Article in the Wall Street Journal on 12-7-11 gives more background on the methodology of the Olympus fraud: Panel Calls Olympus ‘Rotten’ at Core. (article behind paywall)
I made a few updates on my part 2 post. Have a few more comments in this post – things that are interesting to me.
Hiding losses was legal and normal
Apparently, moving underwater investments off the books was so common in Japan that it had a nickname, tobashi. …
Previous post described the investigative report of the Olympus financial fraud.
Now a discussion of the debits and credits. Final post will discuss the underlying causes identify by the investigative committee and some of their recommendations.
Update 2 – When accounting rules changed in 2000, the report says Olympus management decided to move the investments off the books instead of taking the write down. Thus phase 1 was launched.
How do you hide a $1.7B loss?
This is what I was most curious about and what prompted me to read the report.
Here is a one paragraph summary from the report: …
The investigative report on the Olympus fraud has been released. The fact pattern, causes, and recommendations are scathing.
This and my followup post are a thumbnail description. These are the result of just an hour or two of research. If you wish to expand the summary, point out errors, or clarify, feel free to do so. My guess is that readers of this blog won’t want as many details as I am providing, but do want to know more than just what shows up in the general news reports.
You can see one news article here: Olympus faces Tokyo delisting after management hid $1.7 billion of losses.
The Wall Street Journal has a good report, but it is behind a pay wall. WSJ also has a copy of the report, but I caution you on getting their copy. I was able to access the report once, but when I went back to it, accessing the report crashed my computer. Twice.
Update: Olympus has made the report available here.
The report’s conclusion compares management to a cancer:
Olympus had originally been a sound company, with diligent employees and high technical strength. Not all part (sic) of the company was involved in this misconduct. Olympus should remove its malignant tumor and literally renew itself. (Page 30)
What is the amount of the fraud and time frame?
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Summary of Olympus financial fraud – based on independent report – part 1Read More »
December 2 was the 10th anniversary of the Enron bankruptcy.
Just a few of the big consequences of that massive fraud were Sarbanes-Oxley legislation and the bankruptcy of Arthur Andersen.
Two of the subtle consequences are that it’s now a federal felony to destroy any documents after a federal investigation has begun (when the IRS or ICE has merely started asking questions about one of your clients, it becomes a felony to do a routine shredding in your office or cleanup of your e-mail) and PCAOB is setting standards for public company audits.
If you need to refresh your memory of what happened, here are just a few of the recent blog posts discussing that not-so-wonderful time:
A number of bloggers have been talking about audit quality issues in the Big 4 environment. Francine McKenna has a lengthy post that provides some background. Also focuses on the visible attitude of Deloitte. Read her post: At Deloitte, More Pain Before Any Quality Gain.
For those of us in small firms, the Big 4 world is far removed from our life. And for all the CPAs I know, that is a good thing.
On the other hand, it would be good for us to pay occasional attention to that world because if they get in trouble, it affects all of us. This article would be a very good place to start to get a feel for what’s going on that world.
There seems to be some issues with audit quality. …
You may recall the Miller GAAP Guide from days long past. It’s now the CCH GAAP Guide. The 2012 edition will be published 12-26-11.
You really should have a copy handy. It is a superb research tool for CPAs having to deal with issues they haven’t delved into before.
I was honored to have been asked to look at the revisions for the current year. Just finished that project this week. It has been a few years since I looked at the book. Looking at it again reminded me of what an incredible resource it is.
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Mr. Charles Landes, CPA, MBA, was a speaker at the 2011 CalCPA A&A conference. As always, lots of great comments.
He spent some time talking about the Clarity Project. That has resulted in rewriting the entire body of GAAS, putting everything into a new format, and renumbering everything.
I’ve discussed SAS 122 here.
One particular comment from Mr. Landes was that the clarity project was not intended to turn our world upside down.
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Boston Chicken, Arizona Baptist Foundation, Sunbeam, Waste Management, Global Crossing, Enron, and WorldCom have one auditor in common.
Who was it?
Unfortunately, a chronicler of accounting history could pull together a list of disastrous audits for all the large firms. Perhaps the Grumpy Old Accountants, Professors Catanach and Ketz, could put that on their to-be-blogged-about list.
At the moment, they have provided a superb summary of each of the above fiascos in their post, Enron’s tenth anniversary: Arthur Andersen’s audit failures at Enron and elsewhere.
Just a few comments from me.
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What firm failed to find these fraudulent fiascos?Read More »
I’m slightly curious how Olympus hid losses of one or two billion $US, but not curious enough to do my own research. Also curious how three different Big 4 firms missed it.
Thus I will rely on other bloggers, such as Tracy Coenen’s post, Financial Statement Fraud: Olympus Makes It Look Easy, at her blog, the Fraud Files.
One of the several components they used to make losses go away is paying a lot of money to buy companies that have no history, earnings, or assets: …
Fog around structure of Olympus fraud starting to liftRead More »
The Grumpy Old Accountants, Professors Anthony Catanach and Edward Ketz, revisit changes in the audit world prior to the Enron disaster at Enron’s Tenth Anniversary: Context for Andersen’s Auditing Failures. Visit their post for a refresher on what the environment was like at the time.
I think one very serious transition in that time was audits becoming loss leaders that promoted lucrative consulting work.
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Enron revisited: Recap of the environment of the timeRead More »
Yeah, Olympus. The people who made that cool camera you’ve been using.
Here’s the story in one sentence: It looks like Olympus has been materially cooking the books since the late 1990s.
In one paragraph:
The maker of cameras and medical-imaging equipment said Tuesday that it used four acquisitions in 2008 to “clear up” paper losses on investments dating to the 1990s. Asahi and KPMG AZSA signed off on Olympus’s statements for those years. There’s no indication that the accounting firm signed statements that it knew were misleading or incorrect.
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Time to start paying attention to the Olympus accounting fiascoRead More »
Here is another reminder as you start thinking about your December 2011 audits:
These comments will be highly summarized. If you see something that applies in your client base, get hold of the authoritative literature.
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Reminders for your 12-11 audits – Part 2 – SASs 118, 119, 120Read More »
The AICPA occasionally publishes a newsletter addressing attestation issues. Recently there have been one or two issues per year. Previously it was quarterly.
There is an October 2011 newsletter available here.
SAS 122 has been issued by the Auditing Standards Board. That document replaces every one of the current SASs, except for numbers 51, 59, 65, 87, 117, 118, 119, and 120.
The clarified SASs, all 39 of them, will go into effect for your audits of 12-31-12 financial statements (okay, okay, the technical cutoff is financial statements ending on or after 12-15-12).
That means for your audits in 2013, you will have to be up to speed on the new SASs in the new-and-improved GAAS body of knowledge.
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Entire body of GAAS has been replaced (except for 8 SASs)Read More »
Just noticed today the new General Audit Risk Alert is available. If you are an auditor this is something you should be reading every year. (If your firm doesn’t provide you a copy, go get one yourself. You are in charge of your professional growth.)
Here is a link and the full title: General Accounting and Auditing Developments – – 2011/2012 Audit Risk Alert.
Might be worth getting the hot-off-the-press risk alert. Order it now and you could read it in November to incorporate into planning during December for audits in January and February. …