Toshiba's Internal Audit Failure

Case Analysis

CN 3050: ACCTG 57
Submitted by: Kenneth S. Dagohoy
TOSHIBA CASE
Overview of the Toshiba case
In 2015, Toshiba revealed it had raised earnings by $151.8 billion. for a period of
several years. The actions of Toshiba's management and staff have left a profound
impression on Japan. Toshiba was set on a journey to introduce systemic reforms that
created a new corporate culture from top to bottom. The Toshiba case shows how a
corporate governance system will operate if it is accompanied by a corporate culture of
integrity and accountability, writes Shihoko Inouye. The study highlights how corporate
culture problems can disrupt even the most stringent corporate governance policies,
she says. The case study introduces useful issues that executives need to take to
ensure that corporate governance structures run successfully, Inoue writes.  Inoue: By
learning this case in Japan, executives can gain insights into the critical thinking skills
they may use to make strategic business choices within their company.  
Comment on the issue faced by the company
Toshiba, the 140-year-old foundation of Japan Inc, has been trapped in the country's
biggest accounting scandal since 2011. In July 2015, Toshiba Corp President Hisao
Tanaka and his two successors resigned after the investigators learned that the
company had increased its sales by at least $1.2 billion. Toshiba is one of the early
adopters of corporate governance legislation implemented in Japan.
Why did the internal audit function of Toshiba fail?

Independent audit functions well as the internal auditor is conducting and reporting to
the audit committee. Toshiba's audit committee was neither independent nor competent.
Just the ex-CFO (who was the cfo at the time of the scandal) was a full-time audit
member. This is the situation where the lack of internal audits has led to a failure of
corporate governance.
Do you think such a scandal in Japan would have taken place in the Philippines?
If yes or no, why?
yes, because it was related to the latest issue with the same amount of money but in
Philippines money, PhilHealth was pocketed with the 15 billion pesos by senators, and
Evidently, false allegations not backed by facts have been made to malicious officers
who have denied his aspirations for higher positions for which he is not eligible.
Lessons learned from Toshiba's case

some many businesses neglect one of the primary roles of internal audit as an
insurance company, but only focus on it as a consultant. There is a major void in
itself that really needs to be looked at. It is crucial that processes are placed in
place to ensure that all functions are carried out concurrently and when
appropriate.

Reference

 Asish K Bhattacharyya, (2015), Toshiba - a case of internal audit failure,

https://www.business-standard.com/article/opinion/toshiba-a-case-of-
internal-audit-failure-115080900760_1.html

 Richard Chambers,(2015), Lessons From Toshiba: When Corporate

Scandals Implicate Internal Audit,
https://iaonline.theiia.org/blogs/chambers/2015/lessons-from-toshiba-
when-corporate-scandals-implicate-internal-audit#:~:text=
%E2%80%8BLessons%20From%20Toshiba%3A%20When
%20Corporate%20Scandals%20Implicate%20Internal%20Audit,-Richard
%20Chambers%20July&text=That%20committee's%20report
%20concluded%20that,the%20Japanese%20corporate%20governance
%20culture

 Vasundhra Maheshwari,(2015),
https://www.vskills.in/certification/blog/toshiba-one-of-the-biggest-
accounting-scandal/

 Mitsuru Misawa, Hong Kong (2016),

https://www.thecasecentre.org/main/products/view?id=139954

 J. WILLIAM CARPENTER, 2015,

https://www.investopedia.com/articles/investing/081315/toshibas-
accounting-scandal-how-it-happened.asp