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The Toshiba Accounting Scandal Case Study

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Updated: Jul 8th, 2021

Toshiba has been at the center of a significant accounting scandal in 2015, as internal audits revealed that the company’s records contained numerous inconsistencies. The alterations were primarily skewed to inflate the corporation’s profit statements above the actual values, and the process had been going on for approximately seven years. Toshiba’s CEO, as well as numerous other board members, resigned as a result of the controversy. This case study investigates possible decisions for the corporation after the discovery of the issue as well as its potential causes.

Different Behaviors during the Scandal

Toshiba’s response to the arising controversy was mostly a standard corporate reaction to a large-scale mistake. According to Misawa (2016), the new CEO of the company issued a public apology to the shareholders and stakeholders and promised a return to the founding principles of the organization. In addition, he ordered a re-evaluation of the financial results from the years during which the deception had taken place. Lastly, the company increased the proportion of outside directors to ensure that the board’s activities would be monitored more closely. While significant amounts of trust and goodwill had been lost, Toshiba rearranged itself and continued operations.

In most respects, the corporation’s response to the discovery of the reporting issues was appropriate, as it had followed the guidelines outlined in the investigative report issued by the auditing company. However, its reaction to the actions of the executives responsible for the situation can be considered lacking. While no one disputed their influence on the case and their responsibility for the wrongful reporting, they were allowed to resign and partially save their reputation.

Furthermore, their opinion on the motives that pushed them to establish unrealistic goals and overlook fraudulent reporting remained unheard. A more thorough investigation and a formal firing would have lent Toshiba more insight into the issues present in its corporate culture and created a more powerful image of changing the undesirable practices.

Toshiba Scandal and Lifetime Employment

The work ethic of Japan was likely responsible for a part of the motivation behind the false reporting. The job market is less fluid there than it is in the West, and employees tend to work for a single company without changing jobs. As a consequence, contradicting one’s superiors or calling attention to unhealthy practices within the company is often too risky. The results of such an act would be uncertain, but the person’s superiors would likely remember the worker in a negative light and be less likely to give him or she pay increases or promotions.

The tendency manifested itself in Toshiba, where employees would falsify records when faced with unrealistic expectations rather than discuss the difficulty of the task with the management. The superiors’ excuse of disguising the goals as “challenges” exacerbated the issue, creating a situation where the workers did not have to meet the target but would be viewed poorly if they fell short.

Conclusion

Toshiba’s response to the scandal was largely commendable, as the corporation went through a significant restructuring in an attempt to eliminate the causes behind the issues. However, if the company interviewed the responsible executives and fired them instead of allowing them to resign, it would have established a stronger image and learned more about the climate that fostered fraudulent accounting. Overall, however, the scandal can be attributed to the Japanese cultural trait of employees remaining at one company throughout their career, which made non-executive employees remain quiet about their concerns and falsify the numbers to keep their positions.

References

Misawa, M. (2016). The Toshiba accounting scandal: How corporate governance failed. Web.

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IvyPanda. 2021. "The Toshiba Accounting Scandal." July 8, 2021. https://ivypanda.com/essays/the-toshiba-accounting-scandal/.

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IvyPanda. (2021) 'The Toshiba Accounting Scandal'. 8 July.

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