A matter of trust in the market
(From The Japan Times May 13 issue)

中央青山監査法人に業務停止

    ChuoAoyama is the only one of the country's top four auditing firms to receive such an order. The other three firms are Ernst & Young ShinNihon, Deloitte Touche Tohmatsu and KPMG AZSA & Co.

    The FSA's action came at a time when CPAs' involvement in a series of report-falsification episodes with firms listed on the stock market has led to public loss of trust in auditing firms and the nation's auditing services in general.

    The role of auditing firms is important in ensuring the accuracy and credibility of financial statements, which are the basis for the healthy operation of the stock market and the market economy. The agency's decision is reasonable.

    The three former ChuoAoyama CPAs pleaded guilty in March to falsifying Kanebo's financial records. They are charged with collaborating with former Kanebo executives.

    Public prosecutors say the trio not only were aware that the financial statements they approved had been falsified but actively offered suggestions on how to cook the company's books.

    Although liabilities, in fact, exceeded Kanebo's assets by ¥81.9 billion and ¥80.6 billion in fiscal 2001 and 2002, respectively, the company's consolidated financial statements submitted to the Kanto Local Finance Bureau of the Finance Ministry said the company's assets exceeded liabilities.

    Two of the three CPAs will have their qualifications revoked, and a one-year suspension will be slapped on the third.

    Believing that ChuoAoyama's internal-control system had serious problems, the FSA has ordered the firm to halt statutory auditing required under the Securities and Exchange Law, the new Corporate Law and other business-related laws for two months from the beginning of July. The FSA chose July 1 as the starting date of the suspension apparently because auditing work for the business year ended March 31 will peak in June.

    ChuoAoyama was set up in December 1968 as a Japanese affiliate of the PricewaterhouseCoopers Group. It employs about 1,800 CPAs and serves more than 5,000 companies. The operation suspension is expected to affect about 2,300 client-firms of ChuoAoyama. Some of them may switch to other auditing firms.

    The FSA needs to find out why ChuoAoyama's internal controls failed. In view of a series of scandals involving CPAs, the Japanese Institute of Certified Public Accountants, the sole professional organization for CPAs in Japan, has announced self-imposed control measures aimed at preventing a recurrence of company-account falsifications.

    It calls on auditing experts to exercise "professional skepticism" and be conscious of the possibility that the financial records they check may have been falsified.

    Another proposal from the organization is that offices that audit listed companies be registered and submit a written promise of honest auditing to the organization.

    It says auditing offices that fail to live up to the self-imposed controls will lose their registration, thus becoming virtually unable to audit listed firms.

    The Securities and Exchange Surveillance Commission says in its proposal to the head of the FSA that consideration should be given to meting out criminal punishment to auditing firms, if necessary, as a means of ensuring strict compliance with auditing standards. At present, the government can mete out administrative punitive measures only.

    In April, for the first time in three years, the Financial System Council, an advisory body to the prime minister, began subcommittee discussions on the certified public accountant system. The discussions will center on measures to be incorporated into a CPA Law revision bill, planned to be submitted to the Diet in next year's regular session.

    Introduction of criminal punishment for auditing firms could help prevent falsification of companies' accounting records, since a majority of CPAs work as employees of auditing firms.

    Apart from the introduction of criminal punishment for auditing firms, working out ways to prevent collusion between CPAs and the companies they audit will be important. In the Kanebo case, one of the three CPAs had been in charge of auditing the company since the 1970s.

    Corrective measures could include limiting the period during which one auditing firm can continue to audit a particular company and abolishing the present practice of an auditing firm and its client jointly deciding on the fee for auditing services.

    It is hoped that the FSA's action against ChuoAoyama will give momentum to efforts to enhance the transparency and trustworthiness of the nation's auditing services.

The Japan Times Weekly: May 20, 2006
(C) All rights reserved

    公認会計士が上場企業の粉飾決算に加担して、監査法人に対する信頼を大きく傷つけたケースが続発している。

    カネボウの債務超過額は01年度に819億円、02年度に806億円だった。しかし同社が関東財務局に提出した両年度の連結決算報告書では、資産超過を計上している。

    不祥事に関与した3人の中央青山所属の公認会計士のうち2人は登録抹消され、1人は業務停止1年の処分を受ける。金融庁は、中央青山の内部管理システムが機能していないとして、同法人に対し証券取引法、新会社法などの法律に基づく監査を7月から2ヵ月間停止するよう命じた。

    中央青山は、米プライスウォーターハウスクーパーズ・グループの日本法人として1968年に設立された。今回の措置は、法定監査先約2300社の顧客企業に影響すると見られる。

    日本公認会計士協会は、粉飾決算防止のための自主規制策を発表し、会員の会計士に対し監査する決算報告について、常に粉飾の可能性を意識するよう求めた。協会はまた、上場企業の監査法人は登録制とし、正確な監査を書面で約束させる提案をしている。

    現行法では、監査法人は行政処分を受けても刑事罰の対象にならないが、証券取引等監視委員会は刑事罰適用の検討を提案している。金融審議会の公認会計士制度部会は4月に、公認会計士法改正について審議を始めた。監査法人に対する刑事罰の導入は、公認会計士の大部分が監査法人で働く現状で、粉飾決算防止に役立つ可能性がある。

    また、監査法人が行う特定企業の監査の期間を制限すること、監査法人と顧客企業が監査料金を共同で決める現在の方式を廃止することなども是正措置に含めるべきだ。

    中央青山に対する金融庁の措置が、監査法人の透明性、信頼性を改善する動きを加速するよう望む。