4 Landmark scandals: the impact of earlier cases

4 Landmark scandals

The impact of earlier cases

In accounting, rules may be hard and fast, but it is the interpretation in the specific circumstances of nature, timing and extent which really matter. Accounts are a complex representation of reality and there is an uncertain and entropic element. An overly strict analysis of the rules may not lead to a true and fair view.1 Nothing is certain and one can never be sure. However good the auditors are, and however tight the regulatory framework is, scandals will still happen, and auditors will still fail to spot them all. And sometimes they will actively assist in them.

Global financial crisis failures

In several past cases, the auditors were unambiguously at fault. Whilst we accept that the Enron and Waste Management incidents with Arthur Andersen as auditor could never happen again, we think the Repo 105 situation with Lehman Brothers (involving EY) and MF Global (bankrupt in 2011, auditors PwC) could happen in a different guise, even though the rules have changed.

Repo 105

Repo 105 is the name for an accounting manoeuvre where a short-term repurchase agreement is classified as a sale. The cash obtained is then used to pay down debt, allowing the company to appear to reduce its leverage by temporarily paying down liabilities – just long enough to reflect on the company’s published balance sheet. After the company’s financial reports are published, the company borrows cash and repurchases its original assets. So, in essence, a short-term loan is classified as a sale. This allows loans in the liabilities side of the balance sheet to be reduced – disguising their true leverage. The assets sold in the ‘sale’ are used in reports which were accounted for as disposals and removed (temporarily) from the

balance sheets of the sellers (e.g. Lehman Brothers). This disguised their true financial leverage. However, use was made of provisions specific to US generally accepted accounting principles (GAAP), provisions which no longer exist.

It is claimed that Repo 105 was not widespread and was more costly than traditional repos. This is where a bank pledges collateral to another in exchange for cash and promises to return the funds with interest.

Lehman Brothers

Lehman Brothers filed for bankruptcy at the beginning of the GFC in 2008. The firm had $639 billion in assets and $619 billion in debt and Lehman’s bankruptcy was the largest in history. Its assets far surpassed those of previous giant failures such as WorldCom and Enron. At the time of its collapse, Lehman was then the fourth-largest US investment bank with 25,000 employees. It is widely acknowledged that Lehman’s collapse was a pivotal event that greatly intensified the 2008 financial crisis. This failure contributed to the erosion of more than $10 trillion in market capitalization from global equity markets in October 2008, the biggest monthly decline on record at the time.

Using Repo 105 enabled Lehman Brothers to move some $50 billion off its balance sheet at the end of the first and second quarter of 2008. These transactions, or rather trades, were never disclosed to investors or regulators and helped Lehman to reduce its leverage and enhance its balance sheet at the height of the crisis. This avoided potential costly rating downgrades at the expense of misleading investors as to the actual state of its finances.

The Valukas report,2 appointed by a US court, analyzed the reasons for Lehman’s failure. The report paints a poor picture of the bank’s top management and the report argues that the auditing firm EY was guilty of professional malpractice.

Of course, some of the criticism goes further. Richard Brooks in his 2018 book The Triumph of the Accountants and How They Broke Capitalism was particularly damning of EY’s role in the Lehman collapse:

After the fall of Lehman Brothers brought economies to their knees in 2008, it was apparent that Ernst & Young’s audits of that bank had been all but worthless. Similar failures on the other side of the Atlantic proved that balance sheets everywhere were full of dross signed off as gold.3

We are not sure such criticism is wholly deserved.

Can Lehman happen again? The banks are more concentrated today. Although they are better capitalized with larger reserves, the Wall Street Journal4 comments that they are still fractional reserve banking. That article also claims that the shadow banking business made up of derivatives may be larger today than it was before the crisis. One other factor is that leveraged loans are now much higher. This may make the US banking system less stable, and that may affect the Western world once again.

