How Did Toshiba Company Have Overstatements

Satisfactory Essays

In April 2015, Toshiba company announced that it had overstated its profits by nearly $2 billion over the past 7 years. Although misstatements are frowned upon in the accounting profession, there must be a reason why the overstatements began. This announcement raises many questions, especially by investors, as to who is responsible? There is definitely a lack of ethical behavior that must is associated with this event and one must analyze the entire situation in order to effectively account for who should be held liable.

During 2007, a financial crisis began to emerge in the United States. Home ownership had peaked at 70% and the Federal funds rate had jumped from 1% to 5.25%. This partially explains why no one was interested in buying …show more content…

Pretty soon it became obvious within individual business units that the only way to achieve these Challenges was to do so through using irregular accounting techniques. These techniques included booking future profits early, pushing back losses into later years, pushing back charges and other techniques that resulted in overstated profits. This same pattern continued under the next CEO, Norio Sasaki, and eventually ended in scandal under Hisao Tanaka.

The employees that were pressured into the false reporting should not be the ones to blame since a tenet of the Japanese culture is to not question a superior when given an order. Investors who may file any lawsuits should direct their attack at the CEOs, who knowingly forced misstatements thinking no one would find out because of such poor internal controls. My stance is that, had this behavior been within U.S. borders, the CEOs should be sued for fraud, and the auditor should be sued for one of two claims. Claim one would be that the auditor had the civil liability under federal securities law to discover materially misstated financial statements. The second claim could be a criminal liability, stating the auditor knowingly issued an incorrect audit report. There is only one loophole for the auditor, and that is if he/she is able to successfully prove that he/she was not negligent and that management's

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