1MDB's new audit company

According to this article from Bloomberg 1MDB has appointed Parker Randall as their new auditor.

Their UK website can be found here. Some screenshots:

I certainly hope that Parker Randall will be the right "choose" for 1MDB, that they can "delivery" that, with the help of the 3 E's: "Exceeding, Expectations, Experts".

The local firm executing the audit will most likely be AFTAAS.

The "about us" page does not reveal much information:

And is exactly the same as the Team-profile.

Similar to the Forum-page:

1MDB was worldwide one of the most talked about companies in 2016, and unfortunately often for the wrong reasons.

A lot of pressure will therefore be on the shoulders of little known outfit AFTAAS, which looks like a rather "remarkable" choice, given the size, scope and history of 1MDB.

INIX: why no audited accounts of its associate?

INIX announced that its audited accounts are qualified, the reason given by the auditor:

I can come up with several scenario's why the audited financial stataments were not made available, each with its own degree of how serious the impact would be for INIX.

But why do we have to guess which scenario is the one, why does INIX not simply provide the proper reason for the above?

Surely minority investors deserve to know, this seems to me to be material information.

Chinese "IPO fraud school"

Interesting article on Seeking Alpha:

KGJI: A 'Fraud School' Success Story

Some snippets:

Muddy Waters, a research firm that has exposed many Chinese frauds, authored a White Paper on the organized network that brought numerous fraudulent companies onto U.S. exchanges. The presentation and research paper, Frauducation, cited a 2012 Chinese Today's Fortune article that discussed an investigation into a Chinese "fraud school." The article (translated into english) describes a "systematically criminal" platform:


... the "fraud school" is a small investment bank and financing counseling company. It uses a network of accounting firms and law firms based in HK and US to jointly operate to present "trash" enterprises as fast-growing and huge-profitmaking super stars, thus catching the foreign investors' eyes, gaining private funding, and subsequently going public in the US....After that, they will keep coaching the firm on producing falsified reporting documents in order to make it keep "growing" with the eventual goal of listing on a primary exchange (i.e. NYSE or NASDAQ) and collect even more money from US investors.


While the investment bank leading the fraud school was not specifically named in the article, the research paper highlighted the likelihood of it being a Hong Kong outfit named Chief Capital.

The Frauducation white paper also examined the audit firm of Jimmy C.H. Cheung & Company. Cheung was the earliest auditor of record for RINO and audited ChinaCast (OTCPK:CAST) which, according the SEC, was a "massive" fraud. We discovered that Cheung also performed audit work for Kingold.


The article further details alleged irregularities regarding Kingold. The share of Kingold went down from 2.00 to about 1.30, but recovered to 1.60 on Friday.

A video by Muddy Waters about the alleged Chinese fraud school can be found here.

I am not aware if any Bursa or SGX listed company went to this alleged fraud school. But the audit firm of Jimmy C.H. Cheung & Company (featured in the above video) did auditing work for a SGX listed company.

The firm is called International Healthway Corp (IHC), from it's IPO offer document (dated 1 July 2013)

And it seems that nothing has changed, the same auditor is still auditing the subsidiaries in Hong Kong according the the latest anual report. That looks like a red flag.

But there are many more red flags. Investor Central in an article named "International Healthway Corporation Limited - Do the directors really live in the Thye Hong industrial building in Leng Kee?" came up with "29 questions that need to be asked".

And according to this article the authorities are also looking at trading of IHCs shares.

Even in the boardroom there seems to be problems.

The auditor of IHC (PricewaterhouseCoopers) issued a "disclaimer of opinion" in the 2015 annual report:

Maxwell: More Mayhem

Maxwell published its annual report and The Star wrote an article about it:

Maxwell to delay capacity expansion on slowdown

Some snippets:


"Li noted that the group had a huge cash reserve of RM366.7mil as at the end of last year.