Earlier failures

Waste Management

Waste Management, together with WorldCom and Enron, is one of the seminal failures of the recent past. At the time, Arthur Andersen (AA) was one of the Big Five auditors before litigation forced the firm’s closure. AA was involved in the case of Waste Management, where there was around $1.7 billion in fake earnings through the device of increasing the depreciation time length of their fixed assets on the balance sheets. In 1998, Waste Management shocked the stock market when it announced that its previous accounts had overstated profits and assets by $3.5 billion. Every year since 1992 was affected; for example, for 1996, Waste Management had reported a profit of $192 million, and the corrected figure was a loss of $39 million – a reduction of $231 million. In the case of Waste Management, it was junior auditors from AA who found the problems and reported them to the AA partners and senior managers. The AA partners essentially decided to do nothing.5

The Waste Management case is particularly interesting in that it reveals the weaknesses of audit committees, an institution in which the audit profession apparently puts so much trust. We are quite certain that the fundamental problem was that the audit partners (and the audit committee) were not sufficiently independent of the management, or that there was insufficient separation which would have allowed the auditors to insist on including a strong comment in their audit opinion – or even a qualified opinion – known as a disclaimer of opinion.

The main concerns are as follows: first, the junior audit staff discovered all the problems and reported them to the AA partners; second, the AA audit partners were well aware that they were giving an unqualified audit report on a set of financial statements that materially overstated the value of assets. The audit firms would doubtless claim that the Waste Management scandal was 30 years ago and that they have improved their audit procedures since then. But in the light of the Tesco and Carillion cases,

we feel that this salutary effect is wearing off. In John’s opinion, the fundamental cause of the problem – that auditors are appointed and remunerated by management6 and hence there is a lack of independence – has not been tackled.

AA gave Waste Management unqualified audit reports for all of the years covered by the correction, which subsequent events showed to be completely without justification. In retrospect, the breaking of the scandal in 1998 was a clear sign that there was something very wrong with the firm’s approach to auditing, and it can be considered to be the beginning of the end for AA. The Brandt’s 2001 analysis of the SEC investigation of the affair gives a fascinating account of AA’s failings. It reveals that from the beginning in 1992, AA’s junior audit staff had noted the problems and reported them to AA’s senior management. However, although the misstatements in that year totalled $93.5 million, the senior management decided that they were not material and issued an unqualified audit report. The same thing happened the following year. As the accumulated error grew ever larger, AA proposed that it should be written off in instalments over future years – clear proof that AA was aware that the accounts were wrong.

The SEC found AA guilty of improper professional conduct in that it knowingly or recklessly issued materially false and misleading audit reports. AA agreed to pay a civil penalty of $7 million, which was a record fine for an accountancy firm at that time. AA also paid more than $240 million to settle suits brought by aggrieved shareholders. The reason that the SEC was able to document so clearly what went wrong with AA’s audit was because it had access to AA’s working papers and internal communications, such as emails, going right back to the early years. We suspect that AA’s bad experience of being found guilty on the basis of its own documentation was a major factor in its fateful decision to destroy documents relating to the Enron audit, an action which led to the firm’s demise.

Reason’s for failure at Waste Management

The SEC suggested two principal reasons why AA’s senior partners were unwilling to qualify the audit report:

1 AA was too involved in the management of the company. Until 1997, every chief financial officer and every chief accounting officer had previously worked as an auditor at AA. During the 1990s some 14 former AA employees worked for Waste Management, mostly in key financial and accounting positions. It seems probable that the AA

audit staff identified themselves with the company and were reluctant to take any action that might imply criticism of their former colleagues or jeopardize their own prospects of a similar job. 2 AA was too dependent on Waste Management. The SEC claimed that AA regarded the company as a ‘crown jewel client’. Between 1991 and 1997, AA received $7.5 million in audit fees and $11.8 million in other fees. Waste Management also paid AA’s consulting arm, Andersen Consulting, $6 million, of which $3.8 million was for a strategic review on which the audit partner worked. The audit partner for Waste Management was also the marketing director of

Andersen’s head office and was responsible for the cross-selling of non-audit services to audit clients. His compensation was set based on total account billings to Waste Management for audit and nonaudit services.

