Japan securities commission likely to recommend fine for Toshiba

Japan's Securities and Exchange Surveillance Commission will likely recommend to the Financial Services Agency that Toshiba be fined for accounting irregularities that inflated its profits, The Yomiuri Shimbun has learned.

Toshiba is believed to have overstated its operating profits by nearly ¥170 billion over the five years through the business year ending in March 2014, sources said.

After a third-party panel investigating the company's accounting irregularities presents a report to the company on Monday, the SESC will consider how much Toshiba should be fined for violating the Financial Instruments and Exchange Law, according to the sources.

The panel has found that Toshiba overstated its profits in its personal computer business, and estimated infrastructure construction expenses at lower than the actual initial cost.

The total amount of overstated operating profits accounts for more than 16 percent of the ¥1 trillion in operating profits for the five-year period, so the SESC concluded that Toshiba caused private investors to judge the company inaccurately.

The SESC intends to inspect Toshiba, as it believes this necessary to level administrative punishments and impose fines on the firm, according to the sources.

In a similar scandal involving accounting irregularities in 2008, major manufacturer of heavy machinery for shipbuilding IHI Corp. was ordered to pay a penalty surcharge of about ¥1.6 billion for violating the Financial Instruments and Exchange Law for making false earnings reports.

Toshiba leaders instructed company executives to delay the reporting of operating losses and costs, setting high targets for operating profits, according to the report by the third-party panel.

The report will acknowledge that organizational pressures on the frontline management to put off posting losses resulted in accounting irregularities that inflated profits.

It will say President Hisao Tanaka and his predecessor Norio Sasaki, currently serving as vice chairman, bear a heavy responsibility, as they encouraged the accounting irregularities.

Toshiba plans to announce a summary of the report on Monday. Tanaka is scheduled to speak on the matter during a press conference Tuesday, and is expected to express his intention to resign from his post, the sources said.

Sasaki and executives of divisions that conducted the irregularities also are expected to resign, they said.

The panel has not found evidence that Sasaki and Tanaka gave direct instructions to pad profits by manipulating the accounting record, but it believes they set impractical earnings targets and urged executives to achieve those targets without fail. The panel will say there was organizational pressure to achieve the targets, which were pursued by the company's top leaders.

The report will say Sasaki and Tanaka gave de facto instructions to delay posting the losses. Company executives proposed posting losses, but Sasaki and Tanaka ordered them to postpone the losses to the next accounting term or recover losses by cutting expenses, the sources said.