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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Panel clears E&Y over Olympus auditing – far less to the report than meets the eyeRead More »
On Wednesday, prosecutors in Japan filed official charges against six individuals for their role in the accounting scandal at Olympus. They also filed charges against Olympus.
The six charged include the ex-chairman, former executive vice president, former corporate auditor and three outside bankers.
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Prosecutors file official charges in Olympus fiascoRead More »
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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Arrests in Olympus accounting scandal point to a serious and expanding investigationRead More »
Seven former officials and advisors to Olympus have been arrested for their alleged roles in the accounting fiasco at the company. See the Wall Street Journal article, Tokyo Makes Arrests in Olympus Scandal (article behind paywall).
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Arrests start from the Olympus accounting scandalRead More »
Yesterday I mentioned that Olympus was going after its former chairman and two others.
Today we found out who was sued.
A WSJ report indicates Olympus has sued 19 executives, including the current president and four current directors who are also senior executives over the fiasco of hiding a $1.7M loss.
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Olympus sues current board members and current presidentRead More »
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 »
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 »
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 »
So the auditor goes to the new client’s bank and gets copies of the bank statements from them. An entire year’s worth of statements. Does all the audit work. Everything looks fine. Issues their report. Everything is fine, right?
Except that in addition to the client cooking the books, the local bank made up those bank statements. Fraud came tumbling down because the auditor, yes notice the auditor tumbled to the fraud, went to the bank’s home office to get copies of the bank statements, which were drastically different from what the local branch provided.
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So what’s an auditor to do if the local bank is in on a massive fraud?Read More »
Getting back to the original question of whether a CPA could identify in the alleged incident that there was some kind of a fraudulent transaction during an audit (assuming it actually happened) – – I am thinking the answer is it would not be possible to find the fraud, even if you were looking for it.
So, what’s the problem?
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So an auditor couldn’t pick up any red flags to a corruption case. Why is that a problem?Read More »
Previous posts have given the background about a corruption indictment and my questions of what could have possibly been seen by a CPA auditor in this alleged situation.
Now let’s change the scenario. If it is your client getting shaken down the implications on the audit aren’t that severe. Just change the alleged situation to something different where the local business approached the mayor and asked him to intervene. By changing that part of the story, it will convert this from an allegation of the mayor shaking down a business to a hypothetical of your client successfully bribing a public official. That would make it an issue with a very material impact on your client and therefore a huge issue for you and your audit report.
Having changed those circumstances to where your client illegally paid off a government official, how could you possibly detect that bribery payment?
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Previous post gave the background of a corruption case in a city near to where I live. I’m using this actual situation as a short case study for CPAs.
Now, if you are the auditor of the city how could you possibly come across any red flags that this alleged bribery had taken place? I don’t see how any auditor would be able to see anything out of line.
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