Toshiba Corp's years-long practice of inflating its profits has raised questions among accounting experts about whether low fees paid by Japan-listed companies to their auditors mean they do not spend enough time scrutinising company accounts.
Toshiba chief executive Hisao Tanaka and a string of other senior officials resigned last week after an independent inquiry found the company had padded its profits by US$1.2 billion over several years, in one of Japan's biggest corporate scandals in years.
The committee of external lawyers and accountants probing the computers-to-nuclear conglomerate found "most of the accounting treatment issues that were the scope of this investigation were not noted" by the auditor Ernst & Young ShinNihon.
It added though that the involvement of top management in the accounting irregularities may have made it harder for auditors to detect problems, noting that the quality of the audit could only be determined by a separate investigation.
EY ShinNihon declined to comment for this article. Tanaka has said he never had any intention of encouraging accounting irregularities but did not dispute the report's findings.
Some accounting experts say the scandal highlights the low audit fees paid by Japanese companies, which they believe are caused by historical caps, stiff competition and a corporate culture that does not value the audit function or shareholder transparency.