Parmalat's chief auditor resigns

Lorenzo Penca, the chairman of the Italian branch of Grant Thornton, has resigned following his arrest in connection with the Parmalat scandal.

He was detained on suspicion of having falsely certified Parmalat's balance sheets and of having suggested ways for the company to commit fraud.

Grant Thornton has vigorously defended its innocence since the 8bn euro black hole appeared in Parmalat's accounts.

Parmalat's actions have been described by the US watchdog as "brazen fraud".

Impropriety denied

Judge Guido Salvini has accused Mr Penca and his partner Maurizio Bianchi of falsely giving a seal of approval to Parmalat's balance sheets.

In particular, Mr Salvini said the auditors hatched the idea of creating the Cayman Islands-based Bonlat subsidiary - which showed investors that Parmalat was holding 4bn euros in an offshore account with the Bank of America.

The bank has said the papers are false, precipitating Parmalat's collapse.

Since Parmalat's troubles began to emerge, Grant Thornton has denied any impropriety, insisting its staff acted correctly, and that they too have been victims of fraud.

"We have not discovered this situation until now because we examined documents which were then revealed as being false," said Maurizio Bianchi, an Italian executive of the firm, ahead of his arrest.

"We carried out all the required controls, also with third parties," he said.

Andersen parallels?

Grant Thornton audited Parmalat's accounts between 1990 and 1999.

The firm is a mid-ranking auditor which has been rapidly gaining market share and narrowing the gap between itself and the world's top four auditors.

Analysts are already expressing concern that the Parmalat scandal could have a grave impact on its business.

"It will impact their ability to attract new practices to their network and their ability to hold onto some clients," said London-based accounting lecturer and consultant Les Warren.

Andersen, once one of the world's most prestigious accountants, collapsed following its role in the Enron scandal in 2001.