Jonathan In 2011, it came to light that,

Jonathan Soble’s article entitled, “Toshiba
Inflated Earnings by $1.2 Billion, a Panel of Experts says”, details the news of Toshiba, “the Japanese Industrial Giant
(Soble),” overstating its earnings. According to the article, over the last
seven years, Toshiba is reported to have overstated its earnings by $1.2
Billion (Soble). News broke Monday after an independent investigative team
reported a number of discrepancies in Toshiba’s accounting practices (Soble).
However, questions surrounding Toshiba’s financial planning first arose in
April following the company’s announcement that is was, “examining possible
improprieties in past earnings statements (Soble).” This ambiguity surrounding
the company has caused a decline of more than 20% in its  share price since that time (Soble).

The investigatory committee revealed a systematic
reporting problem within the company which dated back to 2008, when the global
financial crisis hit (Soble). The team reported
that there was “implicit pressure (Soble)” from the company’s higher-ups to
meet unattainable profit margins, which in turn resulted in division managers
falsifying their reports (Soble). Furthermore, the committee also revealed that the
appearance of net profits were intentionally inflated by individuals occupying
management positions (Soble). The duplicity
extended even further as Toshiba’s accounting department was also accused of
intentionally misleading auditors in an attempt to, “carry out a systematic
cover-up (Soble).” Ultimately, the four investigators revealed that accounting
discrepancies were present within all six of Toshiba’s main divisions (Soble). In light of the
news, Hisao Tanaka and Norio Sasaki, the company’s CEO and vice chairman
respectively, have made plans to resign Tuesday (Soble).

The investigatory committee found that Toshiba’s personnel
had falsified records through a number of ways including, “underreporting the
cost of raw materials and components, the reporting of uncertain future
income, …. and the delay of write-offs related to canceled contracts and
other business setbacks (Soble).” The extent of overstatement unveiled by the
committee reportedly totals more than $1.21 billion, which comes in addition to
the $4.4 billion that Toshiba had previously discovered (Soble). As a result, Toshiba is now being
compared to Olympus (Soble). In 2011, it came to light that, Olympus had “manipulated
accounts to cover up investment losses incurred years … earlier (Soble).”
Similar to Olympus, Toshiba is now being investigated by Japanese security
regulators for possible securities violations (Soble).

 

Personal Opinion:

I found the article to be very
interesting and a good example of the need for legislation like the Sarbanes
and Oxley (Sarbox) Act of 2002. Rather than overstate their earnings, Toshiba
should have been honest in their accounting; especially during the financial
crisis as most companies were probably experiencing hardships during that time
as well, so loses wouldn’t have been unexpected (Soble). Along those same
lines, I think it is odd that the largest year of overstatement for Toshiba was
following the Fukushima nuclear disaster (Soble). Again, I feel as though
losses would be expected during this time for the company. In regard to the
background provided in the article, I would have liked to have seen the author
include some of the motivation as to why the executives within Toshiba felt the
need to falsify their reports, especially for so long after the financial
crisis occurred (Soble). Additionally, the inclusion of a shareholder’s
perspective would have provided a more comprehensive understanding of the
effects of the overstatements (Soble).

Furthermore, in regard to how the
investigation process occurred, I thought it was a bit odd that the company was
responsible for hiring a committee to audit their accounting, rather than
having some government authority audit the company (Soble). Allowing the
company to audit themselves by way of being permitted to hire an outside
investigator, seems counter-intuitive (Soble). Another aspect of the article
which I found intriguing was the clear influence outside pressures have on the
management and operations of a company (Soble). It was interesting to see how
indirect pressures from stakeholders can have a trickle-down effect and impact
the entire company (Soble). Lastly, it was nice to learn that the executives of
Olympus were held accountable and convicted for their part in Olympus’ record
falsifications (Soble). I think this shows a concern for the investors and
stockholders on the part of the government.