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TOSHIBA: ACCOUNTING FRAUD CASE STUDY 11Toshiba: Accounting Fraud Case Study 1August 30, 2020
TOSHIBA: ACCOUNTING FRAUD CASE STUDY 12AbstractThe world has been introduced to several well-known accounting scandals by very prominent organizations over the last decade. Our weekly discussion introduced us to the rise and fall of PharMor discount stores in 1990 due to fraudulent accounting practices. Enron is another entity that suffered catastrophic failure due to extensive misrepresentations of their financial status. The consequences have led to huge economic losses, job destruction, bankruptcies, massive restructurings and nationalization. Toshiba has joined the ranks of being caught misrepresenting its financial condition over several years. There was evidence of bookingfuture profits early, pushing back losses and charges that resulted in over stated profits. Continually, Toshiba’s corporate leadership handed down strict, unrealistic profit targets or “challenges” to business unit presidents, with the implication that failure was not acceptable. There was little to no adherence to corporate governance which would have led to external and internal stakeholders, customers, etc. to become aware of issues. The demand for obedience to superiors was an important factor enabling the emergence of fraudulent accounting practices. This case study will take a look at how the fraud triangle can be applied to explain why Toshiba committed fraud, the issues according to its stakeholders and the ethical issues that seemed to plague the organization.
TOSHIBA: ACCOUNTING FRAUD CASE STUDY 13Toshiba: Accounting Fraud Case Study 1Toshiba is a Japanese company that is traced back to 1875. It obtained its incorporation inJune of 1904. The company expanded out of Japan into nations in the Americas, Asia-Pacific, Europe, Middle East and Africa. The company is currently involved in the manufacturing of sales of electronics and energy products. Toshiba is known to be located in two different industries: transformers with exception of electronics, power and distribution and specialty transformers. The company is also in a broad sector of computer hardware and equipment. As of March 31, 2015, Toshiba had 187,809 employees and 392,174 shareholders (Toshiba, 2016). In 2013, the Japanese Corporate Governance Network ranked Toshiba 9thout of 120 Japanese companies who had excellent governance and was publicly traded. What went wrongThe global financial crisis of 2008 reduces the profitability of Toshiba. This led to Toshiba’s employees finding creative ways to overstate profits by using techniques including booking future profits early, pushing back losses and charges, as well as improperly valuing inventory. They originally were reported to have overstated profits for fiscal year 2008 through the first three quarters of fiscal year 2014 of $151 billion YEN which is equivalent to $1.2 billionUS Dollars. A later report mentions that profits may have been overstated by as much as $2 billion US Dollars.