Olympus has until December 14 to fix its financial statements in the wake of a high-profile accounting scandal if the camera maker wants to retain its listing on the Tokyo Stock Exchange.

The Japanese company released a third-party report Tuesday from an outside panel of legal experts that termed its corporate management “rotten to the core” and filled with “yes men.”

The problems with the camera and medical equipment manufacturer emerged when it fired chief executive Michael Woodford, who had questioned suspicious transactions on the company’s books after just two weeks on the job. He went public and accused the company of siphoning off more than $1.5 billion through offshore funds to hide non-performing securities that it wanted to keep off its balance sheet (see Olympus’s Mounting Financial Woes). The company is now facing lawsuits and investigations (see Olympus Sued over Accounting).

Woodford’s whistleblowing led to the departures of the company’s chairman, executive vice president, internal auditor and, most recently, a board member.

Now that the third-party report has been released, Woodford has been vindicated and the company’s new president, Shuichi Takayama, has credited him with stepping forward. Woodford is reportedly seeking to return to the company as chief executive, according to the Financial Times, and he hopes to call for an extraordinary shareholders meeting to re-instate him and replace the board. However, Takayama may want to retain his control and allow a more gradual transition to a new board.

The third-party report described how Olympus’s longtime auditors, KPMG Azsa LLC, originally warned the company about questionable transactions involving more than $600 million in takeover advisory fees and payments, but when the company hired an outside expert that approved the expenditures, KPMG signed off on the 2009 audit, according to Bloomberg. But then Olympus switched its auditing firm to Ernst & Young ShinNihon LLC a week later. KPMG Azsa said it would cooperate with investigators and Ernst & Young ShinNihon has set up a committee to look into the audits.

The report found fault with both firms, noting, "The auditing firm once did point out that a part of the Transaction was unreasonable, thus the check and balance function could have possibly worked. However, as described below, it carelessly relied on the outside experts' report that did not serve its original function and was not eventually able to make the appropriate suggestion. The process which took place at the time of succeeding the role was insufficient, and we must find that were not able to discharge their responsibility in a sufficient manner,"


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