Business / Corporate

Japan to demand greater accountability from audit firms

JIJI

The Financial Services Agency decided Tuesday to demand greater accountability from audit firms that check corporate financial reports, by revising auditing standards.

The decision, made at an FSA accounting council meeting, came after Toshiba Corp.’s auditor drew criticism from domestic and overseas investors for its inadequate information disclosure when the electronics and machinery-maker was shaken by an accounting scandal.

The revised standards will apply to earnings for the current fiscal year ending in March 2020.

Listed companies are required to obtain audit firms’ opinions about whether their quarterly financial statements are appropriate.

Under the new standards, auditors will have to give clear reasons for any “qualified opinions” given, which indicate financial statements are generally appropriate except for some parts.

In the Toshiba scandal, PricewaterhouseCoopers Aarata LLC put a “disclaimer of opinion” in Toshiba’s report for April to December 2016, sending the company to the brink of being delisted from the Tokyo Stock Exchange.

Disagreements between Toshiba and PwC Aarata on accounting issues continued until they settled on a “qualified opinion” for the statement for the year through March 2017, which was submitted to financial authorities far later than the legal deadline.

PwC Aarata, however, declined to disclose the reason for the qualified opinion, citing its duty of confidentiality under the certified public accountant law.

The FSA council on corporate accounting concluded that, in such cases, auditors should prioritize their accountability to investors.