guardian.co.uk,
Reuters, Friday 25 November 2011
 |
| KPMG AZSA audited Olympus for several years until 2009. Photograph: David Levene for the Guardian |
KPMG'S
chairman on Friday called for a global set of standards for the auditing
industry and said the Olympus scandal in Japan reveals evidence of
"significant fraud".
Michael
Andrew, the chairman, also outlined steps needed to improve the auditing industry
in a in a speech entitled, "Fraud, Financial Crises and the Future of the
Big Four" to the Foreign Correspondents Club in Hong Kong.
KPMG AZSA
audited Olympus for several years until 2009, when it was replaced by Ernst
& Young ShinNihon. An internal document obtained by Reuters showed that the
maker of cameras and medical equipment replaced KPMG after a dispute over how
to account for some acquisitions.
Andrew said
he was constrained in what he could say about the Olympus scandal, although he
did address the issue, saying that KPMG had done the right thing in the actions
it took pertaining to the Japanese company.
"What
is pretty evident to me is that it is a very, very significant fraud," he
said, adding: "We should wait for the Japanese authorities to disclose
that.
"I
think it is very hard to jump to the conclusion that it's a corporate
governance failure," he said. "Regulation will never prevent
corporate scandals," he added, saying that the amount of actual corporate
frauds found globally is relatively "tiny".
Andrew also
called for more co-ordinated regulatory oversight as auditing firms have found
themselves caught between regulators wanting different rules and standards,
such as the current issue facing the United States and China.
He spoke of
the difficulties in Europe, where accounting for Greek debt was not done
according to a single set of standards by the parties involved. Andrew cited
the case of France and Germany accounting for bonds using different figures.
"So
how do you account for Greek debt?" he asked, pointing out that the
accounting standards should be the same. As for how that impacts the banks
involved, that's up to regulators to determine, he said.
The Public
Company Accounting Oversight Board (PCAOB), the US auditor watchdog, has been
pushing to be allowed to inspect Chinese audit firms, but talks with
authorities in Beijing appear to have stalled in recent months.
In October,
audit industry sources told Reuters that China's financial authorities had
asked the big audit firms to review their work on US-listed Chinese companies
and disclose any information they may have shared with overseas regulators.
Andrew said
that while this does not often happen, being caught between regulators in the
United States and China in this instance makes auditing very difficult. He
cited the need for global regulatory oversight to help avoid such cases.
China has
been one of the fastest-growing markets in the world for accounting firms,
expanding by nearly 20% in 2010 and accounting for an estimated $1.5bn in
revenue for the Big Four firms last year, according to data from the
International Accounting Bulletin.
KPMG has
10,000 people in China, he said. The issues the auditing industry has faced
with Chinese clients lately is not crimping the firm's growth plans there, he
said.
One issue
being mentioned as a way to help corporate governance is audit rotation, where
companies are forced to switch auditors after a certain period of time.
Andrew was
critical of this idea, saying that this raises cost concerns and that mistakes
can go undetected during an audit handover.
"The
empirical evidence shows that errors occur on that change," he said.
Among the
items he listed to improve the industry was allowing firms to expand the scope
of their audits and mandatory co-operation between auditors and regulators.
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