Six board members at Fuji Xerox, including chairman Tadahito Yamamoto, have resigned to take responsibility for accounting irregularities in its New Zealand and Australian units. The discovery caused Tokyo-listed Fujifilm, Fuji Xerox’s parent, to reduce reported net earnings between fiscal year 2010 and 2015 by a cumulative 37.5 billion yen (US$340 million).
“We didn’t nag at Fuji Xerox very much, and that is something we now regret,” Fujifilm President and Chief Operating Officer Kenji Sukeno told reporters after Fujifilm released fiscal results for the year to March 31. (Revenues were down 5.6% to 2.3 trillion yet, but net profits were up 18% to 131.5 billion yen from fiscal 2016.)
The announcement had been delayed while an independent panel conducted an investigation.
The scandal involved “inappropriate accounting of early sales recognition” of leasing agreements that the New Zealand and Australian subsidiaries entered into with clients, according to an outline of the independent report.
Before the contracts can be recorded as capital leases, there should be a reasonable expectation of recovery of a minimum payment of leasing fees and no uncertainty that additional costs could not be recovered. Contracts that did not satisfy these conditions were nevertheless accounted for as capital leases.
“Consequently, there were many transactions where receivables could not be recovered because, among other reasons, the copy volume did not reach the target set at the time of executing the contract and the minimum usage fee was not clearly set,” said the investigators. “That became constant practice.”
The probers said the practice generated commissions and bonuses for executives and staff. For its part, Fujifilm admitted it had been relaxed in its oversight of Fuji Xerox.
“We showed too much respect for Fuji Xerox because it contributed to profits when Fujifilm was reforming itself after its film business peaked in 2000,” said Sukeno.
Fujifilm said it had reviewed all contracts in the two units and other Fuji Xerox subsidiaries, including in Japan, and did not detect similar early sales recognition.
The Fuji Xerox scandal is the latest in a string of accounting irregularities involving Japanese companies, which include electronics giant Toshiba and camera and medical devices conglomerate Olympus.