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There are specific prohibitions related to a statutory auditor or relatives of the statutory auditor. These prohibitions include (1) auditing a company where any special benefits from the company are derived; (2) holding any type of management position; and (3) serving on the board of directors of the company being audited or any of its subsidiaries.(n114) Furthermore, auditors are prohibited from performing management consulting, tax consulting, or general accounting services for their audit clienst.(n115) The restriction is extended further to individuals and their spouses who function as part of management or the board of directors of an organization in which the audited company owns ten percent.(n116) These restrictions exist for at least a five- year period following the audit.(n117)

Statutory auditors have no responsibility for detecting fraud except that they are legally responsible to their client and to third parties "for damages suffered due to the auditor's fault or negligence."(n118) French law requires commissaires to carry liability insurance in an amount specified by the government. Furthermore, the statutory auditor is required by law to report to the Public Prosecutor any criminal act committed by the company's board of directors of which he becomes aware.(n119) A similar requirement was introduced during the Dingell Committee Hearings in the United States,(n120) and was incorporated in its bill, H.R. 4886.(n121) The bill was not enacted.


The Commercial Law Code enacted in 1890 governs the organization of business enterprises and is administered by the Ministry of Justice.(n122) This Code specifies that audits of companies must be performed by statutory auditors who are responsible for attesting to the directors' functions as well as to the fairness of the financial statements. Statutory auditors must report their opinions on the financial statements which are submitted in a general meeting of shareholders. These statutory auditors may be professional accountants or independent auditors.(n123)

In the early 1970s, as a direct result of manipulation of the financial statements of companies that went bankrupt in the 1960s, a new Law for Special Measures under the Commercial Law Code as to Auditing was enacted.(n124) This law specified that stock corporations with capital over 500 million yen or with liabilities over 20 billion yen must be audited not only by a statutory auditor but also by an independent auditor who is either a CPA or a professional audit corporation.(n125) The statutory and the independent auditors must be approved by the shareholders.

As in the U.S., Japanese auditors are responsible for detecting "errors, fraud, or omissions that would cause a material difference in the financial statements."(n126) Furthermore, under the Law for Special Measures, if an independent auditor detects an unfair act by the directors, a violation of any law or regulation, or a breach of any bylaw of the corporation being audited, the auditor must report this matter to the statutory auditor.(n127) This goes well beyond the U.S. standard.(n128)

According to the Commercial Law Code, the auditor has a legal liability to clients and third parties. With respect to third parties, "if there is damage because of materially false items in the


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