Michael Andrew, the chairman, also outlined steps needed to improve the auditing industry in a in a speech entitled, Fraud, Financial Crises and the Future of the Big Four. He spoke to the Foreign Correspondents Club in Hong Kong.
KPMG AZSA LLC audited Olympus for several years until 2009, when it was replaced by Ernst & Young ShinNihon LLC. An internal document obtained by Reuters showed that the maker of cameras and medical equipment replaced KPMG after a dispute over how to account for some acquisitions.
Andrew said he was constrained in what he could say about the Olympus scandal, although he did address the issue, saying that KPMG had done the right thing in the actions it took pertaining to the Japanese company.
What is pretty evident to me is that it is a very, very significant fraud, he said, adding: We should wait for the Japanese authorities to disclose that.
I think it is very hard to jump to the conclusion that it's a corporate governance failure, he said. Regulation will never prevent corporate scandals, he added, saying that the amount of actual corporate frauds found globally is relatively tiny.
Andrew also called for more coordinated regulatory oversight as auditing firms have found themselves caught between regulators wanting different rules and standards, such as the current issue facing the United States and China.
He spoke of the difficulties in Europe, where accounting for Greek debt was not done according to a single set of standards by the parties involved. Andrew cited the case of France and Germany accounting for bonds using different figures.
So how do you account for Greek debt? he asked, pointing out that the accounting standards should be the same. As for how that impacts the banks involved, that's up to regulators to determine, he said.
The Public Company Accounting Oversight Board (PCAOB), the U.S. auditor watchdog, has been pushing to be allowed to inspect Chinese audit firms, but talks with authorities in Beijing appear to have stalled in recent months.
In October, audit industry sources told Reuters that China's financial authorities had asked the big audit firms to review their work on U.S.-listed Chinese companies and disclose any information they may have shared with overseas regulators.
Andrew said that while this does not often happen, being caught between regulators in the United States and China in this instance makes auditing very difficult. He cited the need for global regulatory oversight to help avoid such cases.
China has been one of the fastest-growing markets in the world for accounting firms, expanding by nearly 20 percent in 2010 and accounting for an estimated $1.5 billion (968.8 million pound) in revenue for the Big Four firms last year, according to data from the International Accounting Bulletin.
KPMG has 10,000 people in China, he said. The issues the auditing industry has faced with Chinese clients lately is not crimping the firm's growth plans there, he said.
One issue being mentioned as a way to help corporate governance is audit rotation, where companies are forced to switch auditors after a certain period of time.
Andrew was critical of this idea, saying that this raises cost concerns and that mistakes can go undetected during an audit handover.
The empirical evidence shows that errors occur on that change, he said.
Among the items he listed to improve the industry was allowing firms to expand the scope of their audits and mandatory cooperation between auditors and regulators.
(Additional reporting by Rachel Armstrong; Editing by Chris Lewis)