ABSTRACT
The revelation of missing funds at Italy’s Parmalat in late 2003 was a strong reminder, if one was needed, that massive breakdowns in corporate governance are not limited to the United States or to a particular period in time. Two more recent cases of earnings misrepresentation underline this argument. Japan’s financial regulator, the Financial Services Agency (FSA), banned ChuoAoyama PricewaterhouseCoopers (then part of the international auditing firm of PricewaterhouseCoopers) from performing audits of listed companies for two months starting in July 2006 for its faulty audit of regional bank Ashikaga Bank, which had manipulated earnings (with the help of ChuoAoyama auditors) to conceal its insolvency.1 This is the harshest penalty ever dealt to a large auditor in Japan and highlights persistent problems with auditing irregularities and the policing of securities laws in Japan. In an unfolding of events reminiscent of the problems of Arthur Andersen with regard to its involvement with Enron, the FSA had already in 2005 criticized the internal monitoring system of the auditor for failing to detect that its accounting partners had helped falsify the accounts at Kanebo, a failing cosmetics company.
