Analysis: Olympus scandal puts auditors under scrutiny

Reuters, by Dena Aubin and Taiga Uranaka, NEW YORK/TOKYO | Thu Nov 10, 2011

Olympus's logo is seen through its waterproof housing at an electronics

shop in Tokyo October 20, 2011. (Credit: Reuters/Kim Kyung-Hoon)

(Reuters) - Olympus Corp's use of accounting tricks to hide big losses has raised questions about whether its auditors, the Japanese arms of global giants KPMG and Ernst & Young, should have done more to follow up on red flags.

The Japanese maker of cameras and medical equipment shocked investors on Tuesday, admitting it had used payments to merger advisors and venture capital funds to cover up securities losses dating back decades.

Japan's Financial Services Agency will investigate whether Olympus's auditors knew about the hidden losses or were negligent in their checks, a source with knowledge of the matter told Reuters.

Ernst & Young ShinNihon LLC, which took over as Olympus auditor in 2009, declined to comment, citing client confidentiality. KPMG AZSA LLC, which audited Olympus for several years through to 2009, also declined to comment.

A severe penalty would send shivers through the auditing industry in Japan, still reeling from a series of scandals that led to a two-month suspension of ChuoAoyama Pricewaterhouse Coopers in 2006 and the disbanding of its successor firm in 2007.

Ernst & Young ShinNihon is Japan's largest auditor with more than 4,000 clients and 3,000 certified public accountants.

"If it (suspension of an audit firm) happens because they did look over the misstatement intentionally or without due care, its impact would be enormous," said Yoshinori Kawamura, accounting professor at Waseda University's School of Commerce.

"However, regulators now have more moderate regulatory tools for false audits, which did not exist in 2006," Kawamura added, noting that a 2008 law change meant auditors could escape suspension and face heavy fines instead.

Olympus has provided few details of its accounting maneuvers but says the original scheme to hide investment losses went back to at least the 1990s, when it was being audited by Asahi & Co. Olympus says an independent investigation commissioned by the company is continuing.

Asahi was the Japanese affiliate of Arthur Andersen before Andersen collapsed amid a U.S. accounting scandal. Asahi became a member firm of KPMG International in 2003 and then merged with AZSA & Co in 2004 to form KPMG AZSA LLC.

AUDITORS RAISED RED FLAGS

Olympus removed KPMG AZSA as its group auditor in 2009 after a dispute over how to account for some controversial acquisitions. The camera-maker decided not to disclose this to the stock market, an internal document obtained by Reuters showed.

Instead, Olympus told investors at the time that KPMG's audit contract had expired and it was hiring Ernst & Young.

The problems at Olympus burst into the open when ousted chief executive Michael Woodford said he had questioned excessive advisory payments made by Olympus for its $2.2 billion acquisition of British medical device firm Gyrus in 2008. Olympus paid $687 million in advisory fees, about one third of the purchase price, versus investment banking norms of about 1 to 2 percent.

Olympus on Tuesday said some of those fees were "used in part" to help hide losses on investment securities.

KPMG's British arm, which audited the subsidiary accounts of Gyrus, questioned the accounting treatment of some of the fees and whether Cayman Islands-based AXAM Investments Ltd, which received a big part of the fees, was a related party to Olympus.

However, KPMG AZSA signed off on Olympus's group accounts without qualifications.

When it took over, Ernst & Young also raised questions about AXAM in auditing Gyrus's accounts but gave Olympus group a clean bill of health.

It is not unusual for an auditor to qualify a subsidiary's accounts in one country and give the parent located elsewhere an unqualified green light if the issue raised is not deemed material to the consolidated accounts, accounting experts said.

But some accounting and legal experts said the inflated advisory fees should have prompted a more critical review of Olympus accounts.

"Maybe KPMG AZSA accountants thought it wasn't important," said Shinji Hatta, a professor at Aoyama Gakuin University's Graduate School of Professional Accountancy in Tokyo.

