Toshiba: The Ethics Behind The Profits
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TOSHIBA: THE ETHICS BEHIND THE PROFITSMASTER OF PROFESSIONAL ACCOUNTINGINTRODUCTIONToshiba which is one of Japan’s most renowned corporations announced in 2015 that they had falsified profits of $ 1.2 billion over a period of seven years. The electronics conglomerate started padding its earnings since the commencement of the global financial crisis to meet unrealistic expectations set by top management and stay on top of the market as one of the Japans most influential companies.The entire Japanese, as well as international business communities, were taken aback as the scandal was exposed by external investigators. Toshiba was always looked up to as the role model for good corporate governance and culture. Investigations into the scandal revealed that Toshibas good governance foundations were based on unethical practices carried out by managers on all levels of the hierarchy. Toshiba was chosen for this report as this case proves to be an excellent example of reputed corporations facing legal consequences over unethical governance. A brief importance of ethics as well as practical suggestions to the case is also provided.ETHICS IN ACCOUNTINGEthics is one of the most important elements in accounting today yet happens to be one of the major concerns. Decisions taken in business will be judged ethically irrespective of their legality. (Onyebuchi, 2011) Nowadays, in terms of ethics in a community, communities must communicate their ethical position via rules. Australian Accounting Standards Board (AASB) makes the rules of accounting standards in Australia. It promotes the best practice in finance and accounting and to provide the useful information of financial statements so that users can make better decisions. Different countries have different bodies which provide this ethical framework.There are three foundational principles for communities -a) Beneficence: This is the duty of communities to do well and avoid harm.b) Justice: This is the duty of communities to do universally fair business.c) Respect for persons: This is the duty of communities to respect the dignity of others.The following quote from Philosophy of Auditing could be the best way to explain Ethics in Accounting:Ethical Conduct in auditing draws its justification and basic nature from the general theory of ethics. Thus we are well advised to give some attention to the ideas and reasoning of some of the great philosophers on this subject. ( Mautz&Sharaf, 1961)Because the accountants are now facing increasingly complex challenges in the business world, pressures on ethical behaviours are growing rapidly in the business environment as well. The professional accountants need to understand and figure out what is expected in order to respond effectively and efficiently during work. In Australian Accounting profession, five fundamental ethical principles are described (APES100):• Integrity; this outlines broad expectations by the public that professional accountants need to be straightforward and honest with in all kinds of business relationships.
• Objectivity; this word states that accountants should not be biased, or let any other person override professional or business judgments.• Professional competence and due care; this principle allows accountants to consistently improve their knowledge and maintain their accounting profession skills at the level required by the employer and clients. The most important is to act in accordance with technical and professional standards.• Confidentiality; this states that the accountants can only disclose confidential information when there is a legal duty otherwise they should not disclose those without authority. It is forbidden to use that confidential information to their personal purpose or third party advantages.• Professional behavior; this outlines that accountants need to comply withal relevant laws and regulations when they are providing services. At the same time, they also need to avoid any improper or illegal actions.However, the communities may also face to various threats which caused by a broad range of relationships. In APES110 ‘Code of Ethics for Professional Accountants’, it outlines five different threats, which are:Self-interest threat; this is a threat created by financial or other interest will lead to an inappropriate influence the members’ judgments.Self-review threat; this is a threat that members could not evaluate the results judgments in an appropriate way.Advocacy threat; this is a threat that a member compromise objectivity so that promote a client’s or employer’s position when providing the services.Familiarity threat; this is similar to advocacy threat, who also considers and promotes on a client’s or employer’s position due to a long or close relationship.Intimidation threat; this is a threat that a member avoids objectivity due to perceived pressures or attempts to override the members.In order to compromise those threats and solve a specific problem in the real business world, American Accounting Association (AAA) model of ethical decision making is one of the methods and apply this model to the specific problem (APES110):1) Determine the relevant facts2) Define the ethical issue3) Identify the major principles, rule, and values4) Specify the alternatives5) Compare the value and alternative6) Assess the consequences7) Make your decisionTHE CASEToshiba Corporation was founded in 1875. The company’s 140-year-old untarnished history had always been bright up until 2007. From 2009-2013 the sales dropped by 11 percent with the unprecedented onset of the financial crisis. The fraud primarily concentrated on understating costs related to large long term projects with respect to its infrastructure and semiconductor divisions to cover up for its losses. The inaccurate accounting treatment used valuation techniques, such as the percentage of completion method, that involve estimates based on internal data prepared by an expert with specialist knowledge. These techniques made it very difficult for an external auditor to independently test the adequacy of estimates. (Gandhi, 2015)