Royal Ahold, N.V., is a large multinational company based in The Netherlands that was founded in 1887 by Albert Heijn. Three generations of the Heijn family oversaw the company's retail grocery business. In 1989, the company hired a professional management team. The new management team expanded Royal Ahold's operations by purchasing grocery chains around the globe, resulting in the company becoming the third largest food retailer in the world. In 2000, the company diversified into the wholesaling segment of the huge food industry when it purchased U.S. Foodservice, a large food wholesaler based in Columbia, Maryland.

Royal Ahold's professional management team established aggressive earnings and revenue goals for the company each year and pressured their subordinates to achieve those goals. An incentive compensation plan awarded large year‐end bonuses to managers of operating units that met or surpassed their financial goals. Royal Ahold's decentralized operations, when coupled with the strong incentives to achieve unrealistic earnings and revenue goals, created an environment in which fraud often flourishes.

In early 2003, Royal Ahold's independent auditors suspended their fiscal 2002 audit of the company when they discovered numerous potential irregularities in the company's accounting records. Subsequent investigations documented that the company had improperly included the operating results of foreign joint ventures in its consolidated financial statements, had accounted improperly for initial acquisition costs related to several of those joint ventures, and had materially overstated “promotional allowances” due from company vendors. The disclosure of the massive accounting fraud resulted in criminal and civil lawsuits being filed against the company and its top executives in both Europe and the United States.

This case examines accounting, auditing, and control issues pertinent to multinational companies. In addition, the case examines recent controversies arising between and among international regulatory agencies and rule‐making bodies within the accounting and auditing disciplines. Finally, the case illustrates important risk factors commonly associated with financial statement fraud.

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