Olympus's <7733.T> external auditors are set to sign off restated accounts this week, the Asahi newspaper reported on Tuesday, clearing a key hurdle in the Japanese group's struggle to survive a $1.7 billion (1.0 billion pounds) accounting fraud.

Separately, ousted chief executive Michael Woodford said he could win a battle for control of the company, adding he had the support of two major shareholders in the cameras and medical equipment maker.

Olympus, which must publish second-quarter results by Wednesday to keep its stock-market listing and avoid being cut off from capital markets, will also submit corrected accounts for the past five years.

While it has repeatedly reassured investors it would meet the deadline to sort out its accounts, there have been worries over whether its auditors would sign off on them.

Auditing firms KPMG AZSA LLC and Ernst & Young ShinNihon LLC will approve without qualification all the statements except for that for the year to March 2007 which they will approve with qualification, the Asahi said without citing sources.

Olympus shares lost more than 80 percent of their value at one point since the scandal broke in October when it sacked Woodford, who then went public with his concerns about some Olympus deals.

An outside panel commissioned by the company has found several former executives engineered a scheme to hide investment losses for 13 years and had used acquisition payments to aid the cover-up.

Olympus shares have rallied from their lows in recent weeks, with investors betting it will avoid a delisting. Now at about half its pre-scandal value, the stock rose 5.4 percent to 1,370 yen on Tuesday.

WOODFORD RETURNS

Woodford arrived in Tokyo on Tuesday, for his second visit since fleeing after his firing two months ago, to persuade employees and investors he was the right person to return to his old job and get the group back on track.

He faces a battle with the board, which plans to resign but wants to pick their own slate of successors first.

Those people who are described as 'yes-men' should not be choosing or having any influence on the future management of this company or any strategic decisions, Woodford told reporters at Haneda Airport, Tokyo.

Woodford did not name the two big shareholders backing him but said they approached Olympus president Shuichi Takayama on Friday to urge him to work with Woodford over the next 6-8 weeks to select a new board.

That would avoid a proxy fight, all the destruction, all the inconvenience and the worry to so many people, Woodford said. And I was willing, and still am, to go along that route. But Mr. Takeyama's response, after considering it for an hour, was he was too busy to meet me this week.

Olympus's investigative panel put much of the blame for the scandal on a former executive vice president and a former corporate auditor, and said past presidents had been made aware of the cover-up.

Tokyo police, prosecutors and the securities watchdog, which have launched a rare joint probe of the affair, were expected to intensify the probe after Olympus publishes restated earnings.

The Nikkei newspaper reported former Olympus president Tsuyoshi Kikukawa, who stepped down after the scandal broke in October, had personally dismissed the auditing firm that had raised objections about the murky acquisitions used in the accounting concealment of losses.

The acquisition payments included three unusual domestic deals as well as a massive fee paid to a financial advisory firm linked to its $2 billion takeover of British medical devices maker Gyrus Group in 2008.

KPMG AZSA LLC, Olympus's auditing firm at the time, raised objections to the deals in May 2009, calling them overpriced, the Nikkei said. In response, Kikukawa went to the firm's offices to say it would not be rehired, adding it was interfering in management decisions, the paper reported.

Kikukawa, who succeeded Masatoshi Kishimoto as president in June 2001, received updates on the loss-making investments several times a year based on information contained in a secret ledger, the business paper said. These reports were destroyed after each update meeting, it said, quoting unnamed sources.

Kikukawa has not commented since stepping down as president.

(Additional reporting by Sunayan Bhattacharjee in Bangalore; Writing by Linda Sieg and Edmund Klamann; Editing by Mark Bendeich and Dan Lalor)