Fraud

Summary of Olympus financial fraud – part 2

5 Comments / Accounting, Audits, Fraud /

Previous post described the investigative report of the Olympus financial fraud.

Now a discussion of the debits and credits. Final post will discuss the underlying causes identify by the investigative committee and some of their recommendations.

Update 2 – When accounting rules changed in 2000, the report says Olympus management decided to move the investments off the books instead of taking the write down. Thus phase 1 was launched.

How do you hide a $1.7B loss?

This is what I was most curious about and what prompted me to read the report.

Here is a one paragraph summary from the report: …

Summary of Olympus financial fraud – part 2Read More »

Summary of Olympus financial fraud – part 2 Read More »

Summary of Olympus financial fraud – based on independent report – part 1

3 Comments / Accounting, Audits, Fraud /

The investigative report on the Olympus fraud has been released. The fact pattern, causes, and recommendations are scathing.

This and my followup post are a thumbnail description.  These are the result of just an hour or two of research.  If you wish to expand the summary, point out errors, or clarify, feel free to do so.  My guess is that readers of this blog won’t want as many details as I am providing, but do want to know more than just what shows up in the general news reports.

You can see one news article here: Olympus faces Tokyo delisting after management hid $1.7 billion of losses.

The Wall Street Journal has a good report, but it is behind a pay wall. WSJ also has a copy of the report, but I caution you on getting their copy.  I was able to access the report once, but when I went back to it, accessing the report crashed my computer. Twice.

Update: Olympus has made the report available here.

The report’s conclusion compares management to a cancer:

Olympus had originally been a sound company, with diligent employees and high technical strength. Not all part (sic) of the company was involved in this misconduct. Olympus should remove its malignant tumor and literally renew itself. (Page 30)

What is the amount of the fraud and time frame?

…

Summary of Olympus financial fraud – based on independent report – part 1Read More »

Summary of Olympus financial fraud – based on independent report – part 1 Read More »

What firm failed to find these fraudulent fiascos?

3 Comments / Audits, Fraud /

Boston Chicken, Arizona Baptist Foundation, Sunbeam, Waste Management, Global Crossing, Enron, and WorldCom have one auditor in common.

Who was it?

Unfortunately, a chronicler of accounting history could pull together a list of disastrous audits for all the large firms. Perhaps the Grumpy Old Accountants, Professors Catanach and Ketz, could put that on their to-be-blogged-about list.

At the moment, they have provided a superb summary of each of the above fiascos in their post, Enron’s tenth anniversary: Arthur Andersen’s audit failures at Enron and elsewhere.

Just a few comments from me.

…

What firm failed to find these fraudulent fiascos?Read More »

What firm failed to find these fraudulent fiascos? Read More »

Fog around structure of Olympus fraud starting to lift

2 Comments / Audits, Fraud /

I’m slightly curious how Olympus hid losses of one or two billion $US, but not curious enough to do my own research.  Also curious how three different Big 4 firms missed it.

Thus I will rely on other bloggers, such as Tracy Coenen’s post, Financial Statement Fraud: Olympus Makes It Look Easy, at her blog, the Fraud Files.

One of the several components they used to make losses go away is paying a lot of money to buy companies that have no history, earnings, or assets: …

Fog around structure of Olympus fraud starting to liftRead More »

Fog around structure of Olympus fraud starting to lift Read More »

Enron revisited: Recap of the environment of the time

Leave a Comment / Audits, Fraud /

The Grumpy Old Accountants, Professors Anthony Catanach and Edward Ketz, revisit changes in the audit world prior to the Enron disaster at Enron’s Tenth Anniversary: Context for Andersen’s Auditing Failures. Visit their post for a refresher on what the environment was like at the time.

I think one very serious transition in that time was audits becoming loss leaders that promoted lucrative consulting work.

…

Enron revisited: Recap of the environment of the timeRead More »

Enron revisited: Recap of the environment of the time Read More »

Time to start paying attention to the Olympus accounting fiasco

2 Comments / Accounting, Audits, Fraud /

Yeah, Olympus.  The people who made that cool camera you’ve been using.

Here’s the story in one sentence: It looks like Olympus has been materially cooking the books since the late 1990s.

In one paragraph:

The maker of cameras and medical-imaging equipment said Tuesday that it used four acquisitions in 2008 to “clear up” paper losses on investments dating to the 1990s. Asahi and KPMG AZSA signed off on Olympus’s statements for those years. There’s no indication that the accounting firm signed statements that it knew were misleading or incorrect.