"But it was important, and overlooking this in my opinion is a grave issue in terms of auditing."

ASIA A KEY AUDIT MARKET

Both Ernst & Young and KPMG have grappled with problem clients before.

KPMG paid multi-million-dollar settlements over its audits of New Century Financial, a mortgage lender that collapsed during the U.S. housing crisis, and Xerox, a copier-maker accused of manipulating its accounting in the late 1990s.

Ernst & Young has been sued over its audits of China-based Sino-Forest, once the biggest forestry company listed on the Toronto Stock Exchange.

It also still faces a lawsuit by the New York attorney general alleging it helped Lehman Brothers engage in a massive accounting fraud before its 2008 bankruptcy helped trigger the 2008-2009 global financial crisis. Ernst & Young says it acted properly.

In that case, Ernst & Young is accused of standing by while Lehman repeatedly moved up to $50 billion off its balance sheet at quarter ends. The maneuver, dubbed "Repo 105," helped hide Lehman's financial problems before its downfall, New York prosecutors allege.

The Olympus scandal also renews long-standing questions about the structure of audit firms, which brand themselves as global networks but in fact are made up of legally separate firms to limit liability when one member gets in trouble.

The main auditor watchdog in the United States has been looking into whether the global networks are properly supervising their disparate arms and ensuring quality.

"We have been spending a lot of time on our inspection process as we look at the global-firm audit in determining how seamless it is," James Doty, chairman of the Public Company Accounting Oversight Board, said on Tuesday.

Japanese politicians are also taking renewed interest in the audit industry in light of the Olympus scandal.

"We may need to reassess the accounting system as a whole if auditors were unable to fully point out problems their clients were involved in," said Natsuo Yamaguchi, head of New Komeito, Japan's second-largest opposition party.

(Additional reporting by Rachel Armstrong, Nathan Layne, Noriyuki Hirata and Yuko Yoshikawa in TOKYO, and Alexandra Alper in WASHINGTON; Editing by Howard Goller and Mark Bendeich)

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Sarkozy told Obama he fed up with Israeli PM

Reuters, PARIS | Tue Nov 8, 2011

Israel's Prime Minister Benjamin Netanyahu speaks during a Likud party

 meeting at the Knesset, the Israeli parliament, in Jerusalem November 7, 2011.

(Credit: Reuters/Baz Ratner)

(Reuters) - French President Nicolas Sarkozy told U.S. President Barack Obama last week he was fed up with dealing with Israeli Prime Minister Benjamin Netanyahu and considered him a liar.

Sarkozy made the comment during a private conversation with Obama during a G20 summit in the French riviera town of Cannes last week and the remarks were overheard by a small number of journalists but not initially reported.

"I cannot bear Netanyahu, he's a liar," Sarkozy told Obama during a frank exchange where the U.S. president took him to task for backing a Palestinian request for membership of the U.N. cultural heritage agency UNESCO.

A Reuters reporter was among the journalists present and can confirm the veracity of the comments, which were relayed by a French internet outlet on Tuesday.

Obama said he had to deal regularly with Netanyahu even if Sarkozy was fed up with the Israeli leader, according to the translation of a French interpreter during their Cannes exchange.

In their quest for statehood recognition, the Palestinians have requested membership of the over-arching United Nations system, in addition to its Paris-based UNESCO subsidiary.

France voted in favor of a UNESCO request that succeeded but said last week it would abstain in any vote on membership of the over-arching U.N. system, which Washington has vowed to veto. Paris and Washington are urging renewed peace talks between the Palestinians and Israelis.

(Writing by Brian Love, editing by Ralph Boulton)

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Gender segregation on rise in Israel

Gender segregation on rise in Israel

The Jakarta Post, Associated Press, Jerusalem, Tue, 11/08/2011

Posters depicting women have become rare in the streets of Israel's capital. In some areas women have been shunted onto separate sidewalks, and buses and health clinics have been gender-segregated. The military has considered reassigning some female combat soldiers because religious men don't want to serve with them.

