CHUOAOYAMA, the Japanese partner firm of PricewaterhouseCoopers that signed off the fraudulent accounts of the cosmetics giant Kanebo, has lost many of its biggest clients to a crisis of confidence and faces a two billion yen (£100 million) hit to its revenues this year.

Analysts believe that the worst is far from over and predict that ChuoAoyama, reeling from a two-month business suspension order handed down by the Financial Services Agency in mid-May, could now see as much as 25 per cent of its listed client base defect to rival auditors.

More than 70 of ChuoAoyama’s 800 publicly traded clients have said that they will switch accountants, with that number expected to soar during the June “AGM season” as shareholders in ChuoAoyama client firms urge management to abandon the brand now tainted by its complicity in the Kanebo window-dressing scam in 2004.

The Pension Fund Association in Japan, whose members control about £60 billion between them, has said that it will demand that senior management clarify at shareholder meetings whether they intend to stick with ChuoAoyama.

Blue-chip clients such as Shiseido and Asahi Glass are among those who have abandoned ChuoAoyama already, fearing that investors will not trust them if their books continued to be signed off by an auditor with such a tarnished name.

The crisis at ChuoAoyama has prompted a panic reaction by PricewaterhouseCoopers, which is desperate not to lose the reputation of its global brand in the world’s second-biggest economy. The firm has said that it will set up a new company — probably bearing the main PricewaterhouseCoopers brand — and has earmarked 300 accountants from ChuoAoyama to staff it.

Large investors, who have declared the scandal “Japan’s Enron”, told The Times yesterday that the current exodus of clients and the confusion it has left in is wake could spark “months of chaos” on the Tokyo stock market.

One fear, Dominic Henderson of Macquarie Securities, said, is that the punishment dealt to ChuoAoyama will scare other auditors into a mood of over-cautiousness. Corporations that are heavy users of Special Purpose Companies may find that the accountants who have audited them for years now refuse to sign off the books unless the SPC’s contribution is removed from the bottom line.

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