The Olympus Corporation scandal is one of the biggest scandal’s to break. Olympus Corporation, the Japanese maker of cameras and medical imaging equipment is a huge corporation that lasted over two decades. 1- Analyze the audit report that the CPA firm issued. Ascertain the legal liability to third parties who relied on financial statements under both common and federal securities laws. Justify your response. It turns out that Olympus tried to make an effort to make the company’s books accurate, at least in terms of the balance sheets. This action led to the suspicious transactions noticed by Michael C. Woodford, at the time the newly appointed president and chief executive. KPMG’s auditors in Tokyo are under scrutiny after signing off on reports issued by Olympus Corp. Auditors found several accounting irregularities when they reviewed financial statements provided by Olympus executives. The auditors were particularly concerned over $600 million worth of takeover advisory fees and payments on acquisitions. Despite their concerns, auditors chose to sign off on the reports after an outside consultant approved of the findings.
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2- Speculate on which statement of generally acceptable auditing standards (GAAS) that the company violated in performing the audit. Generally Accepted Auditing Standards or GAAS is “ a set of systematic guidelines used by auditors when conducting audits on companies’ finances, ensuring the accuracy, consistency and verifiability of auditors’ actions and reports” (Lexico Publishing Group, 2008). The following paper will explain the elements of GAAS and how GAAS is applied to audits.
GAAS has three elements that must be used during every audit. They are general standards, standards of field work, and standards of reporting. Each of the three standards has their own set of rules that must be complied with during every audit.
General standards are the qualifications the auditor must have before he/she can perform an audit. There are three general standards, adequate technical training and proficiency, independence in mental attitude, and due professional care. The main points of this standard are 1. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. 2. In all matters relating to the assignment, independence in mental attitude is to be maintained by the auditor or auditors. 3. Due professional care is to be exercised in the performance of the audit and the preparation of the report” (Boynton & Johnson, 2006).
3- Compare the responsibility of both management and the auditor for financial reporting, and give your opinion as to which party should have the greater burden. Defend your position. The responsibility lied on a few parties because numerous of people were arrested. The people arrested were three former Olympus Corp. executives, including former Chairman Tsuyoshi Kikukawa, and a former broker who worked for Olympus over their alleged role in the company’s $1. 5 billion loss-hiding scheme, one of Japan’s biggest-ever corporate scandals. While police officials separately arrested three other Olympus advisers, ex-Chairman Kikukawa, former Executive Vice President Hisashi Mori, former company auditor Hideo Yamada, as well as former broker Akio Nakagawa, a Hong Kong resident, were arrested on suspicion of violating the Financial Instruments and Exchange Law through falsifying financial statements, according to a statement by the Tokyo District Public Prosecutor’s Office.
The Tokyo Metropolitan Police Department also arrested longtime Olympus financial adviser Nobumasa Yokoo and two others in connection with the case, prosecutors said. The arrests came around three months after the Japanese maker of cameras and endoscopes said the executives had been responsible for hiding more than $1. 5 billion in investment losses for 13 years. The executives haven’t publicly commented on the allegations. The auditors are showing to be the main people responsible. 4- Analyze the sanctions available under SOX, and recommend the key action(s) that the PCAOB should take in order to hold management or the audit firm accountable for the accounting irregularities. Provide a rationale for your response.
The establishment of the Public Company Accounting Oversight Board (the “ PCAOB” or “ Board”) was a key element of the Sarbanes-Oxley Act of 2002 (“ Sarbanes-Oxley”). 1 In addition to authorizing the PCAOB to inspect and set professional standards for public accounting firms, Sarbanes-Oxley conferred broad discretion on the Board to investigate and discipline firms and their “ associated persons” for violations of the federal securities laws governing the preparation and issuance of audit reports, as well as other professional standards. Sarbanes-Oxley did so, however, without curtailing the existing enforcement authority of the Securities and Exchange Commission (the “ SEC” or “ Commission”) over public company auditors. Since its creation, the PCAOB generally has sought to coordinate its enforcement efforts with those of the SEC, with this act being in place every company and/or firm should be held accountable. This will conclude my paper.
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