This is the new reality in parts of 21st-century Israel, where ultra-Orthodox rabbis are trying to contain the encroachment of secular values on their cloistered society through a fierce backlash against the mixing of the sexes in public.

On the surface, Israel's gender equality bona fides seem strong, with the late Golda Meir as a former prime minister, Tzipi Livni as the current opposition leader, and its women soldiers famed around the world.

Reality is not so shiny. The World Economic Forum recently released an unfavorable image of women's earning power in Israel, and in 2009, the last year for which data are available, Israeli women earned two-thirds what men did.

The newly enforced separation is felt most strongly in Jerusalem, where ultra-Orthodox Jews are growing in numbers and strength. The phenomenon is starting to be seen elsewhere, though in the Tel Aviv region, Israel's largest metropolis, secular Jews are the vast majority, and life there resembles most Western cities.

Still, secular Jews there and elsewhere in Israel worry that their lifestyles could be targeted, too, because the ultra-Orthodox population, while still relatively small, is growing significantly. Their high birthrate of about seven children per family is forecast to send their proportion of the population, now estimated at 9 percent, to 15 percent by 2025.

Though categorizing is difficult, it is estimated that about one-quarter of Israel's 6 million Jews are modern Orthodox, another quarter are traditional and the rest secular.

Numbers aside, the ultra-Orthodox wield disproportionate power in Israel's fragmented political system.

"The stronger the ultra-Orthodox and religious community grows, the greater its attempt to impose its norms," said Hannah Kehat, the founder of the religious women's forum Kolech. Their norms, she said, are "segregation of women and discrimination against them."

Ultra-Orthodox Jews around the world have long frowned upon the mixing of the sexes in their communities, but the attempt to apply this prohibition in public spaces is relatively new in Israel.

Israel's ultra-Orthodox, known for their black garb and flowing sidelocks, began testing gender segregation years ago when ultra-Orthodox men started ordering women on certain bus lines to sit at the back of buses traveling through their neighborhoods.

The practice, also adopted in some ultra-Orthodox communities in the United States, was successfully challenged in Israel's Supreme Court, and Kehat says women have been filing far fewer complaints about their treatment on buses. The vast majority of Israeli bus lines have never been segregated.

But buses weren't the last stop on the gender-segregation ride.

Some supermarkets in ultra-Orthodox communities, once content to urge women patrons to dress modestly with long-sleeved blouses and long skirts, have now assigned separate hours for men and women - another practice seen in ultra-Orthodox communities in the U.S. Some health clinics have separate entrances and waiting rooms for men and women.

Meni Shwartz-Gera, an ultra-Orthodox journalist, says strict observance of modesty is a pillar of ultra-Orthodox Judaism and is being "wickedly" misrepresented as demeaning to women. People who dislike it can choose different options like supermarkets without special hours for men and women, he said.

"The purpose is not to denigrate women," he said.

Israel's Supreme Court disagrees.

Last month, the court ordered the dismantling of barriers erected in Jerusalem's ultra-Orthodox Mea Shearim neighborhood meant to keep women and men from walking on the same sidewalk during a religious ceremony that drew tens of thousands to the enclave's narrow streets.

Gender segregation "began with buses, continued with supermarkets and reached the streets," Chief Justice Dorit Beinisch was quoted as saying during the court hearing. "It's not going away, just the opposite."

The Jerusalem city councilwoman who brought the case before the court, herself a religious Jew, was fired by secular Mayor Nir Barkat.

Barkat, who rose to power vowing to scale back the growing influence of an ultra-Orthodox population that accounts for one-third of the city's 750,000 people, said he dismissed Rachel Azaria because she sued the city, not because she faced off against the ultra-Orthodox in court.

