A road to legitimacy: accusations of fraud in Via Varejo

Abstract

This teaching case addresses the history of Via Varejo S.A. which received reports of fraud and accounting irregularities at the end of 2019. The company appointed an investigation committee to conduct an independent and detailed analysis which found indications of fraud such as the manipulation of labor provisions, undue delays in writing off assets and accounting for liabilities; and failures in internal controls that could have resulted in material errors in the company’s accounts. The impact was approximately 1.19 billion reais, which fully recognized in their 2019 financial statements and the reexamination of previous periods was not deemed necessary. Considering this uncertain scenario, managers were faced with the following dilemma: how to behave in relation to society considering the findings of fraud? This teaching case is aimed at students in graduate majors in Administration and Accounting who want to study the assumptions of the Legitimacy Theory as well as analyze the actions of this company as strategies designed to maintain or recover its legitimacy.