Toshiba Accounting Scandal Could Serve Death Blow to Company

Toshiba has announced results of their business operations and warned that it might not survive for long. The results were not endorsed by their auditor, PricewaterhouseCoopers (PwC) Aarata LLC because they could not be sure that the accounting done for Westinghouse was done properly.

Toshiba CEO Satoshi Tsukanawa, said, “They asked us to prove that we didn’t have anything wrong in our bookkeeping process, and that is quite a burden.”

Toshiba said, “There are material events and conditions that raise substantial doubt about the company’s ability to continue as a going concern.” The electronics giant reported making a loss of 532 billion yen or around $4.8 billion for last year’s operations from April to December.

Last month, its U.S. nuclear unit, Westinghouse, filed for Chapter 11 bankruptcy which allows it to be protected from creditors while it is undergoing restructuring. This will bring Toshiba into a net loss of $9.1 billion for the fiscal year ended March 31, 2017.

Toyota also had an accounting scandal that was uncovered in 2015. It was found that Toshiba had wrongfully padded the previous years’ profits by $1.2 billion.

Toshiba has delayed their publication of financial results twice already, and this increases the risk that they might be delisted from the Tokyo Stock Exchange.

Toshiba CEO Satoshi Tsukanawa submitted their audited results rather than delaying their announcement for the third time. Tsukanawa said, “The decision on any delisting is for the stock exchange to make. We will do our utmost to avoid it.”

To repair its balance sheet, Toshiba is now looking to sell a majority stake in their highly coveted computer chip business. Tsukanawa estimates that they can get at least 2 trillion yen or $18 billion from the sale of it. According to reports, Foxconn, one of Apple’s key suppliers, offered to buy Toyota’s computer chip business for 3 trillion yen or $27 billion.

Tsunakawa said, “I believe our financial standing is solid, despite the numbers we put out if we consider the value of the unit for sale.”

Analysts believe that the memory-chip market will continue to grow and Toshiba’s latest financial performance does give weight to the idea that the business is healthy. For last year’s April to December period, its memory-chip business was able to generate an operating profit of 102 billion yen which represents a 9% growth from the same period in 2015.

However, Foxconn has close ties to China, and thus the company can be deemed as a risk to national security. Hiroshige Seko, Japan’s trade minister, emphasized that the chip technology of Toshiba was not just a part of Japan’s growth strategy but jobs and information security as well. Seko said, “For those reasons, we continue to carefully monitor Toshiba’s business conditions and the sale of its chip business.”

According to HIS Markit, Toshiba is in 2nd place behind Samsung regarding revenue for the extensively used NAND flash-memory chips.

Tsunakawa said that later in May, Toshiba will release its financial results for the full fiscal year ended March 31.

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