Olympus Corp. replaced its long-time auditing company after it raised questions about fees paid to a financial advisory company, apparently to extend the company's practice of placing a lid on unfavorable information.
Similar questions raised by Michael Woodford led Olympus executives to dismiss him as company president on Oct. 14 after only about six months on the job.
The replacement of the auditing company was related to the February 2008 acquisition by Olympus of British medical equipment manufacturer Gyrus Group Ltd.
At that time, KPMG Azsa LLC was the auditing company that looked into Olympus' financial records.
In 2009, auditors cast doubt on the huge fees paid to the financial advisory company in connection with the Gyrus acquisition. A difference of opinion arose over the reason for the fee and how to reflect the amount in financial statements for Olympus.
Auditors also pointed out that the three other companies acquired by 2008 were not worth the 73.4 billion yen (about $900 million at current exchange rates) paid out for them. Auditors requested that Olympus record as a loss the difference between the acquisition price and the actual value of the three companies.
As a result, Olympus' financial statements released in May 2009 for the fiscal year that ended in March 2009 included a total of 55.7 billion yen as a loss, which was in line with the views of KPMG Azsa.
The inclusion of the loss was partly the reason the auditing company gave its approval of the financial statement.
But shortly after the financial statements were released, Olympus switched auditing companies in June 2009, turning to Ernst and Young ShinNihon LLC and ending its nearly 40-year partnership with KPMG Azsa and its predecessor entities.
At that time, Olympus officials said they changed auditors because the contract period with KPMG Azsa had ended.
Officials for both KPMG Azsa and Ernst and Young ShinNihon said they could not comment on specific corporate clients.
It is extremely rare for a company listed on the First Section of the Tokyo Stock Exchange to switch auditing companies. Over the past 10 years, only about 20 companies have done so, representing about 1 percent of all listed companies.
Sources said the third-party committee that Olympus established on Nov. 1 to look into the latest scandal plans to question those involved about the change in auditing companies.
Ironically, it may have been a strengthening of penalties against auditing companies for overlooking questionable financial reporting that pushed KPMG Azsa to raise suspicions about the fees paid to the financial advisory company.
KPMG Azsa was the auditing company in the 1990s, when Olympus is suspected of hiding losses on stock transactions by pushing them onto other companies.
While Olympus apparently decided to change auditing companies rather than listen to the questions raised by KPMG Azsa, an official with the Japanese Institute of Certified Public Accountants said there was nothing illegal about a company switching auditing companies at its own whim.
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