The paper "Toshiba Corporation - Accounting Problems " is an outstanding example of a business case study. It is paramount for any business to be socially responsible for its employees and the society at large in the activities that are undertaken in their firm. In the event that a firm fails to take responsibility and an unfortunate event occurs, it would almost be impossible for it to reclaim its position in the business market as loyalty and the reputation once accorded to them will be had to get back. It is worse if the incident was due to negligence on the part of the firm because legal action may be taken by the aggrieved party causing deregistration of the business hence loss of livelihood for the employees.
This report will look into a business incident that recently occurred, its cause, how it was handled, and any suggestions that could have prevented or remedy the situation. Background Toshiba Corporation was founded in 1938 and belongs to a multinational conglomerate corporation that is of Japanese origin. It has been in the industry for 140 years. It has its headquarters in Tokyo, Japan, and has a wide range of diverse products and services that range from technology, information, electronics, medical equipment, household appliances among other things.
It has also received recognition for its superior products and services as in 2010, it was ranked as the fifth-largest personal computer vendor in the world and came in fourth in the world among the largest manufacturers of semiconductors (Gandhi, 2015 p. 1). All these are based on the revenues earned. In mid-2015, the company faced a major accounting scandal that involved an overstatement of profits for the last seven years that amounted to $ 1.2 billion.
This caused the then CEO to resign (Smith, 2015 n. p). Statement of Problem The accounting problems involving Toshiba were primarily caused by the employees who over the years had developed a habit of understating costs on the long-term projects which in turn allowed the company to make an overstatement on their operating profits to $1.2 billion in the years 2008-2014. There were also issues with the inventory as it was not properly valued. The CEO of Toshiba is said to have put undue pressure on his subordinates in order to meet set sales targets following the 2008 global recession.
This kind of intense pressure was usually released just before the end of a fiscal year when there was almost no time to substantially meet or affect the unit performance hence pushing the employees to postpone the losses and carry forward some sales on accounting. The CEOs were Atsutoshi Nishida who served between 2005 and 2009 and Norio Sasaki 2009-2013. The employees did not receive any explicit instructions from the CEO.
The top management is said to have set unattainable targets for the employees and due to the Japanese culture which requires them to be obedient and loyal in a corporate setting. This made the subordinates to do whatever they felt they needed to do in order to achieve the set targets (Gandhi, 2015 p. 1). The intense targets set created a cycle of subordinates manipulating accounts in a bid to meet targets. In part, they also feared that failure to meet the targets would lead to the firm downsizing and hence they would lose their jobs.
As a result of fictitiously meeting the set targets, more pressure was added and the targets became even tougher in the subsequent years. When the scandal was being investigated, it proved quite difficult to discover the accounting anomalies. This is because the accounting staff had skillfully used complex accounting techniques that brought about a situation where producing corroborative evidence would be extremely difficult. These included pushing back losses, early booking of future profits, and pushing back charges (Carpenter, 2015 n. p).
There was also hiding of material facts from the external auditor and any request for information was vaguely presented creating a completely different picture far from the true factual information. In addition, according to the Japanese governance code, it was a requirement for Japanese companies to appoint at least two independent directors who were not part of the company. This was passed so as to ensure accountability from managers to investors. Toshiba passed this regulation but a look into the company revealed that even though the directors came from outside, they had been long time insiders and this was also a major factor that contributed to the accounting problems.
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Smith, G. (2015). Toshiba just Lost its CEO to a Huge Accounting Scandal. Fortune Retrieved October 13, 2016 from Fortune fortune.com/2015/07/21/toshiba-just-lost-its-ceo-to-a-huge-accounting-scandal/
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