PwC accounting firm grounded in Tokyo

TOKYO – PricewaterhouseCoopers (PwC) suffered embarrassment in Japan this month when the Tokyo office of the accounting firm – Chuo Aoyama PricewaterhouseCoopers – was suspended from doing business for two months by the nation's Financial Services Agency.

The suspension was a result of the firm's work for a client, cosmetics and textiles manufacturer Kanebo, where a significant fraud has been uncovered. PwC's Japan office has been barred from auditing corporate accounts under Japan's securities and commercial laws for two months, beginning July 1.

Three of PwC's accountants have been charged in connection with the Kanebo fraud, after they admitted helping the company hide losses as part of a nine-year effort to disguise the true state of its finances. The company has been broken up and parts of the business have been sold to competitor firms.

While the ban on PwC won't impede the work the firm is currently doing on clients' March 31 year-end results, it is a huge blow to the accounting firm. The FSA said the accounting firm's failure to detect and prevent the fraud was a result of "serious deficiencies" in internal controls. Many Japanese clients are expected to abandon the firm in the coming months once this year's results are done and dusted.

PwC, meanwhile, has swung into full fighback action. According to press reports, it sent Andrew Popham, a senior partner, out to Tokyo to handle the aftermath of the temporary ban. Also, the firm announced that it is setting up a new affiliated firm that will be adopting "international best practices in accounting and auditing".