Japan is hit by a massive accounting scandal as a probe into Toshiba reveals the electronics giant systematically overstated its earnings by 151.8 billion yen (US$1.2 billion) over the last seven years.
The problems reportedly date back to the financial crisis in 2008, when managers across Toshiba's many units began taking accounting shortcuts to meet increasingly difficult profit goals imposed by superiors. A committee of independent experts hired by Toshiba to examine its accounting practices accused the company of not only breeding “a corporate culture where it is impossible to go against one’s bosses’ wishes” but also of “systematic involvement, including by top management, with the goal of intentionally inflating the appearance of net profits."
Toshiba Corp. President Hisao Tanaka and two other executives took responsibility by resigning. No charges have been filed against Toshiba or its executives in the case.
After the news hit the wire, Toshiba surged 6.1 percent on the stock exchange as investors hope things will return to normal. However, Fujiwara of Shinkin Asset points out the accounting scandal may impact all Japanese companies going forward as it may leave foreign investors with a vague feeling of uncertainty towards Japanese corporate earnings.
Toshiba surged 6.1 percent, the most since June 2013, to 399.90 yen at the close in Tokyo trading Tuesday. The stock has declined 17 percent since Toshiba initially announced its accounting probe on May 8, compared with a 7.6 percent gain for the Nikkei 225 Stock Average.
“The amount of fraudulent profits, the involvement of top management and their subsequent resignation have already been priced in,” Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo, said before the announcement that the executives were stepping down. “If the management structure responsible for this is renewed and dealt with accordingly, things will return to normal.”