The Japanese Institute of Certified Public
Accountants (JICPA) and Japan’s Financial Services Agency (FSAJ)
are both planning to investigate KPMG Asza and Ernst & Young
(E&Y) ShinNihon over their audits of optical equipment company,

KPMG Asza, which was Olympus’s auditor until
March 2009 and E&Y ShinNihon, which is the company’s current
auditor are accused of not doing enough to follow up on red flags
in Olympus’s accounts. Both have declined to comment.

Currently, the FSAJ is investigating whether
Olympus broke financial rules, after the firm admitted to hiding
large securities losses by using payments to merge advisors and
venture capital funds.

The scandal came to light after Michael
Woodford, Olympus’s ousted chief executive, prompted questions over
the excessive advisory payments ($687m versus investment banking
norms of about 1% to 2%) it made in its 2008 acquisition of the UK
medical equipment maker Gyrus, worth $2.2bn.

Olympus has since said some of those fees were
“used in part” to help hide losses on investment securities.

The Japanese minister of state for financial
services Jimi Shozaburo said it is “highly regrettable from the
viewpoint of market fairness and transparency, that the Olympus
Corporation has been engaged in deferring the posting of losses
from securities and other investments”.

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“It is troubling to see investors, both
domestic and abroad, question the fairness and transparency of the
Japanese markets and I would urge all the parties concerned with
the markets in Japan to tackle this issue together,” Shozaburo

It is unclear why KPMG Asza signed off on
Olympus accounts in March 2009 despite the fact it was said to be
concerned with the company’s acquisition of Gyrus.

KPMG UK, which audited the subsidiary accounts
of Gyrus, also raised questions about the advisory fees and whether
Cayman Island-based AXAM Investments, which received a substantial
part of the money, was related to Olympus.

Although E&Y ShinNihon raised questions
over AXAM as well, it is said to have decided to approve Olympus’s

Shozaburo also called for Olympus to, “on its
own initiative”, explore what actually happened and disclose
accurate information as soon as possible to help restore confidence
in the Japanese market. On 1 November, Olympus established a third
party committee to conduct a rigorous investigation into the

If the FSAJ finds fault in the audits of both
the Japanese arms of KPMG and E&Y they could take disciplinary
action against individual accountants and the firms.

The UK Serious Fraud Office also said it is
continuing to “review and evaluate” the material it was provided by