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Japan Times

Toshiba CEO Resigns as Accounting Scandal Worsens

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Jul 23rd 2015
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Japanese technology giant Toshiba Corp. overstated its operating profit by 151.8 billion yen over a six-year period – three times as much as initially anticipated.

An independent report into accounting irregularities at the business concluded the company overstated profits over a period of six years and that senior management were complicit in fiddling the figures.

The report, put together by an outside panel of accountants and lawyers, found that when management presented “challenges,” division presidents, line managers, and employees below them continually carried out inappropriate accounting practices to meet targets in line with the wishes of superiors.

Toshiba President and Chief Executive Hisao Tanaka is stepping down following the investigation.

A total of eight officials have resigned so far. Tanaka's predecessors as presidents, Vice Chairman Norio Sasaki and advisor Atsutoshi Nishida, also will step down after the report showed they played a part in the overstatement of profits going back to 2008.

Tanaka said the company is now considering appointing outside directors to more than half of its board seats.

Toshiba said it took the situation very seriously and apologized to its shareholders, investors, and stakeholders.

It will now focus on evaluation of assets, particularly the need to book impairment of fixed assets (including the timing of impairment) in the PC business, visual products business, and the discrete and system LSI business in the semiconductor division.

Following the investigation, Toshiba will also be considering the need to book a valuation allowance regarding long-term tax assets of the company and its consolidated subsidiary corporations.

The report, which was filed with the Tokyo Stock Exchange, also looked into whether executives set unrealistic targets for new operations after worries that the 2011 Fukushima disaster may hit Toshiba's nuclear division.

The report does not specifically refer to Fukushima, but it does say pressure within Toshiba was strong in the accounting years of 2011 and 2012.

The findings of the report mean Toshiba will have to restate its profits for the period between April 2008 and March 2014.

Back in April, Toshiba said it would likely mark down operating profit for fiscal years between 2011 and 2013 by at least 50 billion yen due to accounting irregularities.

Toshiba said it was investigating infrastructure projects that used a method of accounting known as “percentage of completion.” Internal reviews identified situations where expenses may not have been recorded in the proper period and accounting for the value of inventory may not have been appropriate.

Since then and after the new report into the accounting problems ended speculation as to the extent of the problem, shares in Toshiba have risen 6 percent in Japan. However, Toshiba's shares are still down by a quarter since the company first disclosed the accounting irregularities.

This article was originally posted on AccountingWEB UK.

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By SOXConsulting
Jul 30th 2015 10:25 EDT
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