Toshiba caught lying about profit margins for 6 years, heads resign

21 Jul 2015

Toshiba has a lot of explaining to do to investors after it has emerged that for the past six years the company has been overstating its profit statements by a margin of US$1.2bn.

Following the revelation, three of the company’s executives were forced to resign.

The news will be seriously damaging to Toshiba, which as a 140-year-old company remains one of Japan’s largest tech brand names, but which ordered an investigation into its accounts just two months ago.

According to the BBC, it was found that the company’s top executives had been setting unrealistic profit targets that over the years created a completely flawed and incorrect accounting system.

The company must now go through its books from April 2008 to March 2014 to restate its profits but it is yet unclear as to how Toshiba’s financial statement ending March 2015 will be affected.

It is understood, however, that the company may be forced to sell some of its assets to balance the books, including real estate it owns.

Executives could not be challenged internally

The first casualties of the scandal are Toshiba’s chief executive and president Hisao Tanaka, vice chairperson Norio Sasaki and advisor Atsutoshi Nishida, who have all resigned due to their positions as heads of the company.

Following their decision to resign, the company said in a statement: “It has been revealed that there has been inappropriate accounting going on for a long time, and we deeply apologise for causing this serious trouble for shareholders and other stakeholders.”

From the report’s findings, there appears to have been a sense of fear in challenging the top executives, whose decisions would be ruled as final. “Within Toshiba, there was a corporate culture in which one could not go against the wishes of superiors,” said the report.

“Therefore, when top management presented ‘challenges’, division presidents, line managers and employees below them continually carried out inappropriate accounting practices to meet targets in line with the wishes of their superiors.”

Toshiba logo image via Shutterstock

Colm Gorey was a senior journalist with Silicon Republic