Auditor had questioned Nissan on payments to Ghosn at heart of scandal: source

TOKYO (Reuters) - Nissan Motor Co's auditor had repeatedly questioned transactions at the heart of allegations of financial misconduct by former chief Carlos Ghosn but Nissan said they were proper, a person with direct knowledge of the matter said on Wednesday.

Ernst & Young ShinNihon LLC questioned Nissan's management several times, chiefly around 2013, about purchases of overseas luxury homes for Ghosn's personal use and of stock-appreciation rights that were conferred on him.

But the Japanese automaker said the transactions and financial reporting were appropriate, the source told Reuters on condition of anonymity.

The revelation shows Nissan and its auditor were discussing the transactions, in apparent contrast with Nissan's contention that the alleged misreporting of benefits for Ghosn was masterminded by Ghosn and a key lieutenant.

A spokesman for EY ShinNihon, the Japanese affiliate of global accounting firm Ernst & Young, said he could not comment on specific cases. A Nissan spokesman declined to comment.

Ghosn was arrested on Nov. 19 as he arrived in Japan. Prosecutors accuse him of falsifying Nissan's annual reports to understate by about half his total compensation of some 10 billion yen ($90 million) over several years.

The high-profile former executive has denied the allegations, according to Japanese media. Ghosn remains in custody and is unable to speak publicly. He is represented by former prosecutor Motonari Otsuru, according to Japanese media.

Otsuru's law firm declined to comment on Wednesday, and Otsuru has not responded to requests for comment.

Nissan has largely pinned the blame on Ghosn and Greg Kelly, a former representative director who was arrested along with Ghosn on the same allegations.

"As a result of the investigation, we are certain these two are the masterminds," CEO Hiroto Saikawa told a news conference on Nov. 19, referring to Ghosn and Kelly. He declined to say whether others at Nissan were involved in the alleged wrongdoing. An internal investigation is ongoing, and Nissan says it is cooperating with prosecutors.

Nissan and Mitsubishi Motors Corp have removed Ghosn as chairman in the wake of his arrest. The French member of the three-firm alliance, Renault SA, retains him as chairman and CEO.

EY ShinNihon questioned Nissan management about Zi-A Capital BV, asking whether the Dutch unit - which purchased the overseas homes for Ghosn's use - was conducting business in line with its stated aim as an investment company, said the source, who is not authorized to speak publicly on the matter.

The car maker said Zi-A was conducting its business appropriately, the source said. Japanese media have valued the transactions at more than 2 billion yen.

Similarly, the source said, the auditor asked whether the stock-appreciation rights - which are like stock options but pay out in cash if a share rises to a certain price - should be declared, but Nissan replied that was not necessary. Japanese media say the rights were worth some 4 billion yen.

EY ShinNihon had been auditor for Toshiba Corp and Olympus Corp during financial scandals at the two Japanese companies in recent years. The auditor's questioning of Nissan on the transactions was first reported by Japanese public broadcaster NHK. ($1 = 113.8300 yen)

(Reporting by Takahiko Wada; Additional reporting by Kazuhiko Tamaki and Sam Nussey; Writing by William Mallard; Editing by Muralikumar Anantharaman)