Japan auditors prepping tougher rules


Japanese auditors would have to follow U.S. accounting procedures for clients that have stock listings in the United States

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan -- Auditors in Japan are preparing stricter rules on stock holdings and links to clients, to keep pace with changes in U.S. regulations.

A spokesman for Tohmatsu & Co. told CNN on Monday that management had adopted tighter in-house regulations to ensure auditor independence.

The company is the Japan-based affiliate of Deloitte & Touche, and has clients that have their stock listed in the United States.

The higher standards come as the United States contends with a confidence crisis in corporate earnings.

The U.S. stock watchdog, the Securities and Exchange Commission, proposed rules on June 20 that would toughen oversight and accountability of U.S. auditors.

George W. Bush has also been trying to reassure investors (full story). On Thursday, Congress sent him a bill to toughen corporate governance and accounting standards (full story).

Deloitte Touche sub slaps 2-year freeze

Enron Corp. started a rash of accounting disclosures late last year. U.S. telecom WorldCom Inc. filed the world's largest bankruptcy earlier this month, after revealing it improperly booked $3.8 billion.


Bush now has a bill before him that would create an independent auditor-oversight board under the SEC's supervision

New SEC rules have now caused Tomatsu & Co. to toughen its own regulations on its accountants.

It will require its accountants to wait two years before becoming a director, corporate officer or auditor of a client, spokesman Toshiyuki Otaka told CNN on Monday.

Those new rules are due to start in July 2003. The accounting firm audits the books of leading Japanese banking group Mitsubishi Tokyo Financial Group (MTFG).

It is toughening its rules partly because of clients like MTFG, Otaka said. MTFG's Bank of Tokyo subsidiary is publicly traded in New York.

"We must follow SEC rules, because Bank of Tokyo is registered under the SEC," Otaka said.

Tohmatsu & Co. will also now restrict the amount that an auditor or a family member of an auditor can deposit with the bank, to 10 million yen ($84,034).

Otaka said his company is applying U.S. banking's deposit-insurance laws to Japan. But the company will allow exceptions if the likelihood of a bigger deposit affecting the audit is "remote," using SEC guidance.

Shin Nihon eyeing stock trades

Similarly, Shin Nihon & Co. set up a unit in June to scrutinize its accountants' stock holdings. The auditor is considering toughening rules that are already in place governing auditors owning stock in client companies.

The aim is to prevent accountants from developing a conflict of interest in auditing their clients' books. Shin Nihon is an affiliate of Ernst & Young.

Ernst & Young on June 27 landed a $400,000 civil fine from the SEC over its Dutch operations.

Shin Nihon audits the brokerage Nomura Holdings, which is also listed in the United States and therefore must also comply with the new SEC rules. The auditor bars its clients from holding accounts at Nomura altogether.