Olympus Corp's former president Tsuyoshi Kikukawa personally dismissed the auditing firm that raised objections about the acquisitions used to cover up loss-making investments, the Nikkei business daily reported, citing sources familiar with the ongoing investigations.

Olympus used payments to a financial advisory firm connected with its takeover of U.K. medical devices maker Gyrus Group Plc, as well as a portion of the cost of three domestic acquisitions, to offset the securities losses, the paper said.

KPMG AZSA LLC, Olympus' auditing firm at the time, raised objections to the deals in May 2009, calling them overpriced, the Nikkei said.

In response, Kikukawa, himself went to the firm's offices to say it would not be rehired by Olympus, accusing it of interfering in management decisions, the paper reported.

Around 1998, Olympus, faced with new accounting rules that would have required it to report nearly 100 billion yen in losses on financial products, had began setting up off-balance-sheet investment funds to hide the soured investments, the business daily said.

In May 1999, Kikukawa became executive managing director in charge of financial affairs. Hideo Yamada, one of the officials implicated in the cover-up, reportedly asked the then President Masatoshi Kishimoto when Kikukawa would be told about the losses. I'll talk to him, Kishimoto replied, Nikkei said, quoting sources.

Kikukawa, who succeeded Masatoshi Kishimoto as president in June 2001, received updates on the investments in meetings held several times a year based on reports on what amounted to a secret ledger. These reports were destroyed after each meeting, the business paper said, quoting sources.

Investigators see the findings as possible evidence of Kikukawa's involvement in the events from the time the impaired investment securities were removed from the books until the losses were eventually written off, the paper reported.

Meanwhile, the Japan Business Federation has decided to punish scandal-tainted Olympus and Daio Paper Corp on December 21, the Nikkei said.

The powerful business lobby, also known as Keidanren, may demand the resignation of any officials who currently hold organizational positions and bar them from taking part in member activities for the foreseeable future, the paper said.

The punishments reflect the organization's view that the scandals have seriously eroded investor trust in Japanese companies and capital markets, the Nikkei said.

Daio Paper's former chairman Mototaka Ikawa was arrested for taking out personal loans from group companies, the paper reported.

(Reporting by Sunayan Bhattacharjee in Bangalore; Editing by Sriraj Kalluvila)

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