This, she said, allowed the group to look out for potential business opportunities and to expand beyond the core sports shoes OEM (original equipment manufacturer) and ODM (original design manufacturer) businesses."


Sounds all pretty good, doesn't it?

Unless one realizes that Maxwell's accounts were qualified by the auditors, a "tiny" oversight that the article forgot to mention.

The auditors needed a full eight pages to detail what was wrong, one of the worst lists I have seen for Bursa listed companies.

One of the auditors concerns is exactly the "huge cash reserve" as mentioned by Madam Li:

But unfortunately, it is not all.

The loss over 2015 was much larger (31%) than previously stated, as announced here.

Seven reasons were given, with one rather remarkable one, the salary of Madam Li herself. Apparently it was not known on February 29, 2016 what amount she would receive over 2015?

The remuneration committee should give a proper explanation regarding this matter.

Another matter is that the company has now entered PN17 status.

And then there are still many other concerns about which I have written before.

Malaysian journalists should really put in their effort, do some thorough research before they write about a subject. The above linked article is very disappointing and would leave an uninformed reader with a completely wrong impression about the well being of Maxwell.

1MDB accounts "are audited by an international firm" (3)

From my previous posting on this matter:


The Board would like to stress that 1MDB accounts are audited by an international audit firm, Deloitte, " it said in a statement issued in capital Kuala Lumpur tonight.
It said that Deloitte signed off 1MDB’s 2013 and 2014 accounts without qualification and similarly KPMG signed off the 2010, 2011 and 2012 accounts with no qualification.


This subject has suddenly become more interesting, since the news has been published that Deloitte has resigned as an auditor.

1MDB did not give any reason why it held back the news of Deloitte's resignation, which was known for five months, and which seems to be material information.

But then again, transparency was never 1MDB's strongest point.

On top of that:

".... in a separate statement referred to the civil forfeiture complaint filed by the United States Department of Justice (DoJ) on July 20. It said the complaint contains information, which, if known at the time of the 2013 and 2014 audits of 1MDB, would have impacted the financial statements and affected the audit reports."


Despite this "small setback", 1MDB declared:


".... the Board remains confident that no wrongdoing has been committed by 1MDB and that the past audited financial statements continue to show a true and fair view of the company’s affairs at the relevant points in time ......"


That confidence seems highly misplaced given the overwhelming information available pointing to the opposite.

Hopefully one day the Board (and all other parties associated with 1MDB) will be held responsible for its deeds.

The Securities Commission has formed the AOB (Audit Oversight Board), its mission statement:

Fostering high quality independent auditing to promote confidence in the quality and reliability of audited financial statements of public-interest entities and schedule funds in Malaysia.

Over the years many critical articles have been published and dozens of red flags have been spotted regarding 1MDB. How is it possible that three of the highest regarded accounting firms in Malaysia have failed to spot the many relevant issues and have approved the accounts without even a single qualification? These same companies have also audited numerous companies listed on Bursa.

AOB should investigate all that went wrong, the reasons behind it and take appropriate measures.

Why REDtone used "auditor of last resort"?

David Webb wrote:


US PCAOB sanctions AWC (CPA) Ltd, its New York affliate and 4 individuals
     
The shocking allegations, which are not denied in this settlement, involve the 2010-2012 audits of Kandi Technologies (Nasdaq: KNDI). Incidentally, AWC (CPA) Ltd changed its name last month to DCAW (CPA) Ltd after combining with Dominic K F Chan & Co. The settlement brings into question the continued role of Albert Wong Chi Wai, the engagement partner on the audits, as an INED of 5 HK-listed companies.    


Paul Gillis wrote about the same matter:

"PCAOB bans auditor of last resort"

On May 19, the Public Company Accounting Board revoked the PCAOB registration of Hong Kong CPA firm AWC (CPA) Limited (AWC), formerly known as Albert Wong & Company. AWC has long been one of the auditors of last resort for Chinese companies listed in the United States, particularly those that came to market through reverse mergers. 

