Major accounting firm EY has been added to Fuji Xerox's civil legal proceedings against three of its former executives.
The printing company, owned by Japan's Fujifilm and US-based Xerox, is pursuing former managing directors Neil Whittaker and Gavin Pollard and former CFO Mark Allright in court following a near $500 million accounting scandal involving its New Zealand and Australian subsidiaries that came to light in 2017.
Fuji Xerox New Zealand managing director Peter Thomas confirmed in a statement to the Herald that EY had been added to the case as a defendant.
EY was the corporate auditor for Fuji Xerox New Zealand and Fuji Xerox Finance from 2002 through to 2016.
"While this is a complex case likely to continue for some time, it represents a further step towards ensuring accountability and transparency," Thomas said in a statement.
"Fuji Xerox has made a commitment to seek to ensure that all those parties that are considered to have responsibility for the inappropriate accounting practices that took place at Fuji Xerox New Zealand will be held to account and we look forward to the court process allowing a full examination of what happened."
Fuji Xerox's "inappropriate accounting" occurred over a six-year period from March 2011 to 2016 with parent company Fujifilm booking losses of $473m, including about $355m from the New Zealand company.
The root of the cause, according to an independent report released in 2017, was a "sales first at any cost culture" to meet sales targets, and commissions that saw photocopier sales staff making more money than Cabinet ministers.
Lavish bonuses were handed out while holidays to senior executives and their wives were later costed at up to $25,000 a head.
Fujifilm commissioned the report following media attention by the National Business Review and the findings were translated into English and released publicly.
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The report found Fuji Xerox NZ had consistently exaggerated sales revenue, including through double recording of sales, recording fictitious sales and fictitious recording of expenses.
The investigation committee said the subsequent audits conducted by the accounting auditors failed to prevent, or detect early, the issues covered in the report.
However, the committee made the following points:
• Internal controls were thwarted by collusion between related parties.
• Fabricated audit evidence was submitted and false explanations at odds with fact were given to the accounting auditor.
• There was accounting irregularity at companies outside the scope of audits that were deemed not important for audit purposes.
• The accounting auditor – an independent third party that was not authorised to directly or forcibly investigate the facts concerning outside related parties who were outside the FH [Fujifilm Holdings] group – had difficulties collecting facts as audit evidence that were at odds with the company's explanations in the course of the audits.
It also said Fuji Xerox took a "unique attitude and approach" toward accounting audits, based on statements taken from former senior executives at the company.
This "culture of concealment" when giving explanations to independent auditors became an underlying cause of inappropriate accounting, and delayed the opportunity to "discover and prevent inappropriate auditing", an independent investigation committee found.
In a statement commenting on the conduct, Simon O'Connor, EY New Zealand managing partner, said: "EY's priorities are our people, clients and commitment to delivering high-quality service. This remains true as we continue to defend these legal proceedings.
"Due to our obligations as a litigant and confidentiality requirements, we have nothing further to add at this time."
In April this year the disciplinary tribunal of the New Zealand Institute of Chartered Accountants censured the accountant who led Fuji Xerox's audit team, suspended him from practicing for 12 months and ordered him to pay the tribunal's costs.
However, the names of the auditors of Fuji Xerox's New Zealand subsidiary remained suppressed after an appeal hearing against a decision by an accountants' disciplinary tribunal.
Meanwhile, Fuji Xerox yesterday announced it had launched a takeover bid for Australian tech company CSG Limited for A$140.8m ($150m). It has entered into an agreement with CSG to acquire all of its shares, subject to shareholder approval.
Under the deal, CSG shareholders will receive A$0.31 cents per share. CSG's equity is valued at A$140.8m and enterprise value at A$181.6m ($194m). The transaction will be funded from Fuji Xerox Asia Pacific's existing cash on balance sheet.