What is happening at Toshiba? The massive Japanese technology corporation is causing a stir among investors after announcing a second “internal accounting probe” in as many years. And, according to media reports, this one could have serious financial repercussions.
News such as this has a way of perking up the ears of anti-fraud sleuths because it sometimes serves as foreshadowing that a major scandal is coming to light. Enron and Worldcom both initially creeped onto the news wire with headlines of “accounting irregularities” and “internal investigations,” that sort of language. What followed, of course, were reports of (alleged, at the time) outright financial statement fraud.
This writer is not stating that this is the case at Toshiba; it is too early to make that conclusion. Anyone might be quick to point out that, as noted above, this is the second time this has happened – recently. And the last go around with Toshiba’s accounting mess has not yet pointed to potential criminal conduct. What we do know is that Toshiba Corp. stock collapsed more than 10 percent in trading today in the wake of this latest news – as a Reuters article points explains:
“Fears over Toshiba Corp’s second probe into its own accounting in two years wiped close to $2.5 billion off the Japanese industrial giant’s market value on Monday, with analysts saying lingering doubt on the root of the problem will keep investors on edge.”
So what is “the root of the problem?” That is the question that Toshiba will need to answer, quickly and decisively, to gain some stability in what has become a volatile situation. Its public relations office has said only (to paraphrase) that several construction projects came in over budget. Interested parties will likely demand a much better explanation in the coming days to restore the trust of investors.
Shuli Ren wrote a news brief on the Toshiba fiasco for Barron’s Asia. Ren brings us up to speed thusly:
Until now, the accounting investigation has focused on power systems, social infrastructure and community solution units in Japan and overseas. “Several construction projects have understated costs,” according to a spokesperson from Toshiba. Toshiba earned about 11% of its operating income from its power and social infrastructure business in 2013.
With just a few short paragraphs, the brief serves as a “here’s-what-you-need-to-know” for investors grabbing their news on the fly – but then Ren includes for emphasis: “This is serious.”
Indeed it is, Toshiba. Stay tuned.
Pyramids and Ponzis 