The client that finally brought down AWC was Kandi Technologies Group, Inc. (Kandi). Kandi is a Chinese electric vehicle company that was still using AWC as auditor for 2015.   

Regarding Kandi, a 2014 article from "ShareSleuth" (backed by Mark Cuban).


Some of the companies that were audited by this audit firm can be found here, here and here.

Relevant for Malaysia is REDtone Asia Inc., a 92% subsidiary of REDtone International Bhd, listed on the US OTC (Over The Counter) network.

On May 16, 2016 REDtone Asia Inc. changed its auditor to DCAW (CPA) Ltd.

According to Paul Gillis, that is a "stunt that should not work":

As the PCAOB disciplinary proceeding came to a conclusion, AWC merged with effect from April 30, 2016 with Dominic K.F. Chan & Co to form DCAW, a firm that filed to succeed to the PCAOB registration of Dominic K.F. Chan & Co.  That seems a clever way to circumvent the imminent ban of AWC. On May 9 AWC’s clients announced they were changing auditors to DCAW. The AW in the name presumably is Albert Wong. Albert Wong, however, is personally banned from association with PCAOB registered firms for at least two years. I am sure the PCAOB is looking into this odiferous situation.


Was REDtone really not aware of the reputation of the auditor of its subsidiary?

SC punishes audit company

Announcement by the Malaysian Securities Commission:

Audit Oversight Board Revokes Registration of Auditor for the First Time

The Audit Oversight Board (AOB) has revoked the registration of an audit firm Wong Weng Foo & Co along with the Managing Partner, Wong Weng Foo and its Partner, Abdul Halim Husin effective from 2 December 2015.

The revocation is under section 31Q(1)(a)(B) of the Securities Commission Malaysia Act 1993 (SCMA) for failure to remain fit and proper to audit public interest entities.

The SCMA gives AOB the power to revoke the registration of an auditor if the auditor contravenes condition of registrations imposed by the AOB under section 31O(3) of the SCMA.

Wong Weng Foo & Co, Wong Weng Foo and Abdul Halim Husin were found to have failed to comply with auditing standards in the engagement performance of two public listed entities. In addition, Wong Weng Foo & Co failed to carry out the practice honestly, competently and with due care when it failed to implement the remedial action as reported to AOB in respect of past inspection findings.

Wong Weng Foo & Co also failed to ensure that the person who audits the financial statement of a public listed entity on behalf of the audit firm is appropriately qualified, sufficiently trained and competent.

Announcement by the US Securities and Exchange Commission:

Grant Thornton Ignored Red Flags in Audits

The Securities and Exchange Commission today announced that national audit firm Grant Thornton LLP and two of its partners agreed to settle charges that they ignored red flags and fraud risks while conducting deficient audits of two publicly traded companies that wound up facing SEC enforcement actions for improper accounting and other violations.

Grant Thornton admitted wrongdoing and agreed to forfeit approximately $1.5 million in audit fees and interest plus pay a $3 million penalty.

Melissa Koeppel was an engagement partner on the deficient audits of both companies, and Jeffrey Robinson was an engagement partner on one of the deficient audits, which spanned from 2009 to 2011 and involved senior housing provider Assisted Living Concepts (ALC) and alternative energy company Broadwind Energy.  An SEC investigation found that Grant Thornton and the engagement partners repeatedly violated professional standards, and their inaction allowed the companies to make numerous false and misleading public filings.


Pretty similar announcements, one could say, but there are some crucial differences.

The US announcement does name the listed companies, the Malaysian (unfortunately) not. In the latter case the shareholders of the companies involved do not know what happened to the audits, if the management was involved, if any action has to be taken.

Also, there is a very detailed description given in the US case (please visit this website for more information including some links), but not in the Malaysian case.

It is good that some enforcement has been meted out by the Securities Commission, but more information what exactly happened would be helpful.

