Toshiba's Creative Accounting for Construction Contracts.

• In Event: Effective Learning Strategies

Abstract

This case aims to help you understand how a world-known Japanese conglomerate -Toshiba Corporation – managed its earnings using the percentage of completion method to account for construction contracts in its Energy and Infrastructure division. In response to inquiries from Japan’s Securities and Exchange Surveillance Commission (SESC), and internal investigations, Toshiba restated its earnings for an extended period (2008-2014) by the staggering amount of $1.86 billion. Twenty-one percent of this amount related to its improper accounting for construction contracts. The case requires you to research authoritative accounting literature, evaluate Toshiba’s accounting practices, and determine the GAAP-compliant procedures Toshiba should have followed. The case assignment intends to improve your ability to (1) identify, interpret and apply the new revenue recognition standard (ASC 606), (2) appreciate the distinction between a company’s stated accounting policies and their implementation, (3) recognize the importance of estimates and judgments in the accounting process, and (4) understand the critical role played by the senior management and organizational culture in ensuring integrity of financial reports.

Authors

• Mahendra R Gujarathi, Bentley University

• Amitabh Dugar, bentley university