Term 5, 2018: WACC100 Accounting in Society - Toshiba Scandal

This case study examines the Toshiba accounting scandal, focusing on the ethical issues and their consequences. The paper begins with an overview of Toshiba's background and the details of the accounting irregularities, including the overstatement of profits and the subsequent investigation by...Read More

Accounting in Society
10/19/2018
Toshiba

Accounting in Society 1
Toshiba Accounting Scandal
The aim of the paper is to present the research-based case study on the corporate cases which are
allocated. The corporate case that has been selected for the report is Toshiba accounting scandal.
The reason behind the selection of the case is that the incident gains the attention of the media
due to the ethical issue. This paper reflects the ethical issues which were faced by the company
and the parties that are involved in these issues. It also covers the details related to the
stakeholders who were impacted due to the ethical dilemma. The issues affected the business and
the parties which are discussed with the help of theories of ethics. Further, the views of the
ethical issues that took place and the lesson learnt from the same are discussed.
Toshiba is a well-known Japanese multinational conglomerate company with the headquarters in
Tokyo, Japan. The operations of the company include its diverse products and services which are
offered by them which mainly include information technology and communication systems and
equipment. The company came into existence in the year 1939 by the merger of Shibaura
Seisakusho and Tokyo Denki.
In the month of February 2015, Japan’s Securities and Exchange Surveillance Commission
identified that company is involved in the accounting irregularities and further commenced for
the investigation of the issues. The commission investigated the profit and the practice of the
company. Sooner, Toshiba received the report and realised a serious issue due to which it
announced the same in the public (Kazuo, 2018). The company found that their profits were
overstated but they were not aware of the exact amount. The company realized that there are
accounting issues due to which they established a third-party investigation committee which
mainly includes lawyers and accountants. It was again found that the company is performing

Accounting in Society 2
improper accounting practices and the profit of the company which was inflated is $1.2 billion.
After the investigation, the company was declared as a fraud due to the unethical accounting
practices. Considering the scandal, Toshiba CEO, Hisao Tanaka and vice chairman of the
company Norio Sasaki resigned in July which shows the clear effect of the ethical issue
(Carpenter, 2018).
The ethical issues have created the direct and indirect effect on the stakeholders of the Toshiba.
The major stakeholders who get affected due to the accounting scandal of the company include
Toshiba stockholders, Executives, Toshiba employees that were involved in the consumer
electronics department and their families, Japan’s Securities and Exchange Surveillance
Commission, customers of the company and the accounting department of Toshiba. The major
stakeholders who were involved in the case were Toshiba accounting department and their
executives because they were directly responsible for the false reporting related to the loss faced
by the company (Cannolly, 2017). Along with this, the employees who were working in the
consumer electronics department and their families were affected because the company fired
more than 7,000 employees by saying that they are solving the unethical issue which is faced by
them. The loss of the jobs affected their families of the employees who were working with
Toshiba.
The stockholders of the Toshiba Company were also interested in the unethical case that took
place because the company was forced to identify the major losses they were not able to record
due to which the stock prices plummet. The stockholders might face the loss due to the change in
the stock prices after the case. In addition, the customers of the Toshiba were also affected
because the incident affected their purchasing decision and now onwards they won’t be able to
make the purchase of the consumer electronics from the Toshiba. Japan Securities and Exchange

Accounting in Society 3
Surveillance Commission have also shown the interest in the case because they were the one
who remained responsible for catching the fraud reporting of the financial statement of Toshiba.
The decision that was made the parties that are involved in the case is correct because the
company has not followed the ethical values. This is clear with the theories which are not
followed by the company.
The individualism-the theory states that the sole obligation of the business is to increase the
stockholder's interest and wealth within the constraints of law (DesJardins, 2014). The company
was not able to maximize the wealth of the stockholders and also they claimed huge profits
which were not really earned by the company. This clearly shows that they have done
manipulation in the accounts which is an unethical event.
Utilitarianism-This theory of the ethics states the maximization of the happiness in the steps
taken by the company (Crane and Matten,2016). Though, the stakeholders of the company were
not happy with the scandal that took place because they found that there is no profit for them.
Moreover, the employees of the company were also not happy because they lost their jobs. This
is found that more than 7000 people lost their jobs and their family is unhappy. The customers
are also dissatisfied because they won’t be able to make the purchase of the consumer electronics
products. Some of the Toshiba executives resigned because they were involved.
The decisions which were made by the parties involved affecting negatively to the business. The
accounting department has taken the step to do the fraud in their financial statements due to
which the company was encountered in the ethical issues. In addition, the customers won't be
able to purchase the products which are a loss to a company (Inagaki, 2017). The company was

Accounting in Society 4
in the news which affected the goodwill of the company and the company was also proven
unethical because of the accounting practice.
In my view, the actions of the Toshiba Company are highly unethical and I totally agree with the
findings related to the theories of ethics. Moreover, according to me, the corporate governance of
the company is not effective due to which the employees were not able to go against the action of
supervisors. I think the company was failed in accomplishing the ethical theories. My views
changed after attaining the lessons because this helped me in understanding every perspective
due to which I found Toshiba as guilty. Earlier, I thought that the company conducted the
investigation from third-party which means they have an investigation at their company. Though,
I was convinced with the investigation of Japan’s Securities and Exchange Surveillance
Commission at both the stage before analysing the case and after analysing the case. These were
the major similarities and differences that are related to the case.
In the end, it can be concluded that Toshiba has performed the unethical practice related to the
accounting. Moreover, the steps taken by the stakeholders of the company were right because
they are the affected one. In addition, the one who was involved in the ethical dilemma is guilty
and left the organisation. This is the fact that the company remain unethical as it was not able to
follow the ethical theories.

Accounting in Society 5
References
Addady, M. (2015) Toshiba Accounting Scandal and Lawsuits [Online]. Available from:
http://www.fortune.com/2018/09/08/toshiba-accounting-scandal/ [Accessed on 19th October
2018]
Cannolly, R. (2017) Toshiba faces fresh $400m lawsuit over historic accounting scandal
[Online]. Available from: https://www.theneweconomy.com/business/toshiba-faces-fresh-400m-
lawsuit-over-historic-accounting-scandal [Accessed on 19th October 2018]
Carpenter, W.J. (2018) Toshiba's Accounting Scandal: How It Happened (OTCBB:TOSBF)
[Online]. Available from: https://www.investopedia.com/articles/investing/081315/toshibas-
accounting-scandal-how-it-happened.asp [Accessed on 19th October 2018]
Crane, A. and Matten, D. (2016) Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. UK: Oxford University Press.
DesJardins, J. (2014). An Introduction to Business Ethics. New York: McGraw Hill.
Inagaki, K. (2017) Toshiba rattled by report of fresh scandal evidence [Online]. Available from:
https://www.ft.com/content/7cfd3c68-d23a-11e6-b06b-680c49b4b4c0 [Accessed on 19th October
2018]
Kazuo, M. (2018) Toshiba Accounting Scandal Highlights Issues in Corporate Governance
[Online]. Available from: https://www.nippon.com/en/in-depth/a04802/ [Accessed on 19th
October 2018]