Toshiba Inflated Earnings by $1.2 Billion

Top executives pushed subordinates to meet unachievable financial targets, Toshiba, the Japanese industrial giant, overstated its earnings by more than $1.2 billion over the last seven years, in what is emerging as one of the country’s largest corporate accounting scandals.

The discrepancies, detailed on Monday (13/7/2015)  in a report by a committee of independent experts hired by the company to examine its accounting practices, point to a systematic problem that reached the upper echelons of Toshiba. Hisao Tanaka, Toshiba’s chief executive, and his predecessor, Norio Sasaki, who is now the company’s vice chairman, plan to announce their resignations on Tuesday, Japanese media reported.

The problems, the report found, date back to the deep economic slump set off by the global financial crisis in 2008. Managers across Toshiba’s many divisions then began taking accounting shortcuts to meet increasingly

The committee said it discovered “systematic involvement, including by top management, with the goal of intentionally inflating the appearance of net profits.” The company’s most senior leaders were aware of some of the allegedly Misleading accounting, it said, and its accounting department “deliberately provided insufficient explanations to auditors, with the intention of carrying out a systematic cover-up.

The four-member investigating committee, headed by a former prosecutor, found overstated profits totaling 151 billion yen since 2008, an amount equal to $1.21 billion at current exchange rates. An additional 4.4 billion yen of overstated profit had previously been discovered by the company itself, the report said.

Problems were particularly widespread in the company’s infrastructure division, which produces equipment for the electric power industry, including conventional coal and gas power plants as well as nuclear reactors. The committee flagged 15 separate instances in which it said Toshiba failed to set aside adequate reserves against the risk of cost overruns, construction delays and other problems

While the committee did not identify specific projects, some involved Westinghouse Electric, the nuclear subsidiary, which analysts have long seen as a particularly heavy financial millstone for the company.

The biggest single year for profit overstatement was after the Fukushima disaster, fiscal 2012, the committee said. That year, the committee said, Toshiba overstated its profit by 85.8 billion yen, an amount equal to more than half the total, the committee said.