Toshiba's Accounting Scandal

Toshiba's Accounting Scandal

http://www.toshiba.co.jp/worldwide/index.html

Toshiba was founded in 1939 with the name of Tokyo Shibaura Denki K.K. through the merger of two Japanese companies which are Shibaura Seisaku-sho (founded in 1875) and Tokyo Denki (founded in 1890). The company name was officially and successfully changed to Toshiba Corporation in 1978. Toshiba business areas include digital products, electronic components, social infrastructure equipment, and household appliances. Besides that, the company also has more than 200,000 employees worldwide.

According to the Fortune 500 published by Fortune Magazine in July of 2018, Toshiba ranks 326 on the world’s top 500.

However, almost every company in the world faced failures before it becomes successful and Toshiba is one of them. 

At the start of the press conference, Atsutoshi Nishida (left) Hisao Tanaka (middle) and Norio Sasaki (right) bowed in apology

On 21 July 2015, CEO Hisao Tanaka announced the resignation. This is because the company reported to have overstated its profits by 151.8 billion yen which is 1.2 billion dollars; this is triple of the true profits. Details of the scandal emerged the day before when an independent investigative panel released a report describing the accounting improprieties in detail. Improper accounting was found to have taken place over seven years started from 2008. Besides Hisao Tanaka, other top Toshiba executives who have resigned to take responsibility for this include Norio Sasaki, who served as the company's vice chairman, and Atsutoshi Nishida, who served as the company’s consultant; and they are the former CEO of the Toshiba Corporation. 

Investigators found direct evidence of criminal accounting practices and inflated profits in various department of the company, including the visual products unit, the PC unit and the semiconductor unit. CEO, Atsutoshi Nishida began accounting misconduct in 2008 as the global financial crisis cut deeply into Toshiba's profitability. Under the next CEO, Norio Sasaki, this situation continues unabated. For example, he concealed the damage to the Toshiba’s profitability caused by the Fukushima earthquake in 2011.  It eventually ended in scandal under Tanaka. 

The investigators also describe how top executives pressure managers to meet hard-to-achieve goals. They don't accept failure and don't allow employees to challenge the boss's culture. However, the only way to achieve this goal is by using illegal accounting techniques. Moreover, the three CEOs were fully aware of internal accounting fraud. 

Source: https://www.youtube.com/watch?v=fWOPuca6UjE

Published by CNN，Date: 21 July 2015,

Title: Toshiba CEO quits over $1.2 billion accounting scandal

Toshiba started accounting misconduct when the global financial crisis was happening in 2008. What impact of financial crisis will happen in businesses?  Financial crisis is a situation that the value of financial institutions or assets drops rapidly. Therefore, investors will sell off their assets or withdraw money from savings accounts because they fear that the value of those assets will decrease if they remain in a financial institution. The demand of the money in the market will grow faster than the supply of the money. Besides that, a change in the exchange rate would increase the cost of doing business and decrease profits. However, due to the lack of money in the market, the enterprise would probably be short of money turnover and then declare bankruptcy. This is the main reason why Toshiba started accounting fraud in order to avoid bankruptcy. Other than that, with the increase of profits and improvement of performance, company will have more development space. For example, good data will attract more investors.

When the accounting fraud was revealed, what are the impacts? Accounting scandal affected shareholders have a lack of trust in the company and so they sell the stock in a lower price. This will cause the stock price decrease continuously.  Besides that, Toshiba lost the reputation to consumers.  Therefore, consumers will have a negative impression towards the company and started to distrust their products.  After that, decrease in sales will lead to a drop in revenue. Therefore, the company need to cut cost in order to survive, and downsizing is one of the ways. During that period, Toshiba cut its workforce from more than two hundred thousand to one hundred and eighty three thousand employees.

Although accounting fraud can prevent the company from going bankrupt for the time being and even bring a lot of benefits. However, when it is revealed, the disadvantages and losses will be great. It will not only affect the company's reputation, but also the stain will never disappear. If Toshiba had chosen proper ways to solve the problem at that time, such as motivating employees to achieve goals instead of forcing them or cutting down the cost and spending to get through that period, maybe now Toshiba would become more successful without the scandal.