(Reuters): Olympus Corp's use of accounting tricks to hide big losses has raised questions about whether its auditors, the Japanese arms of global giants KPMG and Ernst & Young, should have done more to follow up on red flags. The Japanese maker of cameras and medical equipment shocked investors on Tuesday, admitting it had used payments to merger advisors and venture capital funds to cover up securities losses dating back decades. Japan's Financial Services Agency will investigate whether Olympus's auditors knew about the hidden losses or were negligent in their checks, a source with knowledge of the matter told Reuters.

Ernst & Young ShinNihon LLC, which took over as Olympus auditor in 2009, declined to comment, citing client confidentiality. KPMG AZSA LLC, which audited Olympus for several years through to 2009, also declined to comment.

A severe penalty would send shivers through the auditing industry in Japan, still reeling from a series of scandals that led to a two-month suspension of ChuoAoyama Pricewaterhouse Coopers in 2006 and the disbanding of its successor firm in 2007.

Ernst & Young ShinNihon is Japan's largest auditor with more than 4,000 clients and 3,000 certified public accountants.

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