TOKYO (Reuters) — An unofficial panel of experts cleared the global accounting groups KPMG and Ernst Young of any responsibility for a $1.7 billion accounting fraud at the Olympus Corporation on Tuesday, though the role of the firms remained under official review.
The scandal, one of corporate Japan’s worst, had raised questions over the role of the two audit firms, which signed off on company accounts before the 13-year fraud finally surfaced in October.
But the panel of lawyers set up by Olympus to look at the role of auditors said in a report on Tuesday that internal auditors were to blame, saying five of them, former and current, were responsible for 8.4 billion yen ($109 million) in damages.
The panel effectively found the fraud, identified by a separate investigation as having being hatched by two former top executives in the 1990s to conceal losses, had been too well covered up for the external audit firms to have uncovered it.
“The masterminds of this case were hiding the illegal acts by artfully manipulating experts’ opinions,” the report said.
Neither KPMG’s Japanese unit, KPMG AZSA, which was the firm’s external auditor until 2009, nor Olympus’ current auditor, Ernst Young ShinNihon, was found to have violated its legal duties, the panel said.
Ernst Young and KPMG, however, still face possible sanctions by the country’s accounting industry body and financial regulator, which have undertaken investigations into the matter.
Olympus is expected to bring a damages lawsuit against the five as early as Tuesday, the Nikkei business daily reported.
The company is already suing its president and 18 other executives, past and present, for up to 3.6 billion yen in compensation for the accounting scam, which has halved Olympus’ share price and put it under pressure to raise capital.
New lawsuits against internal auditors would only add to what is already an extraordinary chapter in Japanese corporate governance, with Olympus being mostly run and internally audited by people it is suing for mismanagement or a failure of duty.
Olympus said last week that all board members subject to the lawsuit would quit at an emergency shareholders meeting to be held in March or April.
A decision, however, to clear the auditing firms could bolster Olympus’ chances of staying listed on the Tokyo Stock Exchange, a critical prerequisite for its campaign to remain an independent company with access to equity capital.
Suing Ernst Young ShinNihon would most likely leave it without an auditor and make it hard to meet bourse requirements.
But Japan’s Financial Services Agency is still looking into the auditors’ roles. The exchange has yet to conclude whether Olympus should remain listed.
Olympus has admitted that it used improper accounting tricks to conceal immense investment losses under a scheme that began in the 1990s, when Japanese stock markets had fallen heavily and the yen strengthened markedly.
The scandal came to light after Olympus fired its British chief executive, Michael Woodford, in October, prompting him to publicly blow the whistle on the firm’s dubious bookkeeping.
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