Toshiba pays high price for fraudulent accounting: The Yomiuri Shimbun

Toshiba President and CEO Masashi Muromachi at a news conference in Tokyo on Dec 7, 2015.
Toshiba President and CEO Masashi Muromachi at a news conference in Tokyo on Dec 7, 2015.PHOTO: REUTERS

In its editorial on Dec 09, The Yomiuri Shimbun says the habit of concealing information should be rooted out.

The top management of Toshiba Corp. bears grave responsibility for causing a scandal that is unacceptable for a company representing Japan.

The Securities and Exchange Surveillance Commission (SESC) has recommended that the Financial Services Agency fine Toshiba more than 7.3 billion yen (S$83.82 million) over its inappropriate accounting practices.

This marks a record penalty in Japan for an accounting scandal, vastly surpassing the 1.6 billion yen imposed on IHI Corp.

The SESC found that the company had deceived investors for years, for example by procuring funds through the issuance of corporate bonds worth as much as ·320 billion based on false earnings data.

As for the cause of the scandal, the securities watchdog pointed out, "successive presidents, under a profit-first doctrine, strongly demanded that budgets should be met and more achievements should be added."

It is unusual for the SESC to refer to the root cause of a misconduct.

It has been reported that the SESC will also consider filing a criminal complaint against the successive presidents.

Current Toshiba President Masashi Muromachi expressed his resolve to revive the company at a press conference, saying, "We'll never let a problem like this happen again." However, it cannot be denied that there is a tough road ahead.

Toshiba, whose former top executives, including the president, quit in July to take responsibility for the scandal, announced last month that major US nuclear energy firm Westinghouse Electric Co., its subsidiary, had posted total losses of more than 100 billion yen.

Toshiba was initially reluctant to disclose the losses but decided to make them public after being urged to do so by the Tokyo Stock Exchange.

A bad habit of concealing inconvenient information must be rooted out.

It is necessary to carry out reform so that Toshiba's corporate governance structure, such as outside directors and its audit committee, which have become mere formalities, will function properly.

A series of lawsuits are expected to be filed by shareholders who claim they suffered losses due to a fall in Toshiba stock prices as a result of the revelation of the inappropriate accounting practices.

The prospects for Toshiba's business performance are also uncertain. It is an urgent task for the company to restore the health of its business, which incurred an operating loss in its interim financial results. Restructuring its large home appliance and PC businesses may be a key to turning the company around.

In the latest problem, an auditing firm also bears heavy responsibility for having failed to spot false records on Toshiba's securities reports and other statements. An auditing company receives remuneration for conducting accounting audits after being appointed by a company.

Therefore, it has been noted that it is difficult for an auditing company to ask a company, its client, to take action that would increase its losses.

In past window-dressing cases involving Olympus Corp., Livedoor Co. and other companies, it was a problem that auditing firms overlooked false bookkeeping at those companies.

Clearly, the repetition of a similar case this time has caused a sense of distrust against auditing companies to grow further.

The Financial Services Agency, which oversees auditing companies, should quickly consider ways to raise the effectiveness of accounting audits to prevent the recurrence of accounting misconduct.

* The Yomiuri Shimbun is a member of The Straits Times media partner Asia News Network, a grouping of 22 newspapers seeking to promote coverage of Asian affairs