Case Study Of Toshiba's Accounting Scandal

MGMT 512 Corporate Governance

Exam 1

Toshiba’s Accounting Scandal

Yuko Omori

Student No 52997

1. What had happened

In 2015, Toshiba’s improper accounting scandal news hit the world. CEO Hisao Tanaka and board

directors including two previous CEOs, Norio Sasaki and Atsutoshi Nishida, resigned the company. The company had overstated about 1.2 billion dollars in operating profits and was designated as Securities Alert by the Tokyo Stock Exchange (TSE).

Independent investigation committee reported that the improper accounting was led by top managements, setting a higher target and creating an atmosphere where each company and subsidiary managers cannot resist. Failures in corporate governance was also pointed out, especially

This failure in internal control function comes from the selection of the board members. Most of the board members were internal executives, and none of the external boards has deep knowledge of finance and accounting. This caused apparently biases in auditing, and control by external board members could not function well,

In 2016, the company has submitted the report on their improved internal management system to TSE, and expected to regain trust. However, TSE’s evaluation result was negative. Meanwhile, another internal control problems were discovered in its subsidiary, Westinghouse Electronic, in USA. Toshiba announced that it might have to write off “several billion U.S. dollars” due to the purchase of CB&I Stone & Webster
Inc., a nuclear construction company, by Westinghouse. In April 2017, the conglomerate announced the outlook for fiscal year 2016 with net loss of 950billion JPY. The nuclear plant business went bad especially after 2011 Japan earthquake, and the loss of Westinghouse in 2012 and 2013 was 1,3billion USD in total.
However, again, this huge loss was hidden even after the above mentioned investigation has started, until it was revealed in the end of

However in reality, it just gave “management” consultation services. As a result of the audit, it was turned out that corporate audit division noticed there were some inappropriate manners in the accounting process, but no countermeasure was taken against it.

 Risk Management Division
Risk Management Division of Toshiba was in charge of controlling financial report.
However, it was turned out that they did never check financial reports.

 Securities Report, Etc., Disclosure Committee
Securities Report, Etc., Disclosure Committee was in charge of confirming the effectiveness of internal control system relating to financial reports. However, in fact, the committee did not have independent examination.

4. Cultural Background of Toshiba Scandal

Hideaki Tsukuda, a leader of Egon Zehnder Tokyo, says that the same problem can occur in any

Japanese traditional companies, where are governed by “salaryman” type of CEO. According to Tsukuda,
Japanese companies tend to change CEO in 3-4 years, as if CEO was just like other positions. Becoming
CEO in a huge corporate is absolutely different from being a manager at a division or being a