Toshiba accounting probe set to prompt board reshuffle, possible fines

[July 20, 2015]   By Ritsuko Ando

TOKYO (Reuters) - A probe into an accounting scandal at Toshiba Corp is expected to find that top management were responsible for failures on a company-wide scale, setting the stage for a board overhaul, results restatements and potentially hefty fines.

The summary report by an independent committee, due on Monday at 9 p.m. (1200 GMT), is likely to show faulty book-keeping led to profits being overstated by close to 170 billion yen ($1.4 billion) over several years, people briefed on the probe said last week. That would be more than three times Toshiba's initial estimate.

It is also likely to lead eventually to 300-400 billion yen in charges related to overstated profits and various writedowns, other people familiar with the matter said, although it was unclear how much of that would be booked for the business year that ended in March.

Such numbers would significantly dent Toshiba's results. The semiconductors-to-nuclear conglomerate reported just 50.8 billion yen in net profit for the previous financial year.

A Toshiba spokesman said the company was still waiting for the report and had not yet compiled estimates. The company is scheduled to hold a news conference on Tuesday.

Toshiba has not been able to close its books for the latest year because of the probe, which also forced the company to cancel its annual dividend.

The investigation comes as Japan's Prime Minister Shinzo Abe is trying to improve the country's corporate governance in order to attract more foreign investors. This is the country's biggest business scandal since camera and medical-equipment maker Olympus Corp's 13-year cover-up of $1.7 billion in losses blew up in late 2011.

The scandal also shakes a stalwart of Japanese industry, which has regularly supplied leaders to Japan's biggest business lobby. Toshiba remains Japan's 10th-biggest company by assets and market value despite its stock price falling 26 percent since the scandal surfaced in early April.

It is Toshiba's second probe in less then two years. In October 2013 it announced it had found that subsidiary Toshiba Medical information Systems had overstated results for several years.

IRREGULAR BOOKKEEPING ENCOURAGED

Company officials initially expected smaller overstatements than now appear likely, and had briefly considered an extraordinary dividend to make up for the missed payout. That now looks unlikely given the mounting problems.

Investigators have focused on the theory that executives, worried about the impact of the 2011 Fukushima disaster on its nuclear business, set overly aggressive targets for new operations such as smart meters and electronic toll booths, encouraging irregular bookkeeping, according to sources.

After interviewing officials and studying emails, the committee has concluded that top executives, including CEO Hisao Tanaka and his predecessor Norio Sasaki, pressured divisions to meet targets and were aware of the irregularities, sources said.

Tanaka and Sasaki, who is currently vice chairman, will likely step down and more than half of the board will be replaced at a shareholders' meeting in September, sources said.

Based on Monday's report, the Securities and Exchange Surveillance Commission will consider recommending that the Financial Services Agency fine the company, a regulatory source said.

(Additional reporting by Reiji Murai, Taro Fuse and Takahiko Wada; Editing by William Mallard and Rachel Armstrong)

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