Cabrera, Veronica Danielle E.` Aug.

23, 2017
BSM41

This article talks about Toshiba inflating its earnings for seven years (2009 to 2014)
by $1.2 billion. This misleading accounting was allegedly known to most senior leaders
and to its accounting department providing insufficient explanations to auditors, with the
intention of carrying out a systematic cover-up. Managers across Toshibas divisions
made accounting shortcuts to meet increasingly difficult profit goals imposed by superiors.
Managers used a variety of techniques to improperly increase earnings. These included
underreporting the cost of raw materials and components; reporting uncertain future
income some of which would never materialize as though it were cash in the bank;
and delaying write-offs related to cancelled contracts and other business setbacks. It is
accused that the problem was Toshibas corporate culture where it is impossible to go
against ones bosses wishes. The scale of the misreporting that the company is being
accused of is on a par with Japans most recent accounting scandal, at the camera maker
Olympus, which came to light in 2011.

The main problem here was caused by an internal audit failure so my

recommendation is for the company to seek an external auditor for them to have an
opinion that is from the outside of the company. It is also gives unbiased and independent
decisions. An external auditor is not only tasked with verifying that a companys financial
information is correct, but that the process used to report and compile the financial
information has enough internal controls in place to reduce the chance of misreporting or
fraud. External auditors are trained specifically to focus on tightening and improving
business processes to reduce the amount of risk of misreporting financial data.