Issues regarding INEDs

From the last newsletter of MSWG:


... the Malaysian Code on Corporate Governance 2012 (the Code) recommends a 9-year term limit for INEDs (Independent Non-executive Directors) and the Listing Requirements makes reference to this recommendation where the companies must either comply or explain.

The Code provides under Recommendation 3.3 that there must be strong justifications for the board of a PLC to retain as an INED a person who has served in that capacity for more than 9 years. Also, the prior approval of shareholders is required to be sought.

Over the last 3 years, since the introduction of the Code in June 2012, we observed that the following have been practised:

• INEDs tenure limit of 9 years have been exceeded sometimes as long as 20 or 30 years.
• INEDs have been re-elected over the limit without strong justifications.
• No resolutions were proposed for re-elections.
• Multiple number of INEDs who have exceeded the limit were being put up for re-election simultaneously.

Focus Malaysia wrote an article (partially behind paywall) about the same matter: "Firms don’t fully comply with governance code".

My opinion, for what it is worth:

• Asking Board of Directors to give a justification about the independence of a director whose tenure limit exceeds 9 years is akin to asking companies if their Corporate Governance is any good: both will result in useless, self serving statements.
• With 55% of the listed companies on Bursa having INEDs with a tenure of more than 9 years, the obvious conclusion is that voluntary measures don't work. If the regulators want to be serious about this rule then they should simply enforce it. INEDs who are deemed to be useful to a listed company can still stay on, but as an non-independent director.

David Webb wrote "Principles of Responsible Regulation", one snippet:


As a result of the prevalence of controlling shareholders, investors large and small are usually minority shareholders, and if they are to have any real influence in the ordinary decision-making of companies, then they should have proper representation in the form of truly independent directors in the board room. But they don't.

Under HK listing rules, a so-called "Independent Non-Executive Director" is only as independent as the controlling shareholder wants him (or occasionally her) to be, because the controller gets to vote on the elections in general meetings. The result is often a sham system of illusory checks and balances where rubber stamps fill the required 3 seats on the board (or 1/3, whichever is greater) and form the committees that are supposed to monitor the executive management of the company.


And his recommendation:


"Independent directors should be elected by independent shareholders; any shareholder or the board can nominate candidates, but controlling shareholders must abstain from voting."


Webb's other recommendations also appear to be highly relevant in the Malaysian situation, with the exception of the second (Malaysia does have quarterly reporting).


On another matter, not only INEDs have an important role to perform versus minority shareholders, external auditors also.

Michael Dee wrote an open letter to the employees of Noble Group, his third recommendation being:


" ..... speaking of the now extinct Lehman Brothers, change your auditor, E&Y, who have been auditing Noble’s finances for 20 years now.

This is far, far too long. Auditors are guardians for investors and 20 years breeds too cozy a relationship. E&Y were Lehman’s auditor along with other infamous companies now defunct.

Noble says they rotate E&Y partners every five years but this is just substituting players on the same team. Your management have said E&Y doesn’t have to defend your financials, however they should defend their role in singing off on them.

Here it is instructive to review two aspects of E&Y which are relevant to establishing how much trust one should have in their work. First, as Lehman’s auditor they signed off on the earlier mentioned Repo 105.

Since then, it must be noted, E&Y has paid US$109 million in fines and penalties relating to their Lehman auditing work, including $10 million just recently paid to NY State over their role in the Lehman collapse.

“Auditors will be held accountable when they violate the law, just as they are supposed to hold the companies they audit accountable,” said New York Attorney General Eric Schneiderman.

The Public Companies Accounting Oversight Board (PCAOB), an accounting watchdog established by the US Congress has recently issued scathing comments about E&Y.

As reported by the WSJ in 2012 and 2013 the PCAOB found in their review of over 100 audits that they were deficient about 50 percent of the time.

In half of the audits reviewed, “E&Y hadn’t obtained enough evidence to support its audit opinions giving its clients a clean bill of health“ as reported in the WSJ last year.

