The latest Japanese accounting scandal has
placed the spotlight firmly on audit firms.

The recent International Accounting
Japan survey reveals the profession is suffering from
intense fee pressure, which according to Kansai University
professor of auditing Yoshinao Matsumoto is having an effect on
auditor’s ability to detect fraud.

KPMG Japan executive board member and Tokyo
office managing partner Tsutomu Takahashi told International
Accounting Bulletin
a few months ago the firm has seen tight
fee competition from medium and small accounting firms.

“Audit fees are about the same as last year.
Competitors approach our clients and offer a lower fee, and then
clients approach us to offer them a more attractive fee,” Takahashi

Unlike most other countries, Japan has a Big
Three, KPMG ASZA and E&Y ShinNihon and Deloitte Anjin. This is
due to the fall out from the Kanebo fraud, which saw the suspension
of auditing services for Chuo Aoyama PwC in 2006 and forced
PwC to rebuild its entire Japan practice.

The Japanese Institute of Certified Public
Accountants and Japan’s Financial Services Agency are investigating
KPMG ASZA and E&Y ShinNihon over their audits of Olympus.

If implicated in the scandal, the
investigations could cause major reputational damage to the firms
involved and Japan’s audit profession.