The Japanese arm of auditing firm Ernst & Young is setting up an external review panel to determine how it and previous auditor KPMH could have missed Olympus Corp.’s (TYO:7733) $1.7 billion accounting scam.
Ernst & Young, which took over as auditor for the Tokyo-based technology giant in 2009, said that while it conducted an internal review of the audits and found no problems, it decided to solicit an external expert in light of the case’s public attention.
"The impact of this incident on society has been large. It is a problem we are taking very seriously," Kaoru Kashima, an executive board member at Ernst & Young, told reporters on Thursday.
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Olympus admitted to channeling money through investment funds to hide losses. The technology titan revealed that nearly $1.5 billion in possibly illegal payments were used to conceal heavy losses on investments over the last two decades.
Former Olympus CEO Michael Woodford broke the story in October with claims that he was terminated just two weeks after taking the corner office for commissioning a PricewaterhouseCoopers investigation that uncovered abnormally steep advisory fees related to the Gyrus deal.
Most of the payments went to a pair of mysterious entities called AXES and AXAM. The PwC report identified former Wall Street banker Hajime "Jim" Sagaway as the lead for AXES and the director of AXAM, which is a tax haven incorporated in the Cayman Islands.
Woodford also questioned three other 2008 acquisitions that cost a total of $773 million and were written down by 75 percent that year. He submitted a report to Olympus senior management Oct. 13, including a call for the resignation of several members of the management team, according to an Olympus press release.
Olympus admitted to channeling nearly $1.5 billion in possibly illegal payments to conceal heavy losses on investments over the last two decades.
Regulators in the U.S. and Japan are investigating allegations that Olympus channeled more than $1.5 billion through offshore funds after suspicions were aroused by Woodford, according to Bloomberg BusinessWeek.
Olympus shares have lost big since Woodford’s mid-October termination, falling from a closing price of roughly $31.91 (¥2,482) Friday, Oct. 13, to about $14.56 (¥1129) in afternoon trading today.