Professional Documents
Culture Documents
Course: ACCT7102
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TOSHIBA FRAUD CASE STUDY 2
Question 1
explained by three factors: motivation, opportunity and rationalization. However, the motivation
for accounting fraud is usually due to personal reasons, such as personal financial difficulties,
debts, bills which press a person to commit the financial criminal act in company’s financial
statements. Opportunity factors can be understood that the position or chance, which a person
has, can benefit its accounting fraud, so that has a small likely to be caught. Besides, for
rationalization, it is a consciousness problem which people don’t think its fraud act relate to an
Toshiba was detected in fraud case due to overstating earning of ¥152 billion in July 2015
(Ivey, 2016). When applying fraud triangle model to Toshiba’s fraud, first, for motivation aspect,
it was mainly due to Toshiba had experienced massive operating loss of ¥11 billion, which lead
to a fall about ¥12,3 billion to its shareholder's incomes in March 2015. Also, since 2009,
Toshiba’s financial situation had not been stable but suffered a decline in most time during this
period. According to SESC’s investigation, it was found that recovered emails showed that the
CEO wanted to use misleading accounting policies, such as underestimating costs, deferring
contract losses to future periods to achieve desired profits so that can influence interpretation for
external financial statement users and promote investors’ confidence. For example, the costs of
one manufacturing contract were just reduced by ¥ 100 million, which was far less than
prediction number ¥ 1.7 billion. To meet target profits, Toshiba chose a cash-based method for its
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TOSHIBA FRAUD CASE STUDY 3
However, when judging its fraud with opportunity aspect, due to Toshiba’s personnel
rotation policy every few years, once a project was finished, a new successor will take over the
position of former president or CEO, and also he will be responsible for losses what the former
CEO made before. This provides the chance for former CEO to commit fraud as it has little
possibility to be revealed if they can be prudent when making accounting commitment while in
position and just leave the criminal risk and financial difficulties to the new successor. This
provides convenient opportunity and significant possibility for managers to do accounting fraud
When assessing the rationalization factor, it was realized that the corporate culture of
Toshiba was the primary agent behind the fraud. The firm had established a corporate culture
whereby the staff and other personnel did not have the authority to question the management
decisions (Ivey, 2016). It was evident from the investigators report that all employees were
forced by the administration to undertake improper accounting whereby they had to postpone
certain costs or loss reports into the coming years. The accounting fraud experienced at Toshiba
occurred just some years after Olympus Corporation scandal in Japan that dealt with the same
challenge.
The scam was started by the firm’s CEO in 2008 when there was a global financial crisis.
It was during the following year that the corporation registered a lot of losses. The issue was that
the profits were overestimated for Toshiba’s business unit in sectors such as those in the personal
computers, visual products and the semiconductor units. It was found that the value of the
contract costs had been manipulated and there were disarrangements of contract losses. It is also
evident that it not only the first manager of Toshiba, Atsutoshi Nishida who was a fraudster but
also continued through Hisao Tanaka who was employed in June 2013. Hisao used the same
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TOSHIBA FRAUD CASE STUDY 4
management principles as his predecessors and fraud continued in the company. The policy
which entailed personnel rotation for Toshiba after several years acted as a key facilitator in
cases of fraud. From the reviews of the contract work, it indicated that ¥ $ 1.78 billion was shed
in cost, but the reality was that the expenditure was reduced by ¥ 100 million. This was a valid
Through the fraud triangle, it was possible to reveal the purposes for the scam. It is
realized that the fraud began in 2008 when there was a financial crisis throughout the world. The
financial performance of the company started to deteriorate in 2009 and the firm’s management
had to devise action programs that will increase profitability by raising about ¥ 320 billion public
offering to encourage strategic investment through the growth in capital spending. The result in
the next four years was a decrease of approximately 11% to ¥ 5.9 trillion (Suzuki & Yamada,
2016).
