TOKYO (Reuters) - Japan’s financial regulator will punish an Ernst & Young affiliate next week after its audit of Toshiba Corp failed to detect the country’s worst accounting scandal in four years, a person familiar with the process said on Friday.
The Financial Services Agency will fine Ernst & Young ShinNihon LLC and suspend it from taking on new business contracts, the source told Reuters, after an FSA accountancy panel on Tuesday recommended punishing the firm over “conspicuously inappropriate” auditing.
The amount of the fine and the duration of its suspension are under consideration, the source said.
The punishment will mark the first time an auditor has been fined in Japan.
FSA spokesman Takuji Yano declined to comment. A spokesman for the firm also declined to comment as the investigation is still underway.
After the FSA accountancy-oversight panel this week recommended punishment, Ernst & Young ShinNihon apologized in a statement for “causing great concern and trouble”, vowing to “work to regain public trust with fresh determination and commitment”.
Toshiba, whose businesses range from laptops to nuclear power, is in the throes of restructuring after revelations this year that it overstated earnings by $1.3 billion as far back as fiscal 2008.
The FSA’s Certified Public Accountants and Auditing Oversight Board on Tuesday criticized the auditor, saying it had “failed to exercise professional scepticism in auditing Toshiba”, while finding no indication that Toshiba had pressured the company.
Toshiba’s accounting scandal is Japan’s biggest since fraud was discovered in 2011 at medical-equipment and camera maker Olympus Corp, which was also an ShinNihon client.
Reporting by Takahiko Wada; Writing by William Mallard; Editing by Clarence Fernandez