THE aftershocks of this financial temblor will be felt for years to come. Olympus, a Japanese camera maker plagued by an accounting scandal, finally submitted revised earnings statements today. And the financial hit was even more massive than many had expected: net assets came in ¥105 billion ($1.3 billion) lower and now reach a meagre ¥46 billion; last year's net profit was halved to ¥3.9 billion.
Olympus's release of the new statements was itself an accomplishment. The firm needed to revise five years worth of annual accounts. This required auditors to look as far back as the 1990s, when the investment losses that were at the origin of the accounting scandal were still on the books. The Japanese camera maker also needed to submit its financial statements for the past fiscal quarter. By meeting the deadline of December 14th, Olympus avoided having its shares being automatically delisted from the Tokyo stock exchange.
This should have given the firm's share price a boost. Instead, it fell by as much as 19% before closing 4.1% lower. The steep decline in net assets took a toll, as did the broader uncertainty over whether the shares will indeed remain listed. The Tokyo stock exchange delists a firm if it sees ties to the yakuza, the Japanese mafia. So far there is no evidence of this, but the revised statements mark the beginning of a forensic accounting investigation—not the end.
What is more, the Tokyo stock exchange will delist a company if improper financial reporting has "a material impact". It is hard to see how accounting irregularities to the tune of $1.5 billion over six years do not. But Japanese regulators sometimes interpret such rules in creative ways.
The revised financials not only show the severity of Olympus's troubles, but its need of better management. Michael Woodford, the former boss who was ousted after he demanded answers to suspicious deals, may still come back. He was again in town this week, talking to shareholders and politicians—and trying not to come across as confrontational. Addressing a parliamentary committee today, for instance, he said that he wanted to avoid a proxy fight when the company's board comes together for a special meeting (possibly in February) to discuss a change of management and corporate governance reforms.
More puzzling is the behaviour of Olympus's auditors: KPMG and Ernst & Young, which took over from KPMG in 2009. KPMG "qualified" the new financial statements citing some missing documentation, whereas Ernst & Young signed off on the years it reviewed. If nothing else, this again suggests that financial reporting is no exact science.


Source:economist.com