The fraud triangle revealed that Toshiba’s policy of personnel rotation acted as the
motivational tool for the fraud issue. Such procedure enabled a manager to work for only a few
years before a new one could replace them before even the conclusion of a project. The strategy
was responsible for making the critical goals of the company be prioritized and this forced
Toshiba to take orders even at a loss (Suzuki & Yamada, 2016). For instance, the CEO at Toshiba
in 2008 when the scandal began was Atsutoshi Nishida then came Norio Sasaki and Hisao Tanka
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TOSHIBA FRAUD CASE STUDY 5
It was revealed through the SESC investigation that during the manufacturing contracts
of the company, the costs of completing work was escalated beyond the negotiated price. The
management was aware of their fraudulent activities and so they did not put records of a
provision in the balance sheet for any detected losses from the contracts. Toshiba had the
opportunity to engage in fraud as it inflated the cost reduction for projects (Addady, 2015). The
firms also focused on attaining its profit targets and so it devised a scheme that will overstate and
carry over benefits through adjustments. It was revealed that the company utilized a cash-based
technique which was not recommended and it had to use the accrual method. The failing to
record data such as loan loss allowances and valuation losses signified that the activities were
Question 2
As an investor, the first issue needs to care is whether compensation for damages done by
accounting fraud can be sued and received from the Toshiba once the fraud had been detected. As
the consequence of scandal, share prices of Toshiba decreased and withdrew of dividends had
been questioned by investors. The reduction of stock prices brought massive losses to investors
due to false investment. Also, an overstatement of operating profits of ¥ 152 billion also declined
the net incomes for stock returns (Ivey, 2016). Second, whether investors still keep or sell the
shareholdings need to be concerned. Regarding the present financial condition of Toshiba, the
risk of holding its shares has been rise due to bad financial performance.
As an investor, the accounting fraud in Toshiba will affect my trust and confidence for the
company (Ivey, 2016). It is true that when the investigation team uncovers the fraud activities, all
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TOSHIBA FRAUD CASE STUDY 6
the investors will have a problem of trusting the corporation. The issue can be so embarrassing
and troubling for all who work in Toshiba. The effect will weaken the confidence in reliability
for an investor due to the orders of corporate filings. As an investor, I will not want to invest in
Toshiba anymore because of the financial losses suffered. I will be unwilling to extend credit to
the business in the future and what I will demand is compensation for the losses.
Question 3
necessary preventive measures to avoid scams. One of the proactive measures is to ensure there
is internal control in Toshiba (Suzuki & Yamada, 2016). In such a case, two people would have
been involved with the scam activity, an individual who was aiming for personal benefits and the
other is the chief executive who faced pressure to achieve the goals. For such an action to
prevail, it means that Toshiba had a weak internal system. Therefore, it is critical to creating an
effective internal control system in the corporation to prevent future occurrence of fraud.
The other alternative is that the government to minimize the ties existing between
Toshiba and the Japanese mafia. At this moment, the significance of the Japanese mafia in
corporate companies has to stop through the powers of the government. The Yakuza or the
Japanese mafia engage in specialized arrangement of a protection racket (Suzuki & Yamada,
2016). The mob usually focuses on harassing the big corporations during meetings as they are
aware of the significant amount of money that can be stolen from such firms. The mafia instills
fear to stakeholders by demonstrating the Yakuza operatives and by this they can attend
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TOSHIBA FRAUD CASE STUDY 7
stakeholder meetings through the small purchase of Toshiba shares. The government has to
enforce the law in all the companies in Japan such that it becomes illegal to conduct business
The last option is to form a strong corporate governance. This is a system of rules,
relationships and processes that ensure authority is practiced and controlled in corporations. It is
a framework that will ensure Toshiba sets objectives and defines the modes of achieving them,
monitors and assess the risks and even optimize the performance. Through corporate governance,
Toshiba Corporation will lay a sound basis for oversight and the management. The firm will have
the capability of establishing and disclosing the respective duties of the board of directors. The
management of Toshiba will have various responsibilities whereby they will oversee the
corporation as well as the accountability and control system (Addady, 2015). Through this, every
manager will be responsible for any losses or business misconduct that will affect Toshiba
business performance. The senior executives will also review, ratify and monitor the systems of
internal control and those for managing risks together with the legal compliance and codes of
conduct.
The board will have to be restricted and value added. As we have witnessed, the Board of
Toshiba Corporation does not have an active composition and size. All the listed managers from
the SESC investigations are not committed and that is why they allowed fraud to prevail. It
independent directors. This is because it will be possible to solve the relationships that affect the
independent status. The CEO has to be an independent director such that such that an individual
cannot serve as both the president and the chief executive officer (Suzuki & Yamada, 2016).
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TOSHIBA FRAUD CASE STUDY 8
References
Addady, M. (2015). Toshiba’s accounting scandal is much worse than we thought. Fortune.
Mehta, A., & Bhavani, G. (2017). Application of Forensic Tools to Detect Fraud: The Case of
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