Lecture 9

management incentive plan

desire to expand market share in various segment
Close connection with outside auditors
lack of suitable accounting practices help to easily manipulate
Unethical - Even it's accepted by the BOD as a backup plan
reserve is ok but too large reserve is a problem, then unacceptable
But it till not able to providing a trustworthy information which might able to lead into unnecessary
probs in the long run
it is acceptable but unethical because eventually they would make the sales
this is fraudulent since this has violated accounting principles
Lecture 10
Case 1:
a/ Criticize the performance of Tomato bank’s remuneration committee in agreeing to Mr. Woof’s
reward package.
Answer:
Criticize the performance of Tomato Bank's remuneration committee in agreeing to Mr. Woof's
reward package when
There is a lack of independence in the roles of non-executive directors including those on Tomato's
bank committees. Two of the non-executive directors on the remuneration committee are former
colleagues of Mr. Woof, which further erodes independence. This lