Auditors Not Involved in Cover-Up, Olympus Says

Just how much Olympus’s auditors knew about the manufacturer’s scheme, going back decades, to hide losses has emerged as an important aspect of the continuing investigations into its finances. The two firms signed off on the accounts before Olympus’s president and chief executive, Michael C. Woodford, blew the whistle publicly on the fraudulent accounting last October, just after he was fired by the company’s board.

In a report released last month, an investigative panel appointed by Olympus, which makes digital cameras and the medical optical devices known as endoscopes, had been critical of the auditors’ role, saying the firms had not done enough to expose wrongdoing.

But a separate panel of lawyers hired by Olympus to investigate the roles of the two auditors found that the firms had not violated their fiduciary duties, Olympus said in a statement. The report, released Tuesday, said that Olympus’s executives had so cleverly buried the losses that external auditors could not have uncovered them.

The report instead blamed five former and current Olympus internal auditors for allowing the company to misstate its finances. The five internal auditors are responsible for a total of ¥8.4 billion, or $109 million, in costs related to the cover-up, Olympus said in the statement.

Minoru Ota, a former internal auditor at the company who had headed the company’s accounting unit, is to blame for almost half of that cost, the statement said.

“The masterminds in this case hid their illegal acts through artful manipulation of expert opinion,” the report said.

Olympus did not make Mr. Ota available for comment, and calls to a registered number under that name in Tokyo went unanswered.

Olympus said later Tuesday that it had filed a lawsuit against all five of the internal auditors, demanding ¥500 million from each.

Olympus has admitted that a handful of former and current executives set up a scheme to obscure losses by illicitly keeping unprofitable assets off its books. The company later tried to settle those losses in payments masked as merger-and-acquisition fees.

Last week, the company sued 19 current and former executives, including the current president, Shuichi Takayama, over their roles in concealing the losses. The scandal has led to investigations by the authorities on three continents, and Olympus shares remain on watch by the Tokyo Stock Exchange for possible delisting.

A decision to clear the auditing firms could strengthen Olympus’s chances of staying listed on the exchange, helping the company maintain access to equity capital and remain a going concern. On the other hand, any action to dismiss or sue Ernst Young ShinNihon, its current auditor, could leave the company without a firm willing to audit its finances, jeopardizing Olympus’s compliance with the exchange’s listing requirements.

Still, experts have asked how Olympus could have perpetrated such a scheme without at least the tacit knowledge of its auditors. KPMG audited Olympus until 2009 before handing it off to Ernst Young. The two firms still face possible sanction by the Japanese financial regulator, the Securities and Exchange Surveillance Commission.

“It’s hard to believe that Olympus could have kept such a large-scale cover-up secret from its auditors, who study its finances intimately,” said Shinji Hatta, a professor of auditing at the Graduate School of Professional Accountancy at Aoyama Gakuin University in Tokyo.

But a person with close knowledge of various investigations relating to Olympus said that not only was Olympus adept at hiding its losses, but also that the company may have received help from its banks to misstate its financial position.

KPMG received confirmation statements from some of Olympus’s banks that, with hindsight, were clearly misleading, the person said on condition of anonymity, saying he was not authorized to speak to the news media. The banks told KPMG that there was far more money in Olympus’s accounts at those banks than was actually there, the person said.

Those inaccurate statements have been submitted by KPMG to Japanese regulators to aid in their investigation, and the authorities have begun a broader review that is likely to include the conduct of Olympus’s banks, the person said.

The banks allegedly involved were not immediately available for comment.

Article source: http://www.nytimes.com/2012/01/18/business/global/auditors-not-involved-in-cover-up-olympus-says.html?partner=rss&emc=rss