Question

Did the questionable accounting practice in the Toshiba accounting scandal (2015) involve a Complex Financial Structured Transaction (CFST) as provided in the Interagency Statement on Sound Practices Concerning Elevated Risk Complex Structured Finanace Activities. If not, why not?

Answer 1

DEFINATION OF COMPLEX STRUCTURED FINANCE ACTIVITIES

1) Structured finance transactions encompass a broad array of products with varying levels of complexity. This guidance addresses complex structured finance transactions, which usually share several common characteristics. First, they typically result in a final product that is often non-standard and structured to meet the specific financial objectives of a customer.

2) They often involve professionals from multiple disciplines within the financial institution and may have significant fees or high returns in relation to the market and credit risks associated with the transaction

3) They may be associated with the creation or use of one or more special purpose entities (SPEs) designed to address the economic, legal, tax or accounting objectives of the customer and/or the combination of cash and derivative products.

4) They may expose the financial institution to elevated levels of market, credit, operational, legal or reputational risks.

TOSHIBA ACCOUNTING SCANDAL:-

-The face of an accounting scandal tied to about $1.2 billion in overstated operating profits.

- An independent investigative panel released a report describing the accounting improprieties in detail. Improper accounting was found to have taken place over the course of seven years, embroiling two former CEOs in the scandal alongside Tanaka.
- The investigative report revealed that the CEOs did not directly instruct anyone to cook the books but rather placed immense pressure on subordinates and waited for the corporate culture to turn out the results they wanted.

- The inappropriate accounting techniques employed at Toshiba varied somewhat between the different business units. Investigators found evidence of booking future profits early, pushing back losses, pushing back charges and other similar techniques that resulted in overstated profits.

As observed in the above case Toshiba case was more of an Accounting Fraud than of CSFT where the CEO had used fraudulent techniques to overstate profits and not use genuine method to form a CSFT.