Bloomberg News

KPMG’s Andrew Says ‘Significant Fraud’ Evident at Olympus

November 27, 2011

(Updates with comments on Greece in fourth paragraph.)

Nov. 25 (Bloomberg) -- KPMG International LLP’s global chairman, Michael Andrew, said fraud was evident at Olympus Corp. and his firm met all legal obligations to pass on information related to Olympus’s 2008 acquisition of Gyrus Group Ltd. before it was replaced as the camera maker’s auditor.

“We were displaced as a result of doing our job,” Andrew told reporters at the Foreign Correspondents’ Club in Hong Kong today. “It’s pretty evident to me there was very, very significant fraud and that a number of parties had been complicit.”

Official conclusions about Olympus’s accounting practices will come from investigations by Japanese authorities, he said. Tokyo-based Olympus is waiting for a third-party panel’s report, spokesman Yasutoshi Fujiwara said in response to Andrew’s statement.

Andrew also said that a dispute between U.S. and Chinese regulators showed the need for global rules and criticized European Union proposals for more controls on the so-called “Big Four” accounting firms that include KPMG such as forcing them to share work with smaller rivals.

Andrew, speaking on ‘Fraud, Financial Crises, and the Future of the Big Four,’ said he was shocked by the political and regulatory interference KPMG experienced in its accounting related to Greek debt, underlining the importance of having global standards.

‘Naive’ Proposals

The 2008 financial crisis was the result of a failure of business models and prudential supervision, he said, attacking European proposals to prevent firms with a certain market share from doing non-audit work for clients as ‘naive’ and proposals for compulsory rotation of auditors as flawed.

The European Commission may restrict KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP from offering consulting services, according to a draft version of the proposals from the EU’s executive arm obtained by Bloomberg News.

Its proposals “will address the weaknesses identified, by ensuring auditors’ independence, robust supervision and by facilitating the creation of more capacity at the top end of the market,” the commission said on its website last week.

On China, where KPMG has 10,000 employees, Andrew said the firm is working to increase its capabilities after the recent audit problems at some Chinese companies.

Joint Inspections

“We still see China as a significant growth area,” said Andrew, who moved to Hong Kong after his appointment this year.

He said he expected the U.S. Public Company Accounting Oversight Board and Chinese regulators to eventually agree to joint inspections.

PCAOB and Securities and Exchange Commission officials went to China in July to discuss the possibility of joint inspections. A follow-up meeting in the U.S. was canceled by the Chinese last month and hasn’t been rescheduled.

The SEC said in September it filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to an investigation of Longtop Financial Technologies Ltd. after subpoenas were issued in May. Longtop said that month that Deloitte quit because of errors in the company’s financial records.

KPMG acquired the Japanese practice of Arthur Andersen after the other firm’s collapse in 2002 following the accounting problems at Enron. It inherited clients including Olympus Corp., where it remained as auditor through 2009.

The audit arm of KPMG based in Cardiff, Wales, flagged concerns over the valuation of preferred stock granted to Olympus advisers on the 2008 Gyrus deal and said they hadn’t been given enough information to confirm that the beneficiaries of the shares weren’t related parties.

Former Olympus President Michael Woodford went public with queries he raised over $687 million in advisory fees in the acquisition of the medical equipment company, as well as writedowns of stakes in three other takeovers. Olympus later said the money may have been rerouted to the company via offshore funds to help cancel out losses on securities investments dating to the 1990s.

--With assistance from Stanley James in Hong Kong and Yuki Yamaguchi in Tokyo. Editors: Douglas Wong, Anthony Aarons

To contact the reporter on this story: Debra Mao in Hong Kong at

To contact the editor responsible for this story: Douglas Wong at

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