In our view, AA’s fault was that it regarded its client as the management and, therefore, as auditor, its principal task was to help the management to improve the company’s performance. However, the ‘real’ client should of course have been the body of shareholders and other stakeholders; AA’s task should have been to report objectively on the accounts, to help the shareholders monitor the management.

It would seem that no blame can be attached to the audit firms’ junior staff, who performed the detailed checking and in fact detected most of the problems. What went wrong was that when the senior staff were informed of the problems, they came to the wrong conclusion. In respect to the 1993 accounts, the auditors discovered misstatements totalling $128 million (about 12% of income). The audit team informed the responsible partner who consulted widely within the firm, including with the firm’s managing partner. The partners determined that the misstatements were not material and that AA could issue an unqualified audit report. The same thing happened in the three following years. On the basis of the same facts, the SEC came to the conclusion that the misstatements were material and that AA’s unqualified audit report was materially false and misleading. This supports the SEC’s conclusion that AA were too close to management and too dependent (for fee income) on Waste Management.

Could a similar situation happen now in the UK? Krish thinks not. But when the dust clears on the Carillion case, it may be revealed that it has already happened again, despite the efforts of the FRC and other watchdogs, record fines and increasing and stricter regulation. The jury remains out for the present.

WorldCom and Enron

WorldCom (now MCI Inc.), a US telecom company, was found to have inflated assets by as much as $11 billion. The scandal broke in 2002 when the internal audit department uncovered a $3.8 billion fraud. The main player was the CEO, Bernie Ebbers, who was subsequently sentenced to 25 years in prison. His role was to under-report telephone line costs by capitalizing them rather than expensing them against profits, and also inflating revenues with fake accounting entries. These actions led to the collapse of the company, $180 billion in losses for investors and the loss of 30,000 jobs.

Although less notorious than Enron, WorldCom is in many ways a much more serious failure. Both had AA7 (again) as auditors, which did not survive these two scandals, and is the reason why there is now only a Big Four. With Enron (a US energy and service company), aggressive accounting was used with abandon to keep items off the balance sheet, in particular huge debts. Two CEOs were charged: one died and the other was sentenced to 24 years in prison. The company filed for bankruptcy.

One of the reasons that we consider WorldCom more significant was that the accounting was much more egregious – simply booking expenses as fixed assets was a key part. The report of WorldCom’s own special investigative committee makes it clear:

Ebbers [the CEO] created the pressure that led to the fraud. He demanded the results he had promised, and he appeared to scorn the procedures (and people) that should have been a check on misreporting. . . . While we have heard numerous accounts of Ebbers’ demand for results – on occasion emotional, insulting, and with express reference to the personal financial harm he faced if the stock price declined – we have heard none in which he demanded or rewarded ethical business practices.8

Ebbers controlled the Board’s agenda, its discussions, and its decisions. He created, and the Board permitted, a corporate environment in which the pressure to meet the numbers was high, the departments that served as controls were weak, and the word of senior management was final and not to be challenged.9

With Enron, huge debts were kept off the balance sheet. Shareholders lost $74 billion and AA, the auditors, never recovered. See Box 4.1.

Box 4.1 The Enron scandal summarized

Enron was a commodities, energy and service corporation. Ranked as America’s fifth largest company by Fortune magazine in 2002, despite its 2001 bankruptcy filing, Enron was voted ‘America’s most innovative company’ six years in a row. Enron kept huge debts off its balance sheet. Executives pocketed millions of dollars from complex, off-the-books partnerships while reporting inflated profits to shareholders. This was achieved by associated companies not being consolidated, the use of accounting loopholes, special purpose company vehicles, and poor financial reporting – often hiding billions of dollars in debt from failed deals and projects.

