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The case under consideration is Toshiba accounting scandal of 2015. The main issue is that the conglomerate’s senior management recognized that the company’s earnings have been overstated by around $2 billion. Even though the timeframe of the scandal is seven years, the outcomes are still significant because the estimates were four times less than the presented financial outcomes (Matthews & Gandel, 2015).
This scandal pointed to the use of fraudulent accounting practices by Toshiba. The main factor contributing to the challenge is the fact that managers are free to postpone reports or move costs into later years that results in discrepancies in company’s financial outcomes. In this case, the main ethical issue is being dishonest with the conglomerate’s stakeholders and shareholders. In this way, they are ones affected.
The main implication is that stakeholders and shareholders do not possess truthful information regarding the operation of Toshiba, so they cannot make appropriate decisions about their further cooperation with the company. For instance, they might believe that the company is more successful that it is in fact and invest in it. As a result, such a decision may turn into a financial failure. This example is a common implication for community.
Still, there are other stakeholders to consider. For instance, owners suffer financial losses due to ruined reputation. Another group of those affected are employees because commonly lose confidence in their company and senior management. The same is true for customers that may distrust the company, thus decreasing the customer base. Except for these groups, marketers and vendors may as well be impacted because they fail to estimate the real condition of the firm and develop ways to cooperate with it.
Finally, there are managers who face unnecessary difficulties in running the company, such as the need for addressing fraud implications, and regulators that are forced to review standards in order to conclude on their effectiveness and revise them in case of necessity.
Speaking of internal accounting regulations, none of them were violated because, according to Toshiba’s corporate culture, postponing reports and moving costs to following years is allowable. These regulations are governed by senior management. Nevertheless, the considered scandal is a proper example of violating the Generally Acceptable Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB).
According to these rules, accounting, as a process, should be timely, while, as a result, it should be precise. In this case, reports were neither timely (because the problem covered a seven-year reporting period) nor precise (because the reported information was not accurate). The same requirements to accounting (International Financial Reporting Standards or simply IFRS) are developed and published by another influential institution – the International Accounting Standards Board (IASB). Therefore, regardless of the corporate culture specificities, the scandal is a representation of ignoring generally acceptable rules and standards of accounting.
The abovementioned institutions are some of the regulators that might impact accounting rules. Other influential regulators are governmental and international accounting agencies and financial institutions. Some of them are the following: Governmental Accounting Standards Board (GASB), American Institute of Certified Public Accountants (AICPA), U.S. Securities and Exchange Commission (SEC), and Internal Revenue Service (IRS).
Still, it is essential to note that they are the U.S.-based regulators. As for international regulators, they are the Financial Accounting Foundation (FAF) and the one mentioned above – IFRS. Except for them, these are governments that might as well influence accounting by passing standards and legal provisions in accounting (Pierta, McLeay, & Ronen, 2014). Nevertheless, regardless of a variety of regulators, all of them are external and have a direct impact on the process of developing internal accounting procedures and ethical codes of conduct.
References
Matthews, C., & Gandel, S. (2015). The 5 biggest corporate scandals of 2015. Web.
Pierta, R. D., McLeay, S., & Ronen, J. (2014). (Eds.). Accounting and regulation: New insights on governance, markets, and institutions. New York, NY: Springer.
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