For years, advertisers have been covering up female models on billboards in Jerusalem and other communities with large ultra-Orthodox populations. Ultra-Orthodox have defaced such ads and vendors faced ultra-Orthodox boycotts of companies whose mores they deplore.

Recently, the voluntary censorship has gone beyond the scantily clad: Women are either totally absent from billboards, or, as with one clothing company's ads, only hinted at by a photo of a back, an arm and a purse.

Over the summer, Jerusalem inaugurated a long-awaited light rail with a major outdoor advertising campaign. The rail line is touted as a marvel of 21st-century technology, but there are no women's faces on any of the billboards affixed to its sides.

Advertisers acknowledge ultra-Orthodox pressure.

Ohad Gibli, deputy director of marketing for the Canaan advertising agency, confirmed Monday that his company advised a transplant organization to drop pictures of women in their campaigns in Jerusalem and the ultra-Orthodox town of Bnei Brak for fear of a violent backlash.

"We have learned that an ad campaign in Jerusalem and Bnei Brak that includes pictures of women will remain up for hours at best, and in other cases, will lead to the vandalization and torching of buses," he told Army Radio.

Barkat told reporters recently that "It's illegal to forbid" advertising women. But "in Jerusalem, you've got to use common sense if you want to advertise something. It's a special city, it's a holy city with sensitivities for Muslims, for Christians, for ultra-Orthodox."

If women are being figuratively erased from the city's advertising landscape, then there are also attempts afoot by the devout to muzzle them.

In September, nine religious soldiers walked out of a military event because women were singing - an act that extremely devout Jews claim conjures up lustful thoughts. The military expelled four of them from an officers' course because they refused to apologize for disobeying orders to stay.

But in a separate case, the army notified four female combat soldiers that they might have to leave their artillery battalion to make way for religious male soldiers who object to the mixing of the sexes.

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The ultra-Orthodox make up 10 percent of Israel’s population of 7.5 million,but are increasing rapidly amid a growing backlash to the privileges and subsidies long granted to the ultra-religious. (Rina Castelnuovo for The New York Times)

Olympus admits hiding losses for 20 years

guardian.co.uk, Alex Hawkes, Tuesday 8 November 2011

Olympus president Shuichi Takayama at the news conference. He told reporters
 'I was absolutely unaware of the facts I am now explaining to you. The previous
presentations were mistaken' Photograph: Toru Hanai/Reuters

• Shares down 70% in last month

• Vice-president to be dismissed

• Company's future in doubt

• British ex-boss calls for board to resign

Shares in scandal-hit Japanese camera-maker Olympus tumbled 30% in Tokyo after the company admitted it had been hiding losses going back more than twenty years, and sacked its vice president.

The firm may consider criminal complaints against former executives, it added. The company's shares have lost 70% of their value in the last month after British ex-CEO Michael Woodford blew the whistle on questionable fees paid as part of M&A transactions.

Olympus said on Tuesday that acquisitions had been used to cover up losses on bad investments. The company said it had been deferring losses since before the 1990s.

The revelations could leave the company open to criminal charges for suspected accounting fraud, as well as shareholder lawsuits, putting its future in doubt.

"This is very serious. Olympus admitted it has made false entries to cover its losses for 20 years. All people involved in this over 20 years would be responsible. There is a serious danger that Olympus shares will be delisted. The future of the company is extremely dark," Ryosuke Okasaki, chief investment officer at ITC investment partners, told Reuters.

Vice-president Hisashi Mori will be dismissed, the company said. President Shuichi Takayama said former president and chairman Tsuyoshi Kikukawa, Mori and auditor Hideo Yamada were responsible for the suspect transactions.

"I was absolutely unaware of the facts I am now explaining to you. The previous presentations were mistaken," Takayama told reporters.

Woodford was sacked on 14 October after questioning huge payments made as part of M&A transactions. In one case, the acquisition of British medical equipment maker Gyrus, the advisory fee of $687m (£430m) was equivalent to a third of the total consideration paid. The purchase was one of those used to hide long-standing investment losses, Olympus said on Tuesday.

