Toshiba’s Massive Accounting Disaster

For decades, few companies had enjoyed the respectability and prestige that had surrounded that of Toshiba, which includes several companies, ranging from office equipment to computer hardware.

Toshiba Envy of Industry

For 140 years, the industrial conglomerate had set corporate standards others could only hope to achieve.
Toshiba leadership did more than just run an efficient and profitable company. Toshiba consistently combined profitability with modern corporate management. One Toshiba executive ran the Tokyo Stock Exchange, then became the nation’s postal chief.

Toshiba’s Fall

All of that came crashing down in April of 2015, when a huge accounting scandal rocked not just Japan, but world financial and industrial markets.
Toshiba admitted it had massive accounting issues. However, the depth of the company’s woes weren’t revealed for several months, when the Wall Street Journal reported the company overstated its profits by more than $1 billion.
According to a former Japanese prosecutor, the source of Toshiba’s accounting discrepancies primarily came from its employees underreporting costs on long-range projects and controversy regarding inventory values. This resulted in Toshiba overstating profits by approximately 150 billion yen (1.2 billion dollars) between 2008 and 2014.

Who Was To Blame

The report said two Toshiba CEOs, Atsutoshi Nishida (2005-2009) and Norio Sasaki (2009-2013) pressured employees to meet sales targets after the 2008 global recession. It said the tension frequently increased right before the end of a quarter or fiscal year, which may have pushed accountants to postpone losses or push forward sales. The two were inter-company rivals who, in July 2015 eventually resigned from other positions.

Several other board members eventually resigned, with many coming from outside the company.

Restructure

Japanese Prime Minister Shinzo Abe, attempting to revive the Japanese economy by attracting more outside investors, has made revamping corporate structure a focal point. Part of his plan included requiring each publicly traded company to have at least two outside independent directors on its board.

Toshiba responded by naming as its new president, Masashi Muromachi.

Shortly after accepting the post, Muromachi said he regretted causing trouble to the company’s 400,000 shareholders, both domestic and international, and clients and other authorities. He vowed that the new management would revive the company and regain the public’s trust.

Comeback

In September 2015, Toshiba reported its net losses for that quarter totaled 12.3 billion yen ($102 million). Included were disappointing sales in televisions, appliances and personal computers.

In December 2015, Muromachi said the scandal had reduced Toshiba’s market value by $8 billion dollars. Further, he predicted an annual record loss of 550 billion yen ($4.6 billion dollars). He further announced a revamping of its TV and computer businesses.

He also said Toshiba would suspend fundraising for two years. Days later, a company representative announced Toshiba would seek 300 billion yen ($2.5 billion), increasing Toshiba’s debt to more than 1 trillion yen (about $8.3 billion).

In May 2016, Toshiba announced that Toshiba’s former medical division head, Satoshi Tsunakawa, was named CEO.

Some of the revamping is working. In December 2016, Toshiba raised its outlook by 21 per cent and increased its sales force by 3.2%.

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