accounting fraud

Range of U.S., Chinese, and Japanese regulators’ responses to fraud in today’s news – Olympus and Longtop

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Sometimes you get fun results when you look at two news articles side by side. Let’s look at the responses of securities regulators in the US, China, and Japan.  Hat tip to Going Concern for highlighting the articles.

Olympus fine

Japan’s securities market regulator proposed a fine of $2.5M against Olympus for conducting a $1.7 billion financial fraud that was spread over 13 years – Japan market watchdog recommends $2.5 million fine for Olympus.

Let’s put that proposed fine into perspective. All amounts will be in US dollars.

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Panel clears E&Y over Olympus auditing – far less to the report than meets the eye

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The Wall Street Journal headline says Panel Clears Ernst & Young in Olympus Probe.

Cool update on the investigation, huh? An official panel looks at E&Y’s role and concludes their auditing was okay.  They have no legal liability.

I was quite interested in the article.  Then found out the details.

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Arrests in Olympus accounting scandal point to a serious and expanding investigation

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I previous mentioned the arrest of 7 former officials and advisors in the Olympus fiasco.  Also mentioned that I did not know what the arrests mean in the context of the Japanese legal environment.

The Wall Street Journal article Arrests Go Beyond Olympus provides me some context.  (Article behind paywall, so grab your copy of Friday’s WSJ before you toss it.  Better yet, get an online subscription.)

It would seem that the prosecutors are seriously pursuing the case.

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Investigators for Olympus aren’t pointing fingers at KPMG and E&Y

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An investigative panel set up by Olympus released a report saying the external auditors couldn’t have found the fraud. 

The panel also blamed five internal auditors for helping with the cover up.  Olympus has sued the five.

An Internet search today indicates there are 270 articles discussing this. Here are a few you can browse:

One panel of investigators appointed by Olympus pointed fingers at the external auditors. I discussed this report in my guest post at re: The Auditors.

In contrast, this new panel isn’t pointing fingers at the external auditors.  They are blaming the internal auditors for the costs incurred to investigate the cover up.

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My guest post at re:The Auditors on accounting for the Olympus fraud

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Francine McKenna asked me to combine my short comments on the Olympus fraud into a guest post on her blog.

I’m quite happy to announce my revised, expanded, and edited discussion is available. You can read the full thing at How Do You Hide A Multibillion Dollar Loss? Accounting For The Olympus Fraud

Many thanks to Francine for the wonderful opportunity to speak to a big audience.

Summary of Olympus financial fraud – part 2a

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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.  …

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Summary of Olympus financial fraud – part 2

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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: …

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Summary of Olympus financial fraud – based on independent report – part 1

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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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What firm failed to find these fraudulent fiascos?

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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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Fog around structure of Olympus fraud starting to lift

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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: …

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Time to start paying attention to the Olympus accounting fiasco

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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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