AUDIT CASE

Toshiba huge accounting scandal

Inflated profits by $1.2 billion & fraud scheme.

Toshiba Corp, its chief executive and president Hisao Tanaka will step down after an independent investigation found he had been aware the company had been inflating its profits over a number of years.

In one of the biggest ever accounting scandals in Japanese corporate history, the investigators' report said the consumer electronics and engineering giant had overstated operating profits by a total of 151.8 billion yen ($1.22 billion) since 2008, claiming numbers that were up to three times the actual level.

“Toshiba had a corporate culture in which management decisions could not be challenged,” according to a summary of the investigator’s report. “Employees were pressured into inappropriate accounting by postponing loss reports or moving certain costs into later years.”

It's the second big scandal of its kind in less than four years. In late 2011, executives at camera maker Olympus were accused of orchestrating a $1.7 billion accounting fraud scheme.

In my opinion, although the report point to the systematic problem that reached the upper echelons of Toshiba and the top executives pushed subordinates to meet unachievable financial targets, it also cannot overstatement of the profits and delay in reporting losses in a corporate culture that ‘avoided going against superiors’ wished”. Besides that, because of this case had a blow to the country’s efforts to regain the confidence of global investors. In additional, they had took the responsibility, Tanaka will be replaced by Masashi Muromachi, the group's chairman, according to a company statement. His predecessors, vice-chairman Norio Sasaki and adviser Atsutoshi Nishida, will also step down after being implicated in the report. Toshiba will also appoint a slew of independent directors to its board to strengthen external oversight of its management, but if Japan fails to implement appropriation corporate governance, it could lose the market’s trust. Furthermore, fraud can result in huge financial loss, legal costs, and ruined reputations that can ultimately lead to the downfall of an organization, so it can set a new policy and increase the penalties and punishment to enforcing this type of case happening.

References link below:

http://www.reuters.com/article/us-toshiba-accounting-idUSKCN0PU0E920150720

https://www.nytimes.com/2015/07/21/business/international/internal-panel-says-toshiba-inflated-earnings-by-1-2-billion.html?_r=1

Audit Opinion

An auditor's opinion is a certification that accompanies financial statements based on an audit of the accountant's opinion of the procedures and records used to produce the statements regardless of whether material misstatements exist in the financial statements. There are generally four types of audit opinions rendered in accounting.

Unqualified Opinion

An unqualified opinion is also call as a clean opinion. An unqualified opinion is an audit report that is issued when an auditor determines that each of the financial records provided by the organization is free of any misrepresentations. In addition, an unqualified opinion indicates that the financial records have been maintained in accordance with the standards known as Generally Accepted Accounting Principles (GAAP). This is the best type of report a business can receive. Typically, an unqualified report consists of a title that includes the word “independent.” This is done to illustrate that it was prepared by an unbiased third party.

Qualified Opinion

A qualified opinion is given when a company’s financial records have not been presented in accordance with GAAP but no misrepresentations are identified, an auditor will issue a qualified opinion. The writing of a qualified opinion is extremely similar to that of an unqualified opinion. A qualified opinion, however, will include an additional paragraph that highlights the reason why the audit report is not unqualified. 

Disclaimer Opinion

On some situation, an auditor is unable to complete an accurate audit report because of a variety of reasons, such as an absence of appropriate financial records. When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined.  A disclaimer of opinion is not an opinion itself. 

Adverse Opinion

A disclaimer of opinion means that due to a significant scope limitation, the auditors were unable to form an opinion or did not form an opinion on the financial statements. An adverse opinion indicates financial records are not in accordance to GAAP and are grossly misstated. An adverse opinion is an indicator of fraud, and public entities that receive an adverse opinion are forced to correct their financial statements and have the financial statements re-audited. 

References
http://yourbusiness.azcentral.com/types-audit-opinions-rendered-accounting-3557.html
http://www.investopedia.com/terms/a/auditors-opinion.asp