Probe launched into Toshiba audit

The Japanese affiliate of Ernst & Young LLC has launched an in-house investigation into its audit of Toshiba Corp in the wake of the electronics maker's $1.2 billion accounting scandal, a person with knowledge of the matter said.

Ernst & Young ShinNihon LLC has established a team of about 20 executives to investigate whether there were any problems with how it conducted its audits of Toshiba, the person said. The person spoke on condition of anonymity. No one could be reached at the company's offices in Tokyo on Saturday.

The news was first reported by the Nikkei newspaper.

Last month, an external panel of lawyers and accountants hired to probe Toshiba's accounts found the company had inflated profits by 152 billion yen ($1.23 billion) over seven years by postponing the realisation of losses and other schemes.

The scandal ranks as one of corporate Japan's biggest alongside the 2011 accounting fraud at medical equipment and camera maker Olympus Corp, which was also a client of Ernst & Young ShinNihon.

The Japan Institute of Certified Public Accountants, a self-regulatory body for the accounting industry, said last week that it had started investigating the audit of Toshiba. The Financial Services Agency, the country's financial regulator, is expected to follow with its own probe in the coming months.

The in-house investigating team at Ernst & Young ShinNihon is made of audit check specialists, and there will be no cross-over with the roughly 150 people working to finish the post-scandal audit of Toshiba's accounts, the person familiar with the matter said. The auditing firm will aim to finish its investigation by the end of August, the person said.