But this isn’t a recent problem, the WSJ also reported in 2011 that in over half of the E&Y deficient audits it was because “E&Y was deficient in its testing of how clients applied fair value to their hard-to-value securities”.

This is directly relevant to Iceberg’s charges. Also directly relevant is that in 2012 it was reported E&Y had paid a record US$2 million fine with the PCAOB Chairman saying; “These audit partners and E&Y — the company’s outside auditor for more than 20 years — failed to fulfill their bedrock responsibility”. Not a ringing endorsement I would say."


I think it would be a good idea if listed companies are forced to change auditor every say ten years. It would increase the chance that possible irregularities would be noticed, especially in cases where auditors have become "too cozy" to the companies they are auditing, or when their fees for non-audit related services have become too high.

1MDB accounts "are audited by an international firm" (2)

In the previous blog post on this subject I wrote about the pretty bad state of audits, even if performed by the "Big Four" companies.

But how would the situation be if an audit company is warned in detail about possible fraud or other financial irregularities, surely auditors will step up their game, zoom in on the situation at hand and give a proper report?

According to short seller Carson Block the answer is an astonishing "no".

In "Beware the false reassurance of corporate probes" (free registration might be required) published by the Financial Times he writes (some snippets):


When it comes to defending themselves against accusations of wrongdoing, management teams and their complacent boards follow a well-worn routine. Their immediate reaction is to issue a blanket denial and announce that an independent committee of directors will investigate the accusations. The committee duly appoints an independent law firm to oversee the investigation, and the consulting arm of a Big Four accountancy to pore over the books.

Too often, such investigations are worthless endeavours that lead to more pain for investors. Frequently, companies are exonerated by their boards but subsequently tumble into bankruptcy or announce earnings restatements or evidence of other serious problems.


Directors are not inclined to embarrass themselves by exposing serious problems that had long been under their noses. That would invite shareholder lawsuits, regulatory scrutiny and professional embarrassment.

Nor are they likely to relish the prospect of clashing with management when the chief executive is often the one who put them on the board in the first place. Board members may even be conspirators in the fraud. If they are based in China and have little connection to the US, they are unlikely to face prosecution.

Time and again, investigators report that they have found no evidence to support claims of wrongdoing. The question that investors need to ask themselves is: how hard did these investigators look for clues that might have revealed something was amiss?

The firms hired to support the probe are often given a deliberately narrow brief. For example, there might be tight restrictions on the investigators’ ability to investigate the sources of the company’s cash balances.

Fraudsters have repeatedly duped independent committees and their advisers by showing that they control large cash balances. Often, they do this by borrowing the funds. If directors make it impossible to detect such ruses by limiting investigators’ access to evidence, nobody knows; the entire process is shrouded by the cloak of attorney-client privilege.

Accounting firms are also rife with conflicts of interest. Their main line of work is auditing public companies. This makes them unwilling to heap embarrassment on management teams and boards. To do so would be bad for business.


That doesn't sound that promising. Block gives a concrete example:


In 2011, Sino-Forest Corporation, a China-based company listed on the Toronto Stock Exchange that Muddy Waters had accused of falsifying its revenue, spent approximately $50m on such an investigation, hiring PwC as a consultant. The result was a clean bill of health. In a press release announcing the completion of the investigation, the independent committee said the company was unequivocally “not the ‘near total fraud’ and ‘Ponzi scheme’ as alleged by Muddy Waters . . . Sino-Forest is a real company.”

Unfortunately, investors who bought Sino-Forest bonds following the committee report saw their prospects for recovery plunge when the company declared bankruptcy four months later.


The problem is not confined to emerging markets. In the US, numerous independent board investigations have issued clean bills of health, only to be proved wrong later on.

A report into wrongdoing at Enron, carried out by a law firm hired by the company, was later described as “a whitewash” by an Arthur Andersen investigator. When Global Crossing ordered an investigation into allegations levelled by a former employee, the report came back clean. Yet the company fell into bankruptcy and settled with the SEC over an accounting scandal.


