Question

Research the Toshiba accounting scandal article in the University Library or from another credible source.

Summarize the article in 500 to 800 words.

Describe any measures you believe could have been used to avoid the problems presented in

the article.

Answer 1

Founded in 1938, Toshiba Corporation is a Japanese multinational conglomerate corporation headquartered in Tokyo, Japan. Its diversified products and services include information technology and communications equipment and systems, electronic components and materials, consumer electronics, household appliances, medical equipment, office equipment, lighting and logistics. In 2010, Toshiba was the world's fifth-largest personal computer vendor and the world's fourth-largest manufacturer of semiconductors, based on revenues. On July 21, 2015 its CEO announced his resignation amid an accounting scandal in which the company overstated profits by 151.8 billion yen ($1.2 billion) over a seven year period. Eight other senior official also resigned, including the two previous CEOs who were still working at the company in different roles. The scandal primarily related to understating of costs on long-term projects, a lack of internal controls and a corporate culture driven to inflate profits. Upon investigation, it became apparent that Toshiba CEOs put pressure on subordinates to meet sales targets after the 2008 global recession. The pressure often came right before the end of a quarter or fiscal year, which pushed employees to postpone losses or bring forward sales. Subordinates received no explicit instructions from the CEOs. Instead, top management set impossible targets and relied on a Japanese corporate culture of obedience and loyalty that led people lower in the hierarchy to do whatever it took to meet them. The aggressive targets created a vicious circle with divisions manipulating accounts to meet targets as a result of being fearful of downsizing if they didn’t. As a result of “meeting” the targets, they were given even tougher goals for subsequent years. An investigation into the scandal revealed that most of the inappropriate accounting issues were not discovered by the external auditor. Internal accounts staff skillfully utilized complex accounting treatments to create a situation where obtaining corroborative evidence proved extremely difficult. In addition, in response to questions and requests for information from the external auditor, facts were hidden and the substantiating information that was provided intentionally created a very different picture from the actual facts. The inaccurate accounting treatment related to long term projects which used valuation techniques, such as the percentage of completion method, that involve estimates based on internal data prepared by an expert with specialist knowledge. These techniques made it very difficult for an external auditor to independently evaluate the adequacy of estimates. Evaluations were thus premised on the effective functioning of internal controls designed to ensure appropriate estimates are used. A whistleblower system existed at Toshiba which, during the period under review, received dozens of reports annually. None of these reports concerned the accounting treatments under scrutiny.