Woodford said this morning that the Olympus board should resign. "The position of the board and non-execs is untenable now."

A panel of six, including a former Japanese supreme court justice, is examining Olympus's past deals.

Separately, Reuters named a Japanese banker based in the US as a key figure related to the Gyrus transaction. Akio Nakagawa worked for the New York-based firm that won the fee, and has had dealings with Olympus for three decades, the news agency reported.

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Israel government, security services websites down in suspected cyber-attack

Attack follows threat by hacking group Anonymous in response to interception of Gaza flotilla; websites of IDF, Mossad and government ministries among crashed websites.

Haaretz, by Anshel Pfeffer  and Oded Yaron, Israel, 6 Nov 2011

               

Several Israeli government websites crashed on Sunday in what appeared to be cyber-attack by hackers. The websites of the IDF, Mossad and the Shin Bet security services were among the sites that went down, as well as several government portals and ministries.

The apparent attack comes after the international cabal of hackers known as Anonymous threatened a cyber-attack on the Israeli government’s computers in response to its interception of a Gaza-bound flotilla on Friday.

Anonymous hackers group logo.

     

The IDf and Shin Bet said they were investigating the reason for the malfunction. Security officials stressed that only the external government sites crashed, and that the internal computer networks were unharmed.

In a video that was uploaded to YouTube, Anonymous warns that if the siege on Gaza is maintained, it will have no choice but to go on the attack.

Anonymous said that if the siege continues and Israeli forces intercept additional flotillas, or if they conduct additional operations such as the commandeering of the Mavi Marmara, it will have no alternative but to launch repeated cyber-attacks on Israeli computer systems until the siege ends.

Anonymous has succeeded in the past in bringing about the temporary disabling of many websites, including credit card companies that refused to transfer donations to the WikiLeaks organization.

Several months ago, Anonymous announced that they have the code for Stuxnet, which was distributed on the internet. Security experts usually do not see them as a strategic threat, as they do programmers who are responsible for this type of malicious software.

Anonymous threatened to disable the Knesset website a few months ago, but even if hacking did occur then, the website continued to function and did not suffer any apparent damage.

Last May, Israel established a national taskforce to prevent cyber "terror attacks" by foreign countries on its strategic computer networks. The national cybernetic taskforce was set up in order to protect Israel from possible harm to its defense systems and infrastructure networks.

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North Korean 'defectors' found by southern coastguard

BBC News, 5 November 2011

Twenty-one North Koreans, some of them children, have been found adrift in a boat off the west coast of South Korea, the authorities there say.

The South Korean coastguard said the group, who appeared to be from the same family, wished to defect.

They had hidden themselves among Chinese fishing boats to avoid being spotted.

The South Korean government's policy is to accept all North Koreans who wish to stay in the South.

They were discovered near Socheong Island last Sunday and their five-tonne wooden boat was towed to shore.

It is not clear why the rescue was not announced earlier.

Most North Koreans attempting to flee their country usually escape on foot into China.

But China sends back many of those it catches, treating them as economic migrants, rather than asylum-seekers.

North Korean groups in Seoul said those arriving by boat were likely to have come from parts of the country far from the Chinese border, which itself was getting harder to cross, the BBC's Lucy Williamson reports.

The arrival is the largest of its kind since February, when 31 North Koreans floated south on a fishing boat - possibly unintentionally. Seoul sent 27 back at their request and let four stay in the South.

More than 21,000 North Koreans have defected to the South since the Korean war ended in a truce in 1953.

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ASEAN to form partnerships to promote traditional medicine

Antara News, Sat, November 5 2011

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Jakarta (ANTARA News) - ASEAN member countries have agreed to establish partnerships to promote traditional medicine through among other things information exchange, research, and the scientization of traditional cures to guarantee their safety.

