The government will slap major auditing firm ChuoAoyama PricewaterhouseCoopers with a business suspension order for its accountants’ involvement in window-dressing by Kanebo Ltd., Financial Services Minister Kaoru Yosano said Tuesday.
The order, expected later this week, would be the FSA’s first suspension of one of Japan’s four major auditing firms.
Three accountants who worked at the Japanese unit of the PricewaterhouseCoopers Group were charged last October with conspiring with executives at Kanebo to falsify the ailing cosmetics firm’s financial reports in fiscal 2001 and 2002, covering up more than 160 billion yen in liabilities.
The three have resigned from the firm and pleaded guilty in March before the Tokyo District Court.
The agency said the accountants were able to doctor Kanebo’s figures because of flaws in the auditing firm’s internal controls, holding it responsible for the incident.
Yosano said the matter would be taken up later in the day at a meeting of the Certified Public Accountants and Auditing Oversight Board, which will decide on details of the punishment.
Following the board’s approval, the agency is expected to make a formal decision by the weekend.
The government will have to consider the appropriate penalty by weighing the need to punish wrongdoing against the economic disruption such a penalty could cause, Yosano told a Lower House committee session in the morning.
Yosano suggested that to avoid turmoil, the government should wait until July, when ChuoAoyama is scheduled to complete its auditing of clients that close their books in March and hold shareholders’ meetings in June.
Following media reports of the sanctions, ChuoAoyama said the company had not received information from the FSA on the matter.
“Taking into account that the Kanebo incident has developed into a criminal case, the firm has exerted its utmost efforts to regain social trust by carrying out urgent measures and drastic corporate reforms since last year,” ChuoAoyama said in a statement.
Should the punishment take effect, ChuoAoyama will be forced to suspend work with Kanebo and other clients for whom the three accountants conducted audits, according to an FSA official.
The accountants will be stripped of their registration as certified public accountants.
According to guidelines from the FSA last March, accountants who deliberately falsify financial reports are to be removed from the CPA register and their firms are to be suspended for three months as punishment for internal mismanagement.
If ChuoAoyama is forced to suspend operations with many clients, its operations could be seriously disrupted as clients defect to competitors.
ChuoAoyama has dealings with more than 5,500 companies. It was set up with an initial capital of 1.507 billion yen. It had 1,616 CPAs in 53 offices worldwide at the end of January.
In 2002, auditing firm Mizuho (which is unrelated to the Tokyo-based megabank) was forced to disband as its business collapsed after receiving administrative punishment when two of its accountants were indicted for falsifying the accounts of delivery firm Footwork Express Co.