Toshiba Corp. overstated nearly $1.2 billion (152 billion yen) of profits (accounting earnings) over the last six years. It expects to take a charge of nearly $3 billion for improper accounting and restate its prior period financial statements. Not surprisingly, since May 8, when it withdrew its earnings forecasts, canceled the year-end dividend and widened an accounting probe, the company has lost $3.8 billion in market capitalization. The stock has declined 26% this year making it the second-worst performer on the Nikkei 225 Stock Average, which has climbed 18% (Toshiba is not listed in the US).

The company initially uncovered irregularities related to percentage of completion estimates and then appointed a third-party committee to expand the investigation. The Chair of the audit committee, the CEO, and a string of other senior officials also resigned. At least eight analysts have suspended their ratings on the company’s shares.

Who was the auditor of Toshiba during the period of accounting irregularities? It was E&Y’s Japanese affiliate E&Y ShinNihon. Why did the auditors, a Big 4 affiliate, fail to uncover this accounting “fraud”?
http://www.bloomberg.com/news/articles/2015-07-20/toshiba-to-restate-152-billion-yen-of-past’-profits-after-probe

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