Toshiba’s Case Of Unethical Accounting Practices And Ethical Dilemma

Script Role Play

Discuss about the Toshiba’s Case of Unethical Accounting Practices and Ethical Dilemma.

Narrator: In this role-play, we are going to address the problem of unethical accounting practices that is being followed by senior, middle and line management in order to meet the wishes or personal goals of their leaders (CEO) rather than the requirement of the business. in the automotive manufacturing company Toshiba. The protagonist of this case is the accounting director, A. Before joining the company, A has been regarded as ethical person and successful professional. Shorting after joining the company, he identified the Toshiba’s corporate culture that does not allow anyone to go against the will of their seniors and the unprofessional accounting practices that involve overstating the operating profits. As the company is moving to a new financial year, A has been assigned the task of preparing a financial report. After preparing and sending the finalized financial report to B, the CEO of the company, for approval, A learned that the leaders are not happy with the report as they need it to overstate the operating profits in order to attract investors and build preferable company outlook in front of its stakeholders. A also came to know through the internal surveys and from other employees that there is no choice but to follow the instructions of seniors. These learning about the corporate culture and inappropriate accounting practices and the internal convictions of A and moral and ethical values have presented an ethical dilemma for A and he is unable to find the right path to follow as there are many factors or stakeholders who would be affected by the decision taken by A. There are several questions that A is seeking answer to and is questioning his conscience to find out the best way out if the situation. Following are the excerpts that the A had with his conscience in the process of getting the right path to follow.

Conscience – The accounting practice of deliberately inflating the operating profits to satisfy the hidden agenda of seniors is not appropriate, as it is not beneficial for the organization in the end. Is it not important to follow International Accounting Standards (IAS) and maintain transparency in financial reporting?

A: But that should not be my concern as the I my job is only to serve the company and the employers rather than investing time in matters that are beyond the purview of current job profile. In addition, the corporate culture of the company does not allow to question the orders of seniors and it cannot be changed overnight. The current financial reporting systems is in practice in the organization for a long time and is devised by the superiors and they must be fully aware of the consequences of their actions.

Conscience vs. Personal Goals

Conscience: You are the accounting director of the company and it is your responsibility to take charge of the activities of the business concerning accounting and financial activities.

A: Since I am a newly appointed accounting director, it is important to get accustomed with the new organizational culture, as every employee in the organization is aware of the current practices. In addition, the previous accounting director lost his job as he refused to fulfill the requirements of his superiors. For me it is more important to save my job and create a favorable impression in front of the superiors. Further, the current opportunity is huge and it would be more crucial for my personal career development.

Conscience: It is not about your personal goals or career development opportunities but about the various stakeholders that are affected by the misrepresentation of financial data and over stating of operating profits. For instance, the shareholders who are investing in the company have a legitimate right to know about the actual condition of the business to make a decision about their investments.

A: I truly understand the importance of transparency in the financial reporting as it enables the various stakeholders to have better assessment of the business and take pride in their association with the business. However, if the current mal practices of the company come to the surface in the public domain it can have serious ramification for the business and various stakeholders. For instance, the self-respect and pride of the current employees would be violated and it is possible that the government would take legal action against the company’s management and the company may be locked down that would result in employees losing their jobs and this not the ideal scenario. In addition, the customer loyalty towards the brand and goodwill of the company in the market would be severely damaged. Further, Toshiba is a well reputed business organization and contributes  positively in the development of the society and a source of revenue generation for the business, therefore, if the current unethical practices comes into public domain it would have negative impact for all the stakeholders of the company.

Conscience: But is more important to find permanent solution to the current solution as truth cannot be hidden for a long time and the situation would be more complicated for everyone to manage if the regulatory bodies unearths the truth. Therefore it is advisable to take charge if current situation and to the right thing even if costs you your job.

Importance of Transparency in Financial Reporting

Narrator: A listens to his inner voice and decides to talk about the matter personally with B,  the CEO of the company in presence of other board members to express his concerns about the current mal practices in the business and make them understand about the gravity of the current situation if these practices comes into public knowledge.

(After one week on the day of board meeting)

A: Good afternoon B, how are you doing today?

B: I am good, how are you? How do like working in this organization? Do you like your current position and job?

A: I am good and thank you for asking, however, I would like to discuss some important issue related to the financial reporting currently being practiced in our organization. In my four months of work in this organization, I have learned that the financial reports are constantly inflating the profits and other misrepresentations in the financial reporting. These practices are against the International Accounting Standards and are unethical in nature. Further, it is the legal obligation for any business organization to present accurate financial information to its stakeholders as they can access the financial position of the business and make appropriate opinion about the business.

B: Well I am aware about the current practices being followed by our organization and in my opinion, it is important to have such practices to attract investors and create a favorable impression about the business among the various stakeholders.

A: I am sure you are aware of these unethical practices in the financial reporting but are not fully understand about the implication of such practices. Such practices have benefitted the business in the short run by attracting more investors. However, in the long run these unethical practices are bound to cost company dearly. If the regulatory body discovers these mal practices all the stakeholders of the company would be affected. The investors would refrain from investing money in the business and may pull their association from the company. The pride and self respect of the employees would be adversely affected. Moreover, the company may have to close some of its branches that would result in loss of jobs for the current employees. The brand value in the minds of the customers would deteriorate and loyal customers and clients would shift to our competitors as no one wants to be associated with a company that indulges in unethical business practices. To sum up it can be said that the overall business and reputation of the company would go down and that would be difficult to overcome. In addition, if regulatory bodies discover these unethical business practices, many board members (including A and B) would lose their jobs and would be subjected to legal proceedings.

Consequences of Unethical Accounting Practices on Stakeholders

B: Perhaps you are right, so what do you suggest to avoid such situation without affecting the company’s relation with its stakeholders and continuing profitable business operations?

A: Since, it is the time to present annual financial report for our stakeholders and general public, we can present true financial position of the company profits and solicit greater assistance from the various stakeholders to revitalize the company. Further, the company has all the capabilities to succeed in the market by its own, therefore, it would be more appropriate to focus our resources and energies on improve business competence rather than inflating profits to attract customers.

B: Thank you for highlighting the gravity of current unethical accounting practices. We will discuss the problems with other board members to come out with better and transparent financial reporting mechanisms and plan future course of action.

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