Analysis for Toshiba Accounting Scandal
Background:
With rapid economic development, accounting has become more and more important
around the world. However, many national accounting scandals have occurred frequently over
the past 15 years. Recently, Toshiba Corporation, the biggest Japanese multinational
conglomerate corporation headquartered in Tokyo, Japan, just broke a serious accounting scandal
in May 2015. The incident involved 1.9 billion, which would be the biggest ever in Japan for
accounting-related violations, though it is small compared with penalties U.S. companies have
received in such issues. The Toshiba Company had padded its profits by $1.9 billion over seven
years, mainly form falsifying revenues from chips and semiconductors sectors. The committee
of external lawyers and accountants probing the computers-to-nuclear conglomerate found “most
of the accounting treatment issues that were the scope of this investigation were not noted” by
Ernest& Young. Based on this bad influence, the company directors decided to replace half of the
management team.
Tokyo-Japanese regulators recommended imposing a record fine of $60 million on the
electronics and industrial company. The investigative report stated, “Toshiba directorate pursued
their Toshiba investigation with special rigor because it unfolded as Prime Minister Shino Abe is
trying to raise companies’ accountability to share holders and boost transparency in a bid to
attract more foreign investments”(The Wall Street Journal, 2015). The Toshiba’s accounting
irregularity was that the company’s staff underestimated the cost of long-term projects; they
inflated operating profits, deferred losses, or otherwise falsified accounts.
This illegal behavior made the company overstate at least 158.1 billion yen ($1.2 billion
US) in operating profits between 2008 and 2014. In addition, the investigative study by the
Securities and Exchange Surveillance Commission noted that the company still has a significant
problem of inaccurate inventory valuation. This accounting scandal is important because Toshiba
is one of Japan’s top companies and is also a famous global company. As well, it happened at the
time when Japan was ramping up corporate governance by Japan’s premier Shinzo Abe.
Disclosure Process:
How did this enormous scandal happen and how was it discovered? In March 2015, the
Tokyo-Japan Securities and Exchange Surveillance Commission received an internal report from
Toshiba that indicated that Toshiba had violated Japan’s “Financial Instruments and Exchange
Act”. It could not record losses be included in current loss correctly. Under strong external
public pressure to conduct an independent audit of their whole operating system, Toshiba hired a
third party team of lawyers and accountants. The Toshiba accounting scandal was exposed step
by step in Appendix 1.
The investigators found that “as of 2015, the conglomerate operates business units on a
worldwide scale in a variety of diverse industries, including semiconductors, personal
electronics, infrastructure, home appliances and medical equipment. Toshiba reported net
