Time to start paying attention to the Toshiba accounting scandal

Yeah, yeah, I’m late to the party.  Since this has been in the news for a few months, I am a bit tardy talking about the issue. On the other hand, yet another round of billion-dollar book-cooking in Japan doesn’t have a lot of impact on accounting firms that only work in the US.

So what’s going on?

Apparently Toshiba has around a dozen different schemes to inflate profits. Make that two dozen. Make that two dozen and counting. Amounts involved are reported to be half a billion dollars, one billion, or three billion. Take your pick.

For context, check out an article from Bloomberg View in Accounting Today on July 29: Japan Has an Enron Moment after Accounting Scandals.  Article suggests there is a systemic problem in the Japanese economy. Also suggests that the massive Toshiba scandal following the massive Olympus scandal suggests there are more scandals still to surface.

The descriptions of the culture and governance model in the country outlined in that article again makes me wonder how it is even possible to audit a company operating in that world. I don’t have the insight to figure out how an auditor could gain enough comfort with the “tone at the top” to issue an audit opinion.

To get you started, here are just a few articles in the news I picked out of a bunch of headlines:

6/13 – The Japan Times – Toshiba accounting scandal snowballs to 24 cases, ¥54.8 billion – Article says there are an additional 15 new incidences of inappropriate accounting which will have a ¥3.6B impact on operating margin. This brings the total separate schemes to 24 with the total of ¥54.8B. Exchange rate today indicates ¥54.8B would be US$0.44B. Exchange rate is about 124 Yen to 1 Dollar.

6/15 – Reuters – Exclusive: Toshiba faces $3 billion in charges over accounting scandals – sources – Article claims the possible charges have ballooned from ¥50B to somewhere in the range of ¥300B up to ¥400B. Article says that would be in the range of US$2.4B or US$3.2B.

Book cooking is allegedly covering the last six years.

8/2 – Tech Firstpost – Ernst and Young launches internal audit of Toshiba Corp. in wake of the $1.2 billion accounting scandal – The Japanese affiliate of E&Y started an internal review of the Toshiba audit.

Article says the amount of the irregularities is US$1.2B. That amount is based on an internal review by Toshiba in July.

Ernst & Young ShinNihon LLC was also auditor of Olympus. I have discussed that fiasco extensively.

Just a few obvious points from those articles. The number of separate schemes is growing. The estimates of the amounts involved are all over the board. Lastly, this will be in the news for a looooong time.