An unofficial panel of experts cleared global accounting groups KPMG and Ernst & Young of any responsibility for a $1.7 billion (1.1 billion pound) accounting fraud at Japan's Olympus Corp on Tuesday, though the role of the firms remained under official review.

The scandal, one of corporate Japan's worst, had raised questions over the role of the two audit firms, which signed off on the accounts of the maker of medical equipment and cameras before the 13-year fraud finally surfaced in October.

But the panel of lawyers set up by Olympus to look at the role of auditors said in a report on Tuesday that internal auditors were to blame, saying five of them, former and current, were responsible for 8.4 billion yen ($109 million) in damages.

The panel effectively found the fraud, identified by a separate investigation as having being hatched by two former top executives in the 1990s to conceal losses, had been too well covered up for the external audit firms to have unravelled it.

The masterminds of this case were hiding the illegal acts by artfully manipulating experts' opinions, the report said.

Neither KPMG's Japanese unit, KPMG AZSA LLC, which was the firm's external auditor until 2009, nor Olympus' current auditor, Ernst & Young ShinNihon LLC, was found to have violated its legal duties, the panel said.

Ernst & Young and KPMG, however, still face possible sanctions by the country's accounting industry body and financial regulator, which have launched probes into the matter.

Olympus is expected to bring a damages suit against the five as early as Tuesday, the Nikkei business daily reported.

The company is already suing its president and 18 other executives, past and present, for up to 3.6 billion yen in compensation for the accounting scam, which has halved Olympus' share price and put it under pressure to raise capital.

Fresh lawsuits against internal auditors would only add to what is already an extraordinary chapter in Japanese corporate governance, with Olympus being mostly run and internally audited by people it is suing for mismanagement or a failure of duty.

Olympus said last week that all board members subject to the lawsuit would quit at an emergency shareholders meeting to be held in March or April.

OLYMPUS STILL SEEN LIKELY TO STAY LISTED

A decision, however, to clear the auditing firms could bolster Olympus' chances of staying listed on the Tokyo Stock Exchange, a critical pre-requisite for its campaign to remain an independent company with access to fresh equity capital.

Suing Ernst & Young ShinNihon would likely leave it without an auditor and make it hard to meet bourse requirements.

But Japan's Financial Services Agency (FSA) is still looking into the auditors' roles. The exchange has yet to conclude whether Olympus should remain listed.

Olympus has admitted to having used improper accounting tricks to conceal massive investment losses under a scheme that began in the 1990s, when Japanese stock markets had fallen heavily and the yen strengthened markedly.

The scandal came to light after Olympus fired its British chief executive, Michael Woodford, in October, prompting him to publicly blow the whistle on the firm's dubious bookkeeping.

Woodford later launched a campaign to be reinstated but withdrew after failing to win support from Japanese institutional investors.

The fraud relied on complex transactions, many of them involving offshore vehicles, which were presented in Olympus financial statements as legitimate acquisitions or investments.

It was only late last year that some of these deal payments were exposed to be shams, especially a $687 million advisory fee paid to a boutique U.S. financial firm for the $2 billion acquisition of British medical equipment firm Gyrus in 2008. At a third of the purchase price, the fee was the world's largest.

Tuesday's report found former standing corporate auditors Minoru Ota and Katsuo Komatsu, current outside corporate auditors Makoto Shimada and Yasuo Nakamura, and current standing corporate auditor Tadao Imai had breached their fiduciary duty.

It also held Ota responsible for 3.7 billion yen in damages. He headed the accounting division in the 1990s.

The other four were collectively held responsible for about 4.7 billion yen in damages because they had overlooked Olympus directors' illegal activities, it added.

A panel set up by Ernst & Young ShinNihon LLC to review its auditing of Olympus said in December that it had not found any problems, although a separate investigative committee appointed by Olympus had been critical of the auditors' role.

KPMG's chairman, Michael Andrew, said in November that his firm had done the right thing in its actions regarding Olympus.

Olympus President Shuichi Takayama will hold a news conference on Wednesday at 1 p.m. (0400 GMT), the company said, to discuss its response to the panel's report.

Olympus shares showed little reaction to the report, last trading down 0.4 percent at 1,176 yen compared with a 0.8 percent rise in the benchmark Nikkei average.

($1 = 76.84 Japanese yen)

(Additional reporting by Mari Saito; Writing by Linda Sieg; Editing by Mark Bendeich)