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Can PwC Aarata restore confidence in Japan's auditing?

TOKYO -- Toshiba's new auditor is facing a tough challenge to restore global confidence in the country's financial audit.

Koichiro Kimura

     Starting from the fiscal year ending March 2017, PricewaterhouseCoopers Aarata will also help Toshiba to restore market confidence, which was lost due to its massive accounting scandal that came to light last year. "We will conduct rigorous audits," PwC Aarata CEO Koichiro Kimura said Thursday in an interview with The Nikkei.

     Toshiba's current auditing firm Ernst & Young ShinNihon failed to catch the financial misbehavior of the country's leading electronics maker.

     "We will build a system that does not fail to uncover fraudulent practices," Kimura said.

     PwC Aarata is scheduled to take over the current auditor's tasks, including auditing Toshiba's overseas businesses, such as its U.S. nuclear power unit Westinghouse Electric.

     The total number of PwC Aarata's accountants and other professionals to be involved in Toshiba's audit will be roughly 500, including more than 100 in Japan. The size of the audit team is equivalent to those for Japanese auto giant Toyota Motor and leading electronics maker Sony -- existing client companies of PwC Aarata.

     PwC Aarata is a member firm of global consultancy PricewaterhouseCoopers, and has business relationships with the Toshiba group, mainly for the Japanese company's operations in the U.S. and Europe. In this regard, PwC Aarata is reviewing those deals to ensure auditor's independence. Including termination of contracts, the work is expected to be completed by the end of January, said Kimura. PwC Aarata's audit team for Toshiba is made up of members who have not been directly involved in the Toshiba group. Kimura expressed confidence, saying, "We have prepared a framework that is capable of performing audit work objectively."

     In Toshiba's case, the company gave its auditor false explanations to cover up its fraud. To avoid repeating the same mistake, PwC Aarata will step up efforts to share information with Toshiba's audit committee. PwC Aarata will dispatch its audit members not only to the company's headquarters but also each business domain, aiming to conduct accounting checkups from different angles. According to Kimura, PwC Aarata will verify in-depth whether processed accounting information is different from actual operations.

     Japan has lost global confidence in the country's capital market and financial auditing, due to Toshiba's accounting scandal. "Discovery of fraudulent practices is not the primary purpose of accounting audits. However, as long as we submit auditing reports, if the information is wrong, it will spoil everything," said Kimura.

(Nikkei)

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