…

Time to start paying attention to the Olympus accounting fiascoRead More »

Time to start paying attention to the Olympus accounting fiasco Read More »

That insightful flash of creative accounting? Maybe not a good thing.

2 Comments / Accounting, Fraud /

At the 2011 A&A conference, Suzan C. Dennis, CPA, had a great comment.  I’ll summarize and expand her idea:

If you have a flash of brilliant insight on a new and creative way to account for some issue, you may have a bad idea. 

…

That insightful flash of creative accounting? Maybe not a good thing.Read More »

That insightful flash of creative accounting? Maybe not a good thing. Read More »

So what’s an auditor to do if the local bank is in on a massive fraud?

Leave a Comment / Audits, Fraud /

So the auditor goes to the new client’s bank and gets copies of the bank statements from them. An entire year’s worth of statements. Does all the audit work. Everything looks fine. Issues their report. Everything is fine, right?

Except that in addition to the client cooking the books, the local bank made up those bank statements. Fraud came tumbling down because the auditor, yes notice the auditor tumbled to the fraud, went to the bank’s home office to get copies of the bank statements, which were drastically different from what the local branch provided.

…

So what’s an auditor to do if the local bank is in on a massive fraud?Read More »

So what’s an auditor to do if the local bank is in on a massive fraud? Read More »

So an auditor couldn’t pick up any red flags to a corruption case. Why is that a problem?

2 Comments / Audits, Fraud /

Getting back to the original question of whether a CPA could identify in the alleged incident that there was some kind of a fraudulent transaction during an audit (assuming it actually happened) – – I am thinking the answer is it would not be possible to find the fraud, even if you were looking for it.

So, what’s the problem?

…

So an auditor couldn’t pick up any red flags to a corruption case. Why is that a problem?Read More »

So an auditor couldn’t pick up any red flags to a corruption case. Why is that a problem? Read More »

How could an auditor pick up any red flags to this corruption case? Let’s change the circumstances

2 Comments / Audits, Fraud /

Previous posts have given the background about a corruption indictment and my questions of what could have possibly been seen by a CPA auditor in this alleged situation.

Now let’s change the scenario.  If it is your client getting shaken down the implications on the audit aren’t that severe.  Just change the alleged situation to something different where the local business approached the mayor and asked him to intervene.  By changing that part of the story, it will convert this from an allegation of the mayor shaking down a business to a hypothetical of your client successfully bribing a public official.  That would make it an issue with a very material impact on your client and therefore a huge issue for you and your audit report.

Having changed those circumstances to where your client illegally paid off a government official, how could you possibly detect that bribery payment?

…

How could an auditor pick up any red flags to this corruption case? Let’s change the circumstancesRead More »

How could an auditor pick up any red flags to this corruption case? Let’s change the circumstances Read More »

How could an auditor pick up any red flags to this corruption case? What could have been seen?

2 Comments / Audits, Fraud /

Previous post gave the background of a corruption case in a city near to where I live.  I’m using this actual situation as a short case study for CPAs.

Now, if you are the auditor of the city how could you possibly come across any red flags that this alleged bribery had taken place?  I don’t see how any auditor would be able to see anything out of line.

…

How could an auditor pick up any red flags to this corruption case? What could have been seen?Read More »

How could an auditor pick up any red flags to this corruption case? What could have been seen? Read More »

How could an auditor pick up any red flags to this corruption case? Background

2 Comments / Audits, Fraud /

When I see the details of a fraud that has worked into the public eye, I sometimes look a little deeper for my learning.  I also wonder what could have been seen by an auditor.  What catches my interest today is the criminal indictment of the mayor of Upland, California, which is the city next door to where I live.

Today’s post will provide some background.  Discussion to follow later.

There are two particular businesses in Upland that had their licenses revoked by the city.  The FBI alleges the mayor had his buddies approach each of the businesses and ask for money.  In return, the FBI says the mayor offered to intervene with different city agencies to get the licenses back.  In 2007 and 2009, the FBI claims the two businesses paid $45,000 to the mayor’s helper.  Last week the mayor and his helper were indicted.

So here’s the question: is there anything in this corruption case that an auditor could have seen that would have hinted of the existence of the scheme?

…

How could an auditor pick up any red flags to this corruption case? BackgroundRead More »

How could an auditor pick up any red flags to this corruption case? Background Read More »