updated 04:10 pm EDT, Thu March 29, 2012
Legally absolved, but told should be more vigilant
An independent panel has determined that Ernst & Young was not accountable for any misrepresentation or legal lapses in how the firm audited Olympus's books in the face of the digital imaging company's $1.7 billion financial scandal. The panel had been commissioned by the accounting firm in December to take an independent look at how the accounting firm oversaw Olympus's financial reporting practices over several years while Olympus's executives were allegedly engaged in financial misconduct. A separate panel commissioned by Olympus had also cleared Ernst & Young, as well as KPMG, which had been the company's accountant until 2009.
In its findings, the four member panel concluded that "legal responsibility could not be confirmed" on the part of Ernst & Young. The panel added, however, that, although not legally responsible, Ernst & Young as well as other members of the accounting community needed to do a better job in identifying potential fraudulent corporate behavior.
Olympus's scandal took place over a period of 20 years. During that time, Olympus's executives have been accused of paying exorbitant fees to several financial advisers who had helped in several acquisitions made by the firm. The payments were inappropriately labelled as "good will," and were actually part of an effort to hide investment losses from shareholders.
The scandal first became public in December after then CEO Michael Woodford blew the whistle on the affair. Eventually, as details of the scandal began to be revealed, several Olympus executives, as well as some of its bankers, were arrested. [via The Wall Street Journal]