TOKYO -- Toshiba intentionally delayed booking losses for infrastructure projects by presenting unrealistic cost-cutting plans to auditors, sources familiar with the matter said, raising the specter that a financial watchdog could take action against the company ensnared in a deepening accounting scandal.
The infrastructure segment includes such businesses as electronic toll collection systems. Under the percentage-of-completion accounting method used for long-term construction projects, the possibility of future losses stemming from higher construction costs was recognized early on. To receive clearance from auditors, however, project leaders gave earnings estimates based on unrealistic cost-cutting plans and explained that losses would not grow because of cost reductions, the sources said.
Emails from supervisors urging subordinates to delay loss booking have been discovered, and the independent committee probing the accounting scandal apparently is aware of the maneuver. Deliberate manipulation is a factor that could prompt the Financial Services Agency to impose a penalty for falsifying earnings reports. Depending on the outcome of the probe, top management could be forced to step down.
In recent years, Toshiba's top managers such as the president routinely pressured business segments and key subsidiaries to meet budget targets at monthly meetings. Excessive pressure on staffers near the end of a fiscal year likely prompted them to pad the books repeatedly, which has led to the current independent investigation.
The committee will compile a report as early as July 21. Based on the report, Toshiba will have to mark down earnings results for the five years through fiscal 2013 and report its fiscal 2014 results by the end of August.
Accounting irregularities have been found in all of Toshiba's main segments, including semiconductors and infrastructure. The company likely will call an extraordinary shareholders meeting in September. Vice Chairman Norio Sasaki, who served as president between 2009 and 2013, will likely step down from the board of directors.