Executives, including Kenneth Lay and Jeffrey Skilling, were prosecuted for fraud-related crimes. Key figures sold their stock shortly before the company announced a sharp downturn in earnings. Shareholders lost $74 billion, investors lost their retirement accounts and many employees lost their jobs.

The scandal was probably self-defeating but was turned in by a whistleblower. Lay died. Skilling was sentenced to 24 years imprisonment. AA was found guilty of illegally destroying documents relevant to the SEC investigation – actually shredding them.

As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes–Oxley Act, increased penalties for destroying, altering or fabricating records in federal investigations or for attempting to defraud shareholders. The Act also increased the accountability of auditing firms to remain unbiased and independent of their clients.10

Evidence and conclusions

As referenced in the previous chapter, Jones11 identified and analyzed 76 corporate and accounting scandals and the many different methods used. Wikipedia lists over 100.12

As we have seen, the reasons were mainly driven by managerial actions: to cover up poor performance, to personally benefit, to meet market or analysts’ expectations, to improve the share price or to meet listing requirements. However, the role of certain key individuals with excessive influence is a common feature – as will be seen in the Steinhoff case in Chapter 8. A dominant chief executive is a common feature of many

significant corporate failures. For example, Kenneth Lay at Enron,13 the notorious Robert Maxwell,14 Fred Goodwin at RBS,15 Sean Fitzpatrick at Anglo Irish Bank16 and many others.

Culture can play a significant role. In 2017 in Japan, there were revelations of the falsification of non-financial data by a number of companies. The lack of proper corporate governance in the country is said to have played a key role.17

Jones feels that a major contributory factor in the scandals was the failure of internal controls including ineffective boards of directors, weak NEDs, a lack of challenging audit committees or internal audits.

Scandals leading to the failure of the auditor

Corporate failure through scandal has led to the subsequent failure of the audit firm. This happened with the failure of AA, auditors to Enron in 2002, and ChuoAoyama, auditors to Kanebo in 2006 – this firm was part of PwC’s network in Japan. ChuoAoyama (PwC) eventually split into two companies: a) Misuzu, which was dissolved in 2007, and b) the residual PwC, reformed as PwC Aarata.

In the case of the Japanese cosmetics company Kanebo, the company admitted it had booked around £1 billion of fictitious profits in its accounts. The details emerged when Kanebo released corrected financial reports. It was revealed that the company had hidden a negative net worth from 1995 to 2003 by inflating sales and under-reporting expenses. The consolidated financial statements showed that Kanebo’s liabilities exceeded its assets by over 80 billion yen in each of the fiscal years 2001 and 2002.

Thankfully, such collusion is rare. In the UK, the FRC is responsible for accountants’ disciplinary matters in public interest cases. Between 2004, when it took on this role, and 2017, there had not been a single finding of collusion between auditor and auditee. (However, for cases arising in 2018 onwards, the jury is still out.) In the US between 2005 and 2016 the PCAOB settled 184 cases.

More recent failures

The Gol case

The Gol scandal occurred in 2012. The bulk of the problems centre on Deloitte’s auditing of Gol, a troubled Brazilian low-cost airline with shares listed in New York. In 2012 the PCAOB18 examined the firm’s audit papers during a routine review. Its inspectors found that a year before,

Deloitte’s senior auditors had signed off the books despite knowing that its staff were still reviewing these for misstatements, in particular related to reserves set aside to cover aircraft maintenance costs. A subsequent probe unearthed systematic attempts by managers and partners to doctor paperwork, conceal evidence and withhold information from inspectors.

Deloitte Brazil as auditors of Gol:19

knowingly issued false audit reports concerning the 2010 financial statements. Deloitte Brazil committed these violations through several personnel who were at the time some of its most senior partners, and who were entrusted with leadership and governance roles in the firm during various stages of the misconduct, as well as through other partners and staff on two audit engagement teams. The leaders who supervised and directed this misconduct not only set a tone of disregard for compliance with PCAOB rules and standards and PCAOB oversight, but also actively thwarted that oversight.

