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Wages of an Accounting Scandal: Toshiba May Report US$1.4 Billion Loss

The debilitating impact of improper accounting is likely to be proved again when Japanese consumer electronics conglomerate Toshiba reports its results for fiscal year 2015, which ends in March 2016.

Japan’s 19th largest companies in revenue is likely to post a net loss of about 500 billion yen (US$1.4 billion) “because of heavy restructuring costs after an accounting scandal,” the Wall Street Journal reports, quoting a person familiar with the matter. Other news outlets have made similar reports.

Toshiba said that the media stories “are not based on information provided by the company.” But it conceded that “a significant deficit for FY2015 is anticipated” once its board has decided what measures to implement to promote structural reform.

Operating losses

The Toshiba unit that focuses on personal computers, televisions and other consumer products has already posted an operating loss of 52.5 billion yen (US$433 million) in the first half of the fiscal year, the Journal notes.

On a consolidated basis, however, operating loss in the same period was only 90 million yen as other operating units, including semiconductor businesses, chipped away at the consumer group’s loss. But Toshiba President Masashi Muromachi said in November that a stake in the semiconductor unit that makes flash-memory chips for smartphones might be sold.

The Journal’s source said the restructuring plans are likely to include asset write-downs and one-off costs for employee layoffs. In a statement, Toshiba said “specific measures” are on the agenda of a board meeting today, December 21, adding that “the company will make timely announcements of impacts on business results once they become available.

The cost of bad accounting

Toshiba admitted in July that it had overstated profits by more than 150 billion yen over seven years. Hisao Tanaka and other key officials resigned.

The company has already suffered financially even before the supposed US$1.4 billion loss. Its share price has plunged more than 40% since the accounting irregularities were revealed.

A report by an independent committee faulted Tanaka and two predecessors for pressuring managers to deliver on unrealistically high sales targets. At times, the edicts were handed down shortly before the end of a quarter or fiscal year, leaving employees little time to actually sell.

It was easier for them to fudge the numbers by postponing the recording of losses and/or recognizing advance sales in the accounts. “There was a corporate culture at Toshiba under which it was impossible to go against the intentions of superiors,” the committee concluded.

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