Homework Question 1:

Toshiba is a company riddled with a history of fraud and financial issues.12,13 From the 2015 accounting fraud where the company padded profits by more than 200 billion to its negative net worth in fiscal year 2017 after massive losses to its nuclear power plant business, Toshiba has experienced significant reputational damage. In the early 2000s, Toshibas strategic plan included installing 45 new nuclear power plants worldwide by 2030. Consider the following unforeseen impacts on this strategic plan:

Toshiba suffered throughout the global financial crisis that began in 2008 but appeared to be rebounding in 2010. On March 11, 2011, a magnitude 9.1 earthquake near Tokyo set off a tsunami that caused the loss of nearly 20,000 lives and material damage estimated at 25 trillion. The tsunamis damage caused all the countrys nuclear reactors to be taken offline. By mid-2018, only 9 of the 54 nuclear reactors were back online. China froze nuclear plant approvals and adopted a plan to decrease its usage of nuclear energy by 2020, and the United States canceled or postponed plans to build 12 power plants. The global reaction to the tsunami changed the demand for and acceptance of nuclear power.

During this time, the corporate culture at Toshiba was to push for success:

The CEO in 2008 set income targets, known as challenges, for each division. The income targets were so aggressive that they were often unattainable. The CEO insisted that the targets be achieved and even suggested that the company would sell off underperforming divisions, putting both division leaders and their employees at risk of losing their jobs. The pressure from the CEO filtered through the company, all the way through division leaders, managers, and employees.

Even though the CEO never directly demanded that his employees commit fraud, he relied on expected obediencea significant part of the Japanese corporate cultureto cause his employees to do whatever was necessary to meet his demands. Toshibas corporate structure failed to rotate key accounting and finance personnel. Employees were assigned to the same division for their entire careers at Toshiba, which created a rapport among division employees that spanned decades. This culture created an environment in which it was difficult for an employee to speak out against inappropriate actions. Toshibas board of directors consisted primarily of employees who were placed on the board after years of employment, and this created strong loyalty between board members and the companys employees. Additionally, Toshibas Internal Audit function reported to the CEO instead of to an external audit committee:

Toshiba leadership used the Internal Audit function in a consulting capacity to recommend improvements to controls rather than reviewing the actual accounting methods. Leadership created plans to address findings from the Internal Audit department but failed to implement those plans.

The resulting fraud exposed in 2015 revealed that Toshiba had padded its profits through fictitious revenues and understated liabilities by over 200 billion.

Required: From the information provided, identify key facts related to each of the three sides of the fraud triangle: (1) perceived pressure, (2) opportunity, and (3) rationalization. Be specific.

Copy into your Word document each of the 3 sides of the fraud triangle and identify under each side the related key facts found in the Toshiba information.