What role did Toshiba’s (a) senior management and (b) junior employees play in Toshiba’s deceptive accounting?...

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What role did Toshiba&rsquo;s (a) senior management and (b) junior employees play in Toshiba&rsquo;s deceptive accounting? Nature and Amounts of Carryovers Although the practice of carryovers probably began in FY 2008, the Investigation Committee was able to obtain detailed information about them only from the beginning of FY 2011. The carryover balances at the end of fiscal years 2011 through 2014 are presented in Table 2. The carryovers pertained to several different items, which are explained next.   Methods related to provisions and accounting for promotion fees, rebates, and other expenses  Per the instructions of CEO Atsutoshi Nishida, the DM Company attempted to bring its operating profits back into the black around 2007. Toshiba initiated efforts to unify inconsistent accounting standards across regions to exert better control. During this process, it &ldquo;became aware of the possibility that provisions for sales promotion expenses and the like might have been substantially overstated&rdquo; (The Report, page 209). During FY 2008, given its difficult business conditions, the DM Company concluded, &ldquo;reducing (releasing) the provisions that had been substantially overstated was an easy and highly achievable measure for bringing operating profit back into the black (The Report, page 209).&rdquo; A simple way to do so was to account for sales promotion expenses, customer rebates and promotion fees on a cash basis instead of accruing them on an estimated basis. In FY 2008, likely because of these measures, the DM Company came out of deficit and recorded positive operating profits.  Failure to record ecology subsidy retracting in China  Toshiba&rsquo;s (affiliated) distributors in China reported profits by recording an ecology subsidy that they expected to receive from the government as an account receivable. Subsequently, however, the conditions for receiving the ecology subsidy were tightened. In the third quarter of FY 2013, the distributors became aware that they could not receive the subsidy because they did not meet the minimum annual unit sales target that was needed for receiving the ecology subsidy. Despite this, the distributors did not remove the receivable from the books. As can be seen in item A(ii) of Table 2, Toshiba did not remove the subsidy income recorded on its books even after learning that the targets to qualify for the subsidy were not met.  Delayed recording of operating expenses  Referring to FY 2009, the Report (page 210) noted that &ldquo;because there is a limit to the effectiveness of only reducing provisions as a measure for improving profit and loss, there is a high possibility that around this time period, inappropriate C/Os by means of delayed timing of the recording of operating expenses also started to be conducted.&rdquo; Several expenses for advertising, logistics, and other services performed by the contractors before the end of certain quarters were not recorded in the respective quarters. The rationale given was that the invoices did not arrive. In some cases, Toshiba requested payees to issue invoices in the subsequent quarter.  Sale of Inventory to Affiliates at Masking Prices  To meet the market demand for televisions, Toshiba used its affiliate companies to supplement its production capacity. During the first half of FY 2011, the Visual Products Company was instructed by the Corporate Finance & Accounting Division to take urgent measures to improve profitability. In response, the Visual Products Company started marking up inventory sold to its overseas affiliates. The Company applied a temporary increase (&ldquo;UP&rdquo;) in the product prices (FOB prices) at the end of the quarter. In such case[s], the overstated inventories at Overseas Affiliated Companies included unrealized profits because those products had yet to be sold outside the Toshiba Group. Although such profits should have been completely eliminated from Toshiba's consolidated financial statements, Toshiba used a standard profit rate for its divisions to compute a uniform elimination ratio consolidation. As a result, the unrealized profit was not fully eliminated in cases where transactions were conducted at a rate of profit higher than the uniform rate.  Early Recording of Cost Reduction (Price discounts)  During FY 2012, methods related to an early recording of Cost Reduction began to be carried out to &ldquo;meet the heightened need to adjust the profit and loss because of further aggravation of poor performance in FY 2012 and an increasing difficulty in negotiating sourcing [purchasing] costs&rdquo; (The Report, page 212). To implement this measure, Toshiba negotiated &ldquo;quid pro quo&rdquo; agreements with its parts vendors that enabled Toshiba to receive discounts on its current purchases in exchange for a commensurate price increases in the subsequent period. In other words, practically no cost reductions would be actually achieved since Toshiba anticipated a sizable cost increase in the following fiscal period. Notwithstanding this, Toshiba recorded the cost reductions as price discounts in the current period. Table 2 Fiscal year-end Carryover Balances (C/Os) (&yen;Million)* FYFY Item 2011 2012 FY 2013 FY 2014 (Q1-Q3) A C/Os related to provisions Failure to record promotion fees and customer rebates in China, Europe, U.S., etc. 2,000 2,000 1,400 3,700 (ii) Failure to record ecology subsidy in China 900 C/Os related to delayed timing of recording operating expenses for advertising, logistics, etc. 000 1 00 800 700 C/Os related to inventory valuation (an intentional increase of product selling prices to overseas distributors 3,200 3,900 900 300 C/Os related to an early recording of CR (Cost Reductions) 2,400 3,800 1,100 E Other (details unknown) 2,100 3,100 2,700 Total Carryover balances at the end of each year 8,200 11,800 10,500 5,800 * Although carryovers likely began in FY 2008, detailed information regarding them was available only from the beginning of FY 2011

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What role did Toshiba&rsquo;s (a) senior management and (b) junior employees play in Toshiba&rsquo;s deceptive accounting? a) The senior management changed or applied some accounting policies that don&acute;t go according to the GAAP standards in order to foster manipulation. Besides, it instructed junior employees to record fictitious revenue and shift Current Expenses to a Later Period. Also, it established an agreement with the company&acute;s vendors that will go in detriment of the financial situation of the company in the future, just to decrease the amount of expenses of the current purchases that the profit shown is bigger as well as exaggerate the period earnings by falsely inflating revenues and gains and decreasing expenses. b) The junior employees, having maybe lack of experience, didn&acute;t record the expenses on time for not asking the payees to send the invoices on time. And also, didn&acute;t have enough ethic to not do all the manipulated recordings and accounting statements asked by the management. .

What role did Toshiba’s (a) senior management and (b) junior employees play in Toshiba’s deceptive accounting?...

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