A former head of the nationalized Ashikaga Bank on Wednesday said ChuoAoyama Audit Corp.'s sudden decision not to count the bank's deferred tax assets as part of its capital was to blame for the bank's failure in December.

Yoshiaki Higano, former president of the Tochigi-based Ashikaga Bank, said the accounting firm told the bank on Nov. 27 that its deferred tax assets could not be counted as the bank's capital for the half-year period ending last September.

"ChuoAoyama had never suggested that our deferred tax assets would not be counted toward capital before Nov. 27," Higano in unsworn testimony told the financial affairs committee of the House of Representatives.

On the same day, the Financial Services Agency told Ashikaga Bank that the FSA's inspection had found that the bank's financial situation for the period between April 2002 and March 2003 was substantially in the red.

This also came as a shock to the bank, with the accounting firm having earlier approved the bank's financial statement, saying the bank had cleared the capital adequacy ratio of 4 percent, according to Higano.

The FSA told the bank to submit its financial statement for the six-month period through September 2003 within that day, Higano explained. The bank thus had no choice but to submit a financial statement stating its negative net worth of 102.3 billion yen as of Sept. 30, after excluding its deferred tax assets from the capital as the accounting firm had ordered it to do, he stressed.

As a result, the bank's capital adequacy ratio fell to minus 3.7 percent. Banks operating domestically are required to have a minimum capital adequacy ratio of 4 percent.

Hiroshi Ueno, chief executive partner of ChuoAoyama Audit Corp., rejected Higano's argument, stating that auditors from the accounting firm had previously warned the bank not to rely on its deferred tax assets.