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Changing auditors may not solve Toshiba's problem

Clock ticks as risk of delisting looms

TOKYO -- Toshiba's plan to switch to an auditor more likely to sign off on the company's full-year earnings may just raise new doubts about their reliability, but the company has limited options, with the reporting deadline fast approaching.

The decision to appoint a new auditor stems from a dispute with current auditor PricewaterhouseCoopers Aarata over a probe into U.S. nuclear unit Westinghouse Electric. The independent law firms hired to look into the matter combed some 600,000 emails and interviewed dozens of related parties, but they found nothing that would necessitate revising earnings for past fiscal years. Prior auditor Ernst & Young ShinNihon, which was replaced by PwC Aarata last year, apparently did not see any problem.

"We're confident in the results of our investigation," Toshiba President Satoshi Tsunakawa said. "Even if we look into it further, nothing more will come up."

But PwC Aarata insists additional investigation is needed, and the auditor and Toshiba look unlikely to settle their differences anytime soon. The auditor could refuse to approve Toshiba's earnings for the fiscal year ended March 31, as it did for the company's nine-month results, which the Tokyo Stock Exchange considers potential grounds for delisting.

The conglomerate has quietly begun looking for a different auditing firm. For now, Toshiba likely will choose a temporary independent auditor to look at its full-year earnings. Though new auditors normally must be approved at a general shareholders meeting, a stand-in can be appointed without going through this process if a company loses an auditor due to resignation or other circumstances.

Yet choosing a suitable firm will not be easy. Toshiba has worked in the past with other big players such as Deloitte Touche Tohmatsu and KPMG Azsa. Since hiring them could raise the issue of conflict of interest, Toshiba likely will opt for a second-tier firm. However, auditing a giant like Toshiba requires so much labor that a smaller auditor would need to borrow staff from elsewhere. EYSN is expected to help with the transfer.

Even then, many question whether another auditor would be able to approve Toshiba's results after PwC Aarata effectively refused to do so.

Given the difficulty of releasing full-year earnings by the Tokyo Stock Exchange's May 15 deadline, Toshiba may aim for an announcement by the end of June, the final date for submitting annual securities reports. The company presumably will work on picking a permanent auditor after auditing for the full-year report is complete.


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