RISK MANAGEMENT

Toshiba Unlikely to Delist After PwC Signs Off on Earnings

Toshiba Corp. is unlikely to delist from the Tokyo Stock Exchange after PriceWaterhouseCoopers Aarata LLC (PwC) signed off on the Japanese company’s financial results. PwC took over as Toshiba's auditor in June last year.

A filing by PwC revealed that the auditor gave a "qualified opinion" on Toshiba's results for the year ended March as well as for April-June.

PwC also noted that losses at Toshiba’s now bankrupt U.S. nuclear arm Westinghouse Electric were not booked in a timely manner. PwC said some Westinghouse-related losses booked in the business year through March 2017 should have been recorded in the previous year.  If the losses were booked as stated by PwC, Toshiba would have recorded negative net worth for two consecutive years.

In late 2016, news reports revealed huge losses at Westinghouse. But then PwC learned in mid-January that former managers at Westinghouse stood accused of pressuring underlings to understate those losses.

PwC asked Toshiba to investigate whether similar conduct had occurred in the past, and the auditor withheld its blessing from the company's earnings in the meantime. Toshiba was forced to seek a one-month extension on reporting earnings for the nine months through December 2016, originally slated for release Feb. 14.

Toshiba's investigation turned up no evidence of past wrongdoing. But with a week left until the extended earnings deadline, the auditor still refused to approve the three-quarter figures, forcing Toshiba to delay the release of its earnings again.

The auditor claimed the losses may have been recognizable as soon as the deal closed, and insisted the conglomerate extend its investigation back to the year ended in March 2016.

Future remains uncertain

While Toshiba has won an unusual auditor sign-off, its future remains uncertain with no progress in talks to sell its chips unit for much-needed cash. The chips unit accounted for 94 percent of Toshiba's total April-June operating profit of 96.7 billion yen.

The company hopes auctioning its chip unit will help it pay debt and cover the impact of $6.3 billion in liabilities linked to Westinghouse, but talks on the sale have stalled.

Toshiba's joint venture partner Western Digital Corp. has opposed the auction and has taken Toshiba to court in addition to lodging its own offer for the chip business.

Toshiba needs to reach a deal within weeks if it wants to close the deal by the end of March and avoid a second consecutive year of negative worth.

Following PwC’s sign-off, the Tokyo Stock Exchange is currently reviewing Toshiba's governance to decide whether the firm can stay listed. 

 

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