The solution according to Block:


Boards that truly want transparency should stop hiring law firms to conduct these investigations in private and under legal privilege, and open their work to genuine scrutiny.


Hopefully 1MDB will follow this advice for increased transparency, it is long overdue.

Shareholders can query external auditors at general meetings

The issue if shareholders can ask questions to the external auditors was raised in the (rather heated, but very interesting from a corporate governance point of view) debate in Singapore regarding Noble Group.

Mak Yuen Teen wrote a clear answer to that matter in the Business Times (Singapore). Some snippets:


External auditors are appointed by shareholders, their report is addressed to shareholders, and they have a fiduciary relationship with them. It would be odd if shareholders appoint external auditors who report to them, but cannot ask questions about how they did the work.

.....  there is not much point in having external auditors present at general meetings - and companies being charged for it - just for them to issue boilerplate responses.

For example, shareholders at the Noble AGM could have asked questions about how the external auditors arrived at their audit opinion, the appropriateness of the accounting policies and assumptions used by the company, and how they audited the investments in associate companies such as Yancoal and biological assets.

As a matter of decorum, shareholders should direct their questions about the external audit or about other matters through the chairman of the meeting. The chairman should provide the opportunity for the external auditors, committee chairmen and others to answer these questions as appropriate.


To all readers who visit AGMs/EGMs and have questions regarding accounting matters, please feel free to follow the above advice. I assume the rules are the same in Malaysia.

On a side note: I hope to have time in the future to comment on Noble, which might also be worthwhile in the Malaysian context: although no company on Bursa has yet been targeted by a "shortseller", one day that surely will happen, better to be prepared for it, both for regulators and companies.

Are auditors above the law?

Sometimes I really wonder why auditors seem to escape scrutiny, again and again. 


There is a discussion going on: auditors are watchdogs, not guard-dogs, so they can't be held liable for anything that might be wrong with the accounts. That is a fair comment I guess.


On the other hand, they should do their work in a correct way, do sample testing, have an open, critical mind about what they investigate etc. When things turn sour in a big way, they should therefore be held accountable. But somehow or the other, that doesn't seem to happen.


In Malaysia I can't remember any auditor of a listed company being punished in one of the big accounting scandals. It appears Malaysia is not the only country where that happens.


Below article from the New York Times is about the huge Olympus scandal in Japan, huge in the amount of money involved, the number of years that the fraud was ongoing and probably the number of people who must have been involved or had knowledge about it. 


There are also very serious Corporate Governance issues at play. For instance in the Board of Directors firing the CEO who discovered the fraud, the typical "shoot the messenger" syndrome that is (unfortunately) also quite common in Malaysia.


And what did the company say?


"Olympus, the Japanese camera maker whose executives have admitted to covering up $1.7 billion in losses, said Tuesday that its auditors, KPMG Azsa and Ernst & Young ShinNihon, had not been complicit in the false accounting"


But this is what an expert said:


“It’s hard to believe that Olympus could have kept such a large-scale cover-up secret from its auditors, who study its finances intimately,” said Shinji Hatta, a professor of auditing at the Graduate School of Professional Accountancy at Aoyama Gakuin University in Tokyo.        


In the first paragraph a possible motive for the actions of Olympus:


Any action to dismiss or sue Ernst & Young ShinNihon, its current auditor, could leave the company without a firm willing to audit its finances, jeopardizing Olympus’s compliance with the exchange’s listing requirements.


This doesn't sound right at all.

http://www.nytimes.com/2012/01/18/business/global/auditors-not-involved-in-cover-up-olympus-says.html?_r=2&partner=rss&emc=rss

Olympus Clears Auditors in an Accounting Cover-Up

TOKYO — Olympus, the Japanese camera maker whose executives have admitted to covering up $1.7 billion in losses, said Tuesday that its auditors, KPMG Azsa and Ernst & Young ShinNihon, had not been complicit in the false accounting — though those firms remain under investigation by the Japanese authorities over possible roles in the scandal.

