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Olympus Scandal Case Study

880 words - 4 pages

Olympus cameras began business in 1919 as Takachiho Seisakusho, a thermometer and microscope manufacturing company in Tokyo. It was renamed Takachiho Optical Co. in 1942 and later Olympus Optical Co in 1949, taking its name from its trademark logo, and reflecting the fact that optical products had become the core of company. Today, Olympus’ key business segments include medical imaging equipment, consumer electronics, industrial imaging equipment and scientific devices, including microscopes.
Olympus’ downfall began when new CEO Michael Woodford was fired just two weeks after being appointed to the position. He had voiced concerns over corruption in upper management at Olympus, which was ...view middle of the document...

The losses on these investments could then be reported in the subsidiary without having to be consolidated on Olympus’ income statement. They could also be reported as goodwill impairment by Olympus, common in the acquisition of technology companies. As Japanese accounting regulations began moving towards IFRS, large losses still needed to be accounted for in the books. Olympus management purchased many smaller companies, paying exorbitant advisory fees in the purchase. These advisory fees were up to 30 times the normal amount for the purchase, and paid to small, obscure advisory firms. These fees were used to coverup further losses.
All five of the previously “Big Five” accounting firms were involved with Olympus at various points in the scandal. Arthur Andersen served as the company’s main auditor until 2002, when their role in the Enron scandal broke. At that point KPMG Azsa became the auditor, until 2009 when Ernst & Young took over auditing duties. This occurred after KPMG Azsa raised questions about Olympus acquisition of Gyrus, a British medical device manufacturer. Despite the fact that KPMG had significant doubts about Olympus’ accounting practices, they signed off on the 2009 acquisition. They have been criticized for not making their concerns public. When Michael Woodford was fired, he recruited Ernst & Young, the last remaining member for the now-“Big Four” accounting firms to be involved, in order to back his story. Ernst & Young had had a largely reduced role in Japan after their own scandal the previous decade. Currently, the auditors’ roles are under investigation, but it has been widely reported that Olympus executives had lied and misled the various auditing firms. It is uncertain if the auditing firms will face...

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