Olympus' Auditor Switch Raises Questions

Japanese Camera and medical equipment firm Olympus could face disciplinary action from the Tokyo stock exchange, according to Reuters.

Olympus -- already plagued with scandal over a questionable advisory fee connected to a $2.2 billion purchase of U.K. firm Gyrus -- was dealt another blow when a leaked internal memo showed the business switched auditors from KPMG to Ernst and Young in 2009 over an argument about the purchase price allocations and impairment test of the Gyrus acquisition, as well as goodwill impairment for other consolidated entities, Reuters reports. Japanese disclosure rules require companies to notify investors of any matters concerning the opinions of an outgoing auditor, which, according to Reuters, Olympus did not.

The leaked memo said that the company was going to publish a release that said the reason for switching firms was due simply to the term of office expiring, but that the actual circumstances were different, according to Reuters.

According to Reuters, KPMG expressed concern over how a $687 million advisory fee was being accounted for, saying that the preference shares were a liability that should be recorded at fair value; Gyrus directors, instead, valued them at $177 million, the shares’ face value. Olympus then repurchased the shares for $620 million from AXAM Investments, a Cayman Islands-based firm that had received the $687 million advisory fee, prompting KPMG to question whether AXAM was a related party to Olympus and that proper accounting records had not been maintained, Reuters said.