The nuclear power and technology company Toshiba suffered systematic cover-up and financial difficulties as a result of an inflation of operating profits valued at US $ 1,220 million for seven years (2008-2015). This substantial increase in profits was made with the intention of being able to attract new investors and open new lines of business in the company, for the reason that the technology sector suffered financial difficulties due to the crisis of 2009.
Did Toshiba really carry out unethical practices in its financial reports to attract the interest of foreign investors? The purpose of this essay is to explain the casuistry of Toshiba's financial scandal and its ethical implications. After explaining the events and facts of the scandal, the importance of financial information is detailed, as well as its effects on accounting principles and financial-accounting ethics.
In the global financial crisis of 2009, the Toshiba company suffered from sales, revenue and the poor generation of net profits, which is why the company's senior managers deliberately decided to inflate their profits for more than 7 thousand years millions of dollars. Despite the company's systematic cover-up, an independent investigative commission in Japan found that the company's accounts were manipulated for its own interests.
As a result of the scandal, independent investigative commissions were created in the Japanese country, which revealed many cases of irregularities in financial management in various areas of its business. Furthermore, the disclosure would have very serious consequences for the company, such as the restructuring of the board of directors, reformulation of earnings and potentially high fines.
This is shown in the article “Toshiba stars in the new business scandal in
Japan ”, 2015, who discovers and shows that control entities identified problems in the company's balance sheet, for which there was manipulation of the accounting accounts of the financial statements.
However, this case was very resonant in the country due to the fact that there is a general corporate culture of transparency and honesty in information, not just accounting. No one expected the tenth largest company in Japan to make irregularities in its accounts, generating diplomatic and ethical implications. Therefore, it is necessary to emphasize the definition and application of financial information, as well as its relationship with business ethics and morals.
Financial information is relevant and indispensable for the administration and development of companies and therefore it is processed and concentrated for use by all the people who work in the company. The need for financial information allows creating financial statements to express what is the financial situation, results and changes in the financial situation of a company. The International Financial Reporting Standars (2014) states that the objective of financial reporting is:
Provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling, or maintaining equity and debt instruments, and providing or paying off loans and other forms of credit. (p. A28), stating that Toshiba made these irregularities in order to attract investors who can improve the difficult financial situation it was going through.
Likewise, the presentation, form and content of the same is carried out by a Professional Accountant, as shown by the Mexican Institute of Public Accountants (Eds.).
(2006):
Employed professional accountants are often involved in preparing and presenting information that can be made public or used by others inside or outside the organization that employs them. This information may include financial or administrative information, for example, forecasts and budgets, financial statements, management discussion and analysis, and the management representation letter provided to auditors as part of an audit of financial statements; An employed professional accountant shall prepare or present this information in a reasonable, honest and in accordance with relevant professional standards, so that the information is understood in its context. (p.199).
This implies that the financial information is prepared and presented by public accountants, however, they must be reviewed and endorsed by the immediate boss, and even by the General Manager. Toshiba CEO Hisao Tanaka, the main actor in the scandal, acknowledged that he had no knowledge, as the publication “Toshiba carried out the biggest business scandal in the history of Japan” shows, 2015. Despite having inflated the earnings, these were reflected in the financial statements by an accountant and firmly reviewed by the General Manager.
Now there is no doubt that the accounting principles were violated in the transparency and presentation of financial information. According to IMCP (2006), threats to non-compliance with fundamental principles can be created if the person responsible for preparing the financial statements feels pressured to associate with misleading information.
This financial information must be reflected in the financial statements in compliance with the Generally Accepted Accounting Principles (GAAP). In the case of Toshiba, the company has not complied with the principles, incurring ethical and moral implications. According to Quevedo (2005), the accounting principle of Reliability defines it as a quality of the information that guarantees transparency and reliability. It is clearly identifiable that the manipulation of Toshiba's financial information was misleading and manageable for its own benefit.
According to the same author, the principle of Comparability is that financial information can be compared with other similar information from another company, as well as changes in accounting procedures. Toshiba made the revenue increase in its financial statements, however, it did not report or communicate said change and what that change consisted of with transparency.
On the other hand, Stickney C., Weil R., Schipper K., Francis J. & Avolio B. (2012), show that the principle of Consistency is:
Accounting principle that establishes that the accounting policies and practices used to prepare and present the financial statements must be applied uniformly from one year to the next, unless the change in said accounting policies results from a significant variation in the nature of the operations of the company; o A review of the presentation of your financial statements shows that it will lead to a more appropriate presentation of them; or that the change is required by an International Accounting Standard in which case the effect of the financial statements must be disclosed by means of a clarifying note. (p.795). Toshiba made changes to its financial statements altering the presentation of the fiscal year between 2008 and 2015, without a significant variation being made in the operations of the company,or a change in presentation more appropriately.
And finally, Toshiba did not recognize the inflated revenues in the period that must be met, therefore, it deceived the accounts of the financial statements. Thus, the contribution of Stickney C., Weil R., Schipper K., Francis J. & Avolio B. can be verified.
(2012) on the principle of realization:
Accounting principle that establishes that the income is recognized as such in the period in which they meet two basic requirements: a) the seller has transferred to the buyer the risks and benefits inherent in the good of the sale; b) when there is no uncertainty about the payment derived from the sale, the costs incurred or to be incurred, the possibility that the merchandise may be returned. (p. 817).
Therefore, Toshiba and its entire organization, including those involved in preparing the financial statements, were part of the cover-up for more than seven years of inflated operating profits or profits, in order to attract investors to generate new business lines. in the Japanese country, specifically in your company. These unethical events had negative repercussions on foreign investments in the technological field.
References
- Mexican Institute of Public Accountants (Eds.). (2006). IFAC Code of Ethics for Professional Accountants. México, DF: Jaime A. Cortes Ramírez. International Financial Reporting Standars (2014). International Financial Reporting Standards. London: Author Quevedo, José (2005). Practical study of the Basic Accounting Principles. Mexico: ISEF EMPRESA LIDER.Stickney C., Weil R., Schipper K., Francis J. & Avolio B. (2012). Accounting
Financial: An introduction to concepts, methods and uses. Argentina: Cengage Learning.
- Toshiba stars in the new business scandal in Japan (2015). Retrieved on February 20, 2016, from:
http://www.cnnexpansion.com/negocios/2015/07/21/toshiba–stars–the–new scandal – business – in – japan
- Toshiba starred in the biggest business scandal in Japan's history (2015). Retrieved on February 21, 2016, from: http://peru21.pe/mundo/toshiba–6–claves–uno–peores–escandalos–empresariales–historia japon – 2223592
