Report without Approval from Auditor

Toshiba Corporation again proved itself to be in a serious situation to maintain its body. Chief Executive Officer, Satoshi Tsunakawa, released on Monday its earnings report for April-December period of 2016 without approval from its auditing firm, which was highly unusual. The firm announced that it had serious doubt on maintenance of Toshiba’s business, caused by huge amount of loss in nuclear power plant business in United States. Toshiba is in a risk of dropping out of Tokyo Stock Exchange as soon as next spring.

Being afraid of the impact of the loss on its management, Toshiba has postponed its release of the report twice. While it admitted a possibility of Westinghouse Electric Co., an electric giant in U.S. owned by Toshiba, to put its staff pressure for disguising the loss in nuclear power plant business, Toshiba argued that it had not affected Toshiba’s earnings report. However, PricewaterhouseCoopers, an audit firm in charge of Westinghouse, demanded reviewing the report, because of the possibility of Westinghouse concealing further loss.

A company in First Section of Tokyo Stock Exchange ordinarily submits its earnings report with approval of auditing firm. “We are not hopeful to obtain the approval, even if we postpone the release again,” told Tsunakawa with apology to the stakeholders. Determined net loss in last April-December period was ¥532.5 billion, causing negative net of ¥225.7 billion.

Earnings report without endorsement of auditor may interfere the regulation for listing of Tokyo Stock Exchange. TSE is going to investigate Toshiba on its internal trouble in management. Toshiba has already been named as a specifically careful brand in TSE after the scandal of false accounting in the past. It is expected at least that Toshiba will be degraded to a company in Second Section of TSE some weeks later. If it fails in eliminating negative loss by next March, Toshiba will be dropped out.

With remaining in TSE, major banks will keep accommodation for Toshiba. But, there appears some local banks that have decided to retreat. Some major banks degraded Toshiba from a “normal” debtor to “careful.” Even if Toshiba is successful in survival, the company will be a minor manufacturer for social infrastructure such as elevator after it gives away its major business in nuclear power plant or semiconductor.

Was it a right decision, anyway, for Toshiba to concentrate its business to nuclear power plant after the severe accident in First Fukushima Nuclear Power Plant, which caused higher security cost for building a plant? Trouble of Toshiba can be attributed to wrong decision of its leaders and lack of ability for reviewing top decision.