Olympus prepares to clean house as scandal spreads to auditors
posted Friday, December 9, 2011 at 3:42 AM EDT
Seeking to make right on decades-old hidden losses, executives at Japan's Olympus Corp. created a complex web of financial transactions in Japan, Singapore, and Europe, moving bad assets off the company's books to shell companies, then returning funds to these companies through advisory fees and inflated acquisition costs, effectively correcting Olympus' own balance sheet in the process.
The scheme, known in Japan as tobashi (meaning 'fly away', which is effectively what the company aims to do with its past losses) is detailed in a lengthy report returned to the company by its external advisory committee this week, and now available in a translated English-language version on the Olympus global website. The 200-page report--which is detailed nicely in an article by the Wall Street Journal--was direct indeed, pulling no punches in referring to the company's core management as "rotten", and criticizing a culture of "yes men", along with lax auditing and lack of oversight that allowed the scandal to remain hidden for decades.
With the scheme having faltered due to new accounting reforms brought in after the collapse of Enron Corp., newly-appointed president and CEO Michael Woodford was prompted by rumors in the Japanese media to confront chairman Tsuyoshi Kikukawa, leading to his own dismissal from his new roles. Woodford was apparently concerned that there might be theft or worse, although the advisory committee did not discover the ties to organized crime that Woodford feared. Instead, it found only the attempt to gradually correct for losses sustained in the 1990s, known only to a relatively small number of individuals at Olympus' top levels, and largely undiscovered even by auditors retained by the company.
That fact has now brought the auditors under scrutiny, widening the scandal still further. Ernst & Young is said to be setting up another independent panel to look into its own role in the affair, and a number of other firms are also facing questions over their connections to the case.
As for Olympus itself, another individual apparently involved with the scandal--company director Makoto Nakatsuka--has now resigned, along with three other individuals. The company is looking to revamp its management, and to determine liability of individuals including directors, executive officers, and auditors, as described in a lengthy press release, and summarized in an article from Bloomberg. Olympus has also issued a presentation summarizing the tobashi scheme's structure, and outlining a draft of its amended earnings.