A series of accounting irregularities at large companies have deepened public distrust of both accounting and auditing firms. It is hoped that a bill to revise the Certified Public Accountant Law, now on the Diet floor, will remind CPAs and auditing corporations of the weight of their social responsibility and help them regain the public’s trust.
The main thrust of the bill is to enable the government to take severe administrative actions against CPAs and auditing corporations involved in questionable activities.
Collusive relations between CPAs and their clients have surfaced in accounting irregularities involving large companies such as Kanebo Ltd., Livedoor Corp. and Nikko Cordial Corp. Under the bill, the maximum duration in which a chief CPA of a large auditing firm could continue to audit a listed company would be shortened from the current seven years to five years. CPAs who have quit auditing firms would be prohibited from landing jobs at companies they audited or their affiliates. If companies fail to rectify irregularities that CPAs have detected, the latter would be legally required to report the failure to administrative authorities.
At present, administrative authorities can take three kinds of actions against auditing firms: deliver a reprimand, issue an order to suspend a firm’s operation, or issue an order to dissolve the firm. To bring flexibility to administrative actions, the bill would allow authorities to issue a order to improve management and operations as well as impose administrative fines on CPAs and auditing firms involved in irregularities. The fine for irregularities deemed deliberate would be 1.5 times the auditing fee and that for failure through carelessness to detect irregularities would be the same amount as the fee.
The bill does not include criminal punishment of an auditing firm. The government and the ruling coalition hope that the newly introduced measures, which are both severe and flexible, will deter questionable activities on the part of CPAs and auditing firms.
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