AUDITORS EMBROILED in the Olympus accounting scandal have suffered fresh criticism from an independent committee investigating the alleged fraud.
KPMG’s unqualified audit report in March 2009 was “inappropriate” and relied too heavily on outside experts’ opinion of Olympus accounting, the committee concluded.
Ernst & Young was appointed auditor later that year and the investigation criticised the firm for allowing a questionable consulting fee to be treated as goodwill.
“Even when we account for the fact that they [had] just assumed their position as auditor and they lacked knowledge of the past events, we cannot conclude this was appropriate,” the committee said.
KPMG’s handover to E&Y was also attacked, described as “questionable” in the light of Japanese regulations and “nothing but a mere formality” despite the “extraordinary dismissal” of KPMG by Olympus.
Olympus requested the independent committee – composed of five lawyers and one accountant – investigate the scandal and propose measures to improve corporate governance and strengthen company structure and management.
The panel concluded KMPG could not be blamed for failing to spot creative accounting dating back to the 1990s, as hard-to-detect off-balance-sheet activity lay behind many of the murky dealings.
KPMG was dismissed as auditor after questioning Olympus’s accounting methods, so it seems the firm did attempt to challenge sub-par practices.
The scandal came to light when former CEO Michael Woodford questioned the board over suspect payments in the acquisition of British medical company Gyrus in 2008.
Unusually large advisor fees paid to Cayman Islands company Axam caught his eye, and Olympus later admitted merger and acquisition funds had been inappropriately used to smooth bumpy balance sheets when times were tough.
“Auditors and [the] board of auditors must realise the weight of their responsibility,” the independent committee admonished, saying: “We cannot see that the [audit] was conducted seriously enough” when accounting issues came to light.
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