deliberately falsified, or were the result of a mistake.
However, the affair has stirred memories of the high profile accounting irregularities that rocked the US financial markets last year.
Analysts at Commerzbank said Parmalat's announcement had "dropped a bombshell."
"To say that something smells fishy would be the understatement of the year," they wrote.
Parmalat, already in the grip of a cash crisis, has previously reassured investors by pointing to investments and cash worth 3.9 billion euros held by its Cayman Islands-based Bonlat finance unit.
But it announced on Friday that its bank, Bank of America, had "denied the authenticity" of documents certifying the investments.
Parmalat shares, which have already lost 60% of their value in the past week, fell a further 43%.
Parmalat's bonds also fell sharply, and credit rating agency Standard & Poor's (S&P) lowered its rating to default level after the firm missed a repayment which fell due on Wednesday.
"The reliability of all key information supporting a credit opinion is now questioned," S&P analysts said.
Friday's emergency board meeting is being led by Enrico Bondi, a turnaround specialist who was brought in to run the firm earlier this week.
The Bonlat revelations make Mr Bondi's job far more difficult, since it casts doubt on the credibility of Parmalat's balance sheet.
Founded 1961 as a dairy company
Embarked on aggressive acquisition programme in the early 1990s
Employs 36,400 people in 30 countries
Sales reached 7.6bn euros in 2002
Owns Parma football club
The company, which employs 36,400 people in 30 countries, claims to have debts of about 6bn euros, with assets of more than 4bn euros.
But the company's tortuous international structure, the result of rapid expansion, makes it difficult for analysts to assess whether these figures are realistic.
Some analysts doubted whether the firm would be able to pull itself out of the mire.
"It is difficult to see how Parmalat can keep going after this clear indication of extensive financial irregularity," ABN Amro analyst Claire McGuckin wrote in a research note.
Many of Italy's biggest banks are exposed to Parmalat, leading to fears of a system-wide meltdown if the company were to collapse.
The Italian cabinet discussed the Parmalat crisis on Friday, and said it would review the situation on Tuesday.
Unions representing Parmalat workers have called for the firm's manufacturing operations to be split from its finance arm, and run as a going concern.