Ernst & Young in Trouble in Japan… Again

In this second post, we will look at the news that Ernst & Young (E&Y) are facing a massive and highly unusual (for Japan) $9 billion lawsuit for its audit failings that led to investors in Toshiba losing out significantly. As E&Y have already had issues with Toshiba, it is worth examining this current instance to see whether this is a continuation of auditing failings across the globe.

As part of one of Japan’s worst accounting scandals for some time, E&Y were fined $17.4 million in 2015 for ‘failing to spot irregularities’ in its audit of Toshiba’s accounts. The firm were banned from taking on new business contracts in the country for 3 months, and at the end of 2015 the firm’s regional Head resigned. Yet, this week the firm is once again making headlines in Japan for its performance, or lack thereof. The firm is facing a shareholder lawsuit for $9 billion and is accused of being partly responsible for Toshiba’s failure to ‘disclose losses at Westinghouse’ during 2012-13. Westinghouse is an American supplier of nuclear technology, but in 2012-13 was suffering losses that Toshiba was exposed to on account of its investment in the company. The individual investors bringing this claim against E&Y argue that had the losses on Toshiba’s books been made public sooner, then shareholders would have been more knowledgeable and would have been able to prevent Westinghouse from purchasing CB&I Stone and Webber in 2015, a move which compounded the financial distress of the companies involved.

As the case is ongoing it is difficult to suggest what will eventually happen. The case was originally much smaller and related to a separate accounting failure in Toshiba, but the investors have decided to add Westinghouse to the claim. It has been noted that the claim is unusually large for Japan and, as such, there may be a question to be raised as to whether E&Y will ultimately be forced to pay such a fee. Perhaps it hinges on the actions of the auditing firm and its connection to Toshiba; how has the firm performed since 2015? Have the firm been lenient or softer with their audits to repair the damage caused by the scandal in 2015? Have the usual conflicts of interest inherent within the modern auditing business model raised their ugly heads again? The case will either be struck out or settled privately so we may never know, but this represents just the latest in a very long line of supposed scandals that continuously revolve around this industry.


Keywords – Ernst & Young, audit, Toshiba, Japan, @finregmatters

Comments

Post a Comment

Popular posts from this blog

Lloyds Bank and the PPI Scandal: The Premature ‘Out of the Woods’ Rhetoric

Image
Today’s very short post focuses upon the news that the Financial Conduct Authority (FCA) has recently extended the deadline to claim compensation for mis-sold ‘Payment Protection Insurance’ (PPI). Whilst a lot of financial institutions will have to prepare to offset the extended deadline, it is Lloyds that has grabbed the business headlines by apportioning an extra £350 million to offset any further claims that may be made of it – however, this comes only a week or two after the Bank posted its best performance figures in over a decade, as was previously discussed in Financial Regulation Matters . This post will therefore argue that the rhetoric being advanced recently regarding Lloyds – rhetoric like Lloyds represents ‘ a modern day success story ’ is wide of the mark and creates a false sense of security that we simply cannot afford to believe in. The ‘ robust recovery ’ was heralded far and wide upon the publication of Lloyds Bank’s financial performance for the previous fi...
Read more

The Analytical Credit Rating Agency: A New Entrant That Will Further Enhance Russia’s Isolation

Image
This short post is based upon a forthcoming article by this author that examines the viability of the latest entrant into the credit rating arena, the Analytical Credit Rating Agency (ACRA). The article, which is due to be published in the European Company Law Journal (and is available here in a pre-published version), looks at the chances of the ACRA succeeding when viewed within the parameters of perception , an aspect that underpins the credit rating sector. For this post, the focus will be upon introducing the ACRA, and then on examining the effect it may have upon the wider political issues affecting the Russian Federation. The Analytical Credit Rating Agency was established in November 2015 and comprises of 27 major Russian companies and financial institutions that serve as its shareholders. The agency, which became the first rating agency to receive accreditation from the Russian Central Bank under the new N 222-FZ Law which was designed to protect investors, has a re...
Read more

British McDonald’s Workers To Go On Strike: The Enduring Legacy of Corporate Greed and Political Irresponsibility

Image
Today’s post reacts to the news that next week, in the UK, workers will make history by staging a strike at two McDonald’s restaurants – one in London and one in Cambridge. The first strike of its kind in McDonald’s British history is a result of poor working conditions, the use of the infamous ‘zero-hour’ contracts, and a demand for an increase in the minimum wage paid to McDonald’s employees. In this post this particular story will be used a vehicle to cover an aspect that has almost become accepted in the mainstream media, unfortunately, and that is the concept of austerity and its repulsive effects. Whilst onlookers hope that the strike will see a revolution-of-sorts amongst the fast-food industry with regards to working conditions, the reality it is that the underlying causes of the grievances aired by the staff will remain whatever the outcome of the strike, as the problem is a systemic problem. The proposed strike, which is scheduled to take place on Monday 4 th Septembe...
Read more