Related

• Olympus Sues Executives Over Cover-Up, but Does Not Dismiss Them(January 11, 2012)

A decision to clear the auditing firms could strengthen Olympus’s chances of staying listed on the Tokyo Stock Exchange, helping the company maintain access to equity capital. Any action to dismiss or sue Ernst & Young ShinNihon, its current auditor, could leave the company without a firm willing to audit its finances, jeopardizing Olympus’s compliance with the exchange’s listing requirements.

Still, experts have asked how Olympus could have perpetrated such a scheme without at least tacit knowledge by its auditors. KPMG audited Olympus until 2009 before handing it off to Ernst & Young. The two firms still face possible sanction by Japan’s Securities and Exchange Surveillance Commission.

Just how much Olympus’s auditors knew about the manufacturer’s scheme, going back decades, to hide losses has emerged as an important aspect of the continuing investigations into its finances. The two firms signed off on the accounts before Olympus’s president and chief executive, Michael C. Woodford, blew the whistle on the fraudulent accounting in October, just after he was fired by Olympus’s board.

“It’s hard to believe that Olympus could have kept such a large-scale cover-up secret from its auditors, who study its finances intimately,” said Shinji Hatta, a professor of auditing at the Graduate School of Professional Accountancy at Aoyama Gakuin University in Tokyo.

In a report released last month, an investigative panel appointed by Olympus, which makes digital cameras and the medical optical devices like endoscopes, had been critical of the auditors’ role, saying the firms had not done enough to expose wrongdoing.

But a separate panel of lawyers hired by Olympus to investigate the roles of the two auditors found that the firms had not violated their fiduciary duties, Olympus said in a statement. That report, released Tuesday, said that Olympus’s executives had so cleverly buried the losses that external auditors could not have uncovered them.

The report instead blamed five former and current Olympus internal auditors for allowing the company to misstate its finances. The five internal auditors are responsible for a total of 8.4 billion yen ($109 million) in costs related to the cover-up, Olympus said.

Minoru Ota, a former internal auditor who had headed the company’s accounting unit, is to blame for almost half of that cost, the statement said.
“The masterminds in this case hid their illegal acts through artful manipulation of expert opinion,” the report said.

Olympus did not make Mr. Ota available for comment, and calls to a registered number under that name in Tokyo went unanswered.

The company said later Tuesday that it had filed a lawsuit against all five of the internal auditors, demanding 500 million yen from each.

Olympus has admitted that a handful of former and current executives set up a scheme to obscure losses by illicitly keeping unprofitable assets off its books. The company later tried to settle those losses in payments masked as merger-and-acquisition fees.

Last week, the company sued 19 current and former executives, including the current president, Shuichi Takayama, over their roles in concealing the losses. The scandal has led to investigations by the authorities on three continents, and Olympus shares remain on watch for possible delisting on the Tokyo exchange.

But a person with close knowledge of various investigations relating to Olympus said that not only was Olympus adept at hiding its losses, but that the company might have received help from its banks misstate its financial position.

KPMG received confirmation statements from Société Générale and Commerzbank that, with hindsight, were clearly misleading, the person said on condition of anonymity, saying he was not authorized to speak to the media.
Those inaccurate statements have been submitted by KPMG to Japanese regulators to aid in their inquiry, and the authorities have begun a broader review that is likely to include the conduct of Olympus’s banks, the person said.

“Société Générale’s policy is to fully and strictly comply with all regulations and laws in the countries where it operates,” the bank said in an e-mailed statement. “As always, Société Générale will cooperate with the relevant authorities if needed.” Commerzbank did not respond to calls seeking comment. Olympus’s third European bank, LGT of Liechtenstein, has not been linked to misleading statements.

Hiroko Tabuchi reported from Tokyo and Keith Bradsher from Hong Kong.