OLYMPUS
IMAGING
FRAUD
SCANDAL: Case
study
POINTS TO BE COVERED
Introduction
Over view of case
Questions to be discussed
Olympus hid the imaging scandal for
Introduction nearly twenty years, dating back to the
1980s.
Olympus is a Japanese company that
produces cameras and medical imaging
equipment.
This case is unique since the whistle
blower was Olympus’ own president and
CEO, Michael C. Woodford, hired in
September of 2007.
Now the former Board Chairman and 18
other past and present company officials
are facing lawsuits and even charges from
both British and Japanese officials.
OVERVIEW OF CASE
First, top management was able to hide $1.7 billion in
investment losses for nearly 20 years while external auditors
lacked due diligence and failed to uncover all the falsified
business transactions.
Olympus’ top management continued to pursue failed investments that
resulted in major losses. The company was initially able to hide these
losses by booking the assets at historical cost versus fair market value.
When accounting regulations changed, it forced them to book their assets
at fair market value. As a result, Olympus created off-balance sheet entities
to hide these losses. In a final attempt to complete this scheme, Olympus
purchased Gyrus and booked the investment losses as goodwill.
Second, the whistle blower was Olympus’ own President and CEO, Michael C.
Woodford. He was from Great Britain, and had been employed by the company for
more than a decade in Olympus’ Europe division. He was an outsider that began to
question the large, questionable M&A fees. He was fired two weeks after attempting
to address this issue.
Third, Woodford’s charges gained credibility and the truth began to
surface. Five months after the scandal broke in July 2011, Olympus
stock was trading at a mere 16% of its former high. The company faced
a potential delisting of shares from the Tokyo Exchange.
The firm was not delisted but paid a small fine of US $130,000.
Olympus sued the President and 18 other officials. The Board resigned
in April 2012. Japan prosecuted the Olympus Chairman Kikukawa, Mori,
and Yamada as well as three consultants
QUESTIONS TO BE DISCUSSED
Identify all stakeholders involved in
the fraud.
a. Toshiro Shimoyama. The longstanding President that may found to be less culpable
than the
others involved.
b. Hideo Yamada and Hisashi Mori. They were part of the masterminds behind the
fraudulent
schemes.
c. Michael Woodford. The new CEO who became the “whistleblower.”
d. Shuichi Takayama. Assumed the presidency and all that came with it after Shimoyama
left.
e. Shareholders of the company
What is financial statement fraud and what is its impact on
corporations, employees, stockholders, and the
economy?
– "The intentional, deliberate, misstatement or omission of material facts, or accounting data which is
misleading and, when considered with all the information made available, would cause the reader to
change or alter his or her judgment or decision.“
– • It jeopardizes the integrity and objectivity of the accounting profession;
– • It diminishes the confidence of capital markets and market participants in the reliability of financial
information;
– • It makes the capital market less efficient;
– • It adversely affects a nation's growth and prosperity;
– • It may result in litigation losses;
– • It destroys the careers of individuals involved in the fraud;
– • It causes bankruptcy or economic losses by the company engaged in the fraud;
What type of safety nets can be put in place to
prevent or cut short accounting frauds such as this
case?
– The punishment should be deterrent in terms of fine and imprisonment. Such a framework for “white
collar offences” as part of the Code will have a salutary effect in bringing down the number of crimes, if
not totally eliminate them from the system.
– The properties and assets owned by the offenders should be confiscated.
– The Institute of Chartered Accountants of India (ICAI) issued an updated ‘Guidance Note on Audit of
Internal Financial Controls over Financial Reporting or ICFR’ in September 2015, which mandates the
involvement of an external auditor in the compliance process.
– Indian laws, such as the Prevention of Corruption (Amendment) Act, 2011, the Whistleblowers
Protection Act, 2011, the Right to Information Act, 2005 (RTI), the Information Technology Act 2000 (IT
Act), and the Prevention of Money Laundering Act, 2002 (PMLA) aim to protect companies from fraud.
Why following accounting standards
is important for an organization?
– Brings uniformity in accounting system.
– Assists auditors
– Easy comparability of financial statements
– Makes accounting easy and simple.
– Measures management performance
Olympus committed a crime, but in punishment they were
permitted to stay enlisted on the Tokyo Stock
Exchange while only receiving a small fine. How does this
punishment for a white-collar crime look to the
public? Does this diminish respect for ethical accounting
standards? State your opinion.
– Six men faced up to 10 years jail time or US $125,000 fine. The Nikkei
Newspaper also reported that Olympus was fined $1.2 million for false
accounting.
– A delisting probably would have destroyed its share price, which has fallen by
half since the scandal began. The decision also makes the company less
vulnerable to being dismantled and sold for its parts.
– In my opinion, it doesn’t diminish respect for ethical accounting standards,
because if they would have delisted, it would have created huge impact on it’s
shareholders, it’s employess and would have made it more vulnerable.
– They have already fined and gave punishment to who deserved.
Thank you
– MADE BY:
– DEEPANSHI 2002570010
– YASHIKA GUPTA 2002570011