The agreement was reached at the Third Conference on ASEAN Traditional Medicine in Solo, Central Java, on Saturday, President Director of PT Deltomed Laboratories Nyoto Wardoyo said in a press statement here on Saturday.

The conference was attended by representatives of Cambodia, Malaysia, Thailand, Myanmar, Singapore, Laos, Vietnam, Brunei Darussalam, and Indonesia as the host.

The meeting`s participants on the sidelines of the conference visited the factory of PT Deltomed Laboratories in Wonogiri, Central Java.

They made a comparative study on the modernization and standardization process of traditional medicine production, and the herbal material extraction carried out in the factory.

PT Deltomed, a national herbal medicine producer, has established cooperation with the health ministry`s Traditional Medicine and Herbal Medicine Development and Research Center (B2P2TO-OT).

Since 2009, the company has met the Good Manufacturing Product Standard and received a National Sanitation Foundation certificate on September 14, 2011, as a prerequisite for herbal medicine exports to countries in the American continent.

Editor: Suryanto

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MENGENAL STEVIA (SWEAT HONEY LEAF) SEBAGAI SUMBER PEMANIS

Hu addresses commodity prices, energy, food security in G-20 summit speech

English.news.cn   2011-11-04

Chinese President Hu Jintao gives a speech at the Group
of Twenty (G20) summit in Cannes, France, Nov. 4, 2011.(Xinhua)

CANNES, France, Nov. 4 (Xinhua) -- Chinese President Hu Jintao on Friday delivered a speech at the G-20 summit on key issues such as the fluctuation of staple commodity prices, energy and food security and employment.

On the issue of the fluctuation of staple commodity prices, Hu noted that the G-20 needs to focus on the following three aspects:

First, seek a proper balance between the stabilization of staple commodity prices and the promotion of world economic growth.

The G-20 needs to adopt measures to expand productive capacity, stabilize supply and demand, strengthen supervision,increase the transparency of market transactions and curb speculation so as to maintain the stability of staple commodity prices at a reasonable level.

Second, achieve an equitable balance between the stability of staple commodity prices and the ensuring of global energy and food security.

The G-20 should take concerted actions in such areas as the real economy, and trade and finance, and establish an advanced promotion system for the research and development of energy and agricultural technologies, he said.

Hu said the G-20 should also build a fair, equitable and non-discriminatory international trading system so as to promote the sound, stable and orderly development of the international staple commodity market.

Third, strike a right balance between the stabilization of staple commodity prices and the promotion of international development and cooperation. The G-20 nations should promote technology transfers and financial support for the developing economies, and help them to ensure energy security and food security.

Hu said China has been persistent in realizing energy security and food security on its own.

With regard to the energy sector, by giving priority to thrift, relying on domestic resources, encouraging diverse patterns of development and protecting the environment, China is working to build a stable, economical, clean and safe energy supply system, said Hu.

The Chinese leader also said his country has been striving to implement the policy of food self-sufficiency by expanding agricultural investment, improving farm irrigation facilities and ramping up development in agricultural science and technology so as to elevate the food and overall agricultural productivity.

Speaking of employment, Hu said G-20 members should give priority to stabilizing and expanding employment, especially employment among the youth and the vulnerable in socioeconomic development, adding that they should promote employment through growth and maintain growth through employment.

China has always taken boosting full employment as a major task to ensure and improve people's livelihood and it is also an important measure to increase domestic demand, said Hu.

He added that the implementation of employment-first strategies and active employment policies has maintained generally stable employment, which is also a key contribution to world economic recovery and unemployment reduction.

During the G-20 summit, the Chinese president held talks and exchanged views on bilateral ties and cooperation within the G-20 framework with a number of foreign leaders and heads of international organizations such as British Prime Minister David Cameron, German Chancellor Angela Merkel, Japanese Prime Minister Yoshihiko Noda, Turkish Prime Minister Recep Tayyip Erdogan as well as Pascal Lamy, Director-General of the World Trade Organization.