The Gol situation reveals the importance of audit firms having the right leadership. Failing that, junior staff working in the field cannot always be expected to implement the desired ethical behaviour – as they were in Waste Management.

The junior staff (who are young, probably idealistic, and naive or inexperienced) find the errors or creative accounting or frauds and report them to the partners. The partners may be just the opposite of the junior staff – experienced and possibly cynical. They introduce an element of realism into the affair. A weak or poor partner may wrongly advocate the client’s viewpoint. They may not be sceptical enough and too willing to see only the client’s view. They may work on the basis of saying the rules do not prevent this so it is OK. They may fall into the ethical conflict identified by Campbell. Such partners fail to recognize that (in the UK at least) their duty is to the shareholders and not to the directors or audit committee. These interactions between the audit firm and the company go on behind closed doors. Historically, they have only been rarely revealed in cases like Waste Management and Gol during investigations. The adoption of longer and free form audit reports is the first step on the road to changing this – though not so successfully at the moment. We argue that other measures are necessary.

At that time, the highest fine levied by the SEC/PCAOB was against Deloitte for $8 million.20 However, this was exceeded by a recent EY fine for improper auditor relationships. Previously, KPMG was fined $6.2 million for audit errors helping Miller Energy resources overvalue certain assets by more than 100 times.

Connaught and RSM Tenon

Prior to the initial £10 million fine over BHS, the two largest UK fines were for Connaught and RSM Tenon in 2017. PwC was fined £5 million over its audit of Connaught in the period run-up to the social housing group’s collapse in 2010. PwC was then fined £6 million reduced to £5.1 million on settlement following an investigation into the 2011 accounts of RSM Tenon, which collapsed in 2013, in addition to some fines on an individual partner plus legal costs (probably greater than £2 million). One of PwC’s partners was fined £114,750 and PwC had to pay £500,000 costs. With RSM Tenon, PwC was criticized by the FRC for “[t]he admitted acts of misconduct including failures to obtain sufficient appropriate audit evidence and failures to exercise sufficient professional scepticism”.21

Connaught was one of the biggest bankruptcies since Woolworths (the UK retailer) in 2008. At the heart of the matter was a string of loss-making service contracts that the company entered into with local authorities and housing associations. The consensus seems to be that local government cuts and the general austerity policy of the government may have led Connaught to make desperately aggressive and unprofitable bids for some of its service contracts. The FRC mentioned the misconduct in three specific audit areas – mobilization costs, long-term contracts and intangible assets.

The FRC stated that the sanctions related to ‘extensive’ misconduct, with five separate instances highlighted in the RSM Tenon audit in the financial year to the end of June 2011. These included misconduct around the accrual of bonus payments, determining amounts recoverable on contracts, the accounting for a lease and the calculation of goodwill of a subsidiary. What went wrong? Our view is that the firm expanded too quickly, taking over many smaller practices and borrowing in order to do this, revealing, in 2012, a debt burden of over £80 million and a full-year loss of £88.7 million. RSM Tenon then the seventh largest audit firm and was in talks to be bought by rival accountancy firm Baker Tilly, who pulled out of the talks precipitating RSM’s collapse. Baker Tilly then bought up the residual (but valuable) assets, debt-free, in a pre-pack deal by the administrators, Deloitte. Now, in 2019, RSM is one of the largest mid-tier firms after GT and BDO – though mergers and smaller firms joining looser networks makes it difficult to follow any definitive size ranking.

The FRC found against PwC, as auditors, for misconduct in the course of approving the accounts for the accounting year 2010/11, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional scepticism. The FRC said:

The misconduct was extensive, comprising five separate admitted acts in relation to the following areas of the audit: the accrual of bonus

payments, certain aspects in relation to the recognition of work in progress and amounts recoverable on contracts, the accounting for a lease, the assessment of the impairment of goodwill, and the calculation of goodwill in relation to a subsidiary.21

MG Rover

The MG Rover case raises the question of whether there is a wider public duty for the auditor. All three of us believe that, like the medical profession, the accounting and auditing professions have to have a higher duty beyond its narrow legal responsibilities and this case highlights this dichotomy. John has had a special interest in this case and this case study was originally written by him. It also reflects a time when the FRC was ‘soft’ towards the Big Four (in our opinion) and when it was less proactive and much more supportive of the Big Four. Since 2018, post Carillion, the FRC seems to be more or less fighting for its existence, hence it has had to become much stricter and sharper in its reactions, as well as less supportive of the Big Four. This was not the case with MG Rover, and it makes for an interesting case study.

To summarize, in 2015 the FRC published its Disciplinary Tribunal report which found Deloitte (MG Rover’s auditor) guilty of misconduct. An appeal was launched. The FRC then published its Appeal Tribunal report dealing with Deloitte’s appeal against the FRC’s Disciplinary report. The MG Rover Appeal Tribunal, which took place after the Disciplinary Tribunal, comprised a lawyer, an accountant and a lay person. Its report reversed many of the judgements made by the Disciplinary Tribunal. Both tribunals were unanimous in their decisions. The impression is that for the Appeal Tribunal, the principal conflict was not between the FRC and Deloitte, but between the FRC’s Appeal Tribunal and the FRC’s Disciplinary Tribunal. Given the report’s many very negative comments on the Disciplinary Tribunal’s work, a reader would be justified in wondering whether this was essentially a personal feud between the two chairmen – Sir Stanley Burnton, a former judge, and Antony Evans QC. We feel, on reflection, that there are more profound and respectable reasons for their differences, notably that the Appeal Tribunal adopted an excessively legalistic approach; see Appendix 2.04.01 where we justify this assumption after considering the Appeal Tribunal’s report in detail.

Notes

1 See analysis by Verschoor, C. C., 2011, ‘Did Ernst & Young Really Assist Financial

Fraud?’ Accounting Web, 29 May. Available at: www.accountingweb.com/aa/stand ards/did-ernst-young-really-assist-financial-fraud Accessed July 2018.

2 Wikipedia, 2018, Report of Anton R. Valukas, 15 May. Available at: https:// en.wikipedia.org/wiki/Report_of_Anton_R._Valukas Accessed July 2018. 3 Books, R., 2018, ‘The Financial Scandal No One Is Talking About: Accountancy

Used to Be Boring – and Safe. But Today It’s Neither. Have the “Big Four”

Firms Become Too Cosy with the System They’re Supposed to Be Keeping in

Check?’, The Guardian, 29 May. Available at: www.theguardian.com/news/2018/ may/29/the-financial-scandal-no-one-is-talking-about-big-four-accountancyfirms Accessed July 2018. 4 Kessler, A., 2018, ‘Lehman: Political and Personal’, Wall Street Journal, 9 September.

Available at: www.wsj.com/articles/lehman-political-and-personal-1536524375

Accessed September 2018. 5 See Flower, J., 2004, European Financial Reporting: Adapting to a Changing World,

John Flower, Palgrave Macmillan, p. 203. The full book text is available at: http:// eduart0.tripod.com/sitebuildercontent/sitebuilderfiles/eufinancialreporting.pdf

Accessed July 2018. 6 In fact the auditors are appointed by the Audit Committee in conjunctions with management, and then with shareholder rubber stamping (normally). 7 Not to be confused with Andersen Global, the growing international association of tax specialist firms set up by former Arthur Andersen staffers. It is about to come to the UK. 8 Beresford, D. R., Katzenbach, N. deB., and Rogers, C. B. Jr., 2003, ‘Report of

Investigation by the Special Investigative Committee of the Board of Directors of

Worldcom, Inc.’, Find Law, 31 March. Available at: http://news.findlaw.com/wsj/ docs/worldcom/bdspcomm60903rpt.pdf Accessed July 2018. 9 Catasús, B., Hellman, N., and Humphrey, C., editor(s)., 2013, Revisiones Roll i

Bolagsstyrninge (The Role of Auditing in Corporate Governance). SNS Förlag, Stockholm, p. 30. 10 See: Wikipedia, 2018, Enron Scandal, 27 July. Available at: https://en.wikipedia. org/wiki/Enron_scandal Accessed July 2018; Segal, T., 2018, ‘Enron Scandal: The

Fall of a Wall Street Darling’, Investopedia, 3 January. Available at: www.investope dia.com/updates/enron-scandal-summary/ Accessed July 2018. 11 Op. cit. Jones 2010, Part C, Chapter 21, Identifying Some Themes, Sections 21.8 and 21.9 pp. 475–478. 12 Wikipedia, Accounting Scandals, and List of Corporate Collapses and Scandals. Available at: https://en.wikipedia.org/wiki/Accounting_scandals and https://en.wiki pedia.org/wiki/List_of_corporate_collapses_and_scandals Accessed July 2018. 13 See Wiley–Blackwell, 2011, ‘Megalomaniac CEOs: Good or Bad for Company

Performance?’ Science Daily, 31 January. Available at: www.sciencedaily.com/ releases/2011/01/110126101608.htm Accessed July 2018. 14 Clarke, T., 1993, ‘Case Study: Robert Maxwell: Master of Corporate Malfeasance’,

Corporate Governance: An International Review, Wiley Online Library, July. Available at: https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1467-8683.1993. tb00028.x Accessed July 2018. 15 See BBC News, 2012, ‘Former RBS Boss Fred Goodwin Stripped of Knighthood’, BBC News, 31 January. Available at: www.bbc.co.uk/news/uk-poli tics-16821650 Accessed July 2018. 16 Abrahams, G., Horton, J., and Millo, Y., ‘The Dynamics of Managerial

Entrenchment: The Corporate Governance Failure in Anglo-Irish Bank’, SSRN

Paper. Available at SSRN: https://ssrn.com/abstract=2955610 or http://dx.doi. org/10.2139/ssrn.2955610 Accessed July 2018.

17 Sharma, G., 2017, ‘Bevy of Scandals Expose Japan Inc’s Corporate Governance

Problem: Growing Number of Fiascos Ought to Make Japanese Enterprises

Confront Their Corporate Governance Demons’, International Business Times, 6

November. Available at: www.ibtimes.co.uk/bevy-scandals-expose-japan-incscorporate-governance-problem-1645849 Accessed July 2018. 18 The Public Company Accounting Oversight Board is a private-sector, non-profit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers. The PCAOB protects investors by overseeing the audits of public companies, other issuers and broker-dealers. 19 PCAOB (Public Company Accounting Oversight Board), 2016, ‘Order Instituting Disciplinary Proceedings, Making Findings, and Imposing Sanctions: In the Matter of Deloitte Touche Tohmatsu Auditores Independentes’, PCAOB, 5 December. Available at: https://pcaobus.org/Enforcement/Decisions/

Documents/105-2016-031-Deloitte-Brazil.pdf Accessed July 2018. 20 FRC, 2017, Independent Review of the Financial Reporting Council’s Enforcement

Procedures Sanctions, Review Panel Report, October, para 5.34, p. 35. Available at: www.frc.org.uk/getattachment/e7c1b326-55b9-4676-8b60-b191037b2486/

Sanctions-Review-Report-(November-2017).pdf Accessed July 2018. 21 FRC News, 2017, ‘Sanctions against Senior Auditor and PwC in Relation to

RSM Tenon Group Plc’, Financial Reporting Council, 16 August. Available at: www. frc.org.uk/news/august-2017/sanctions-against-senior-auditor-and-pwc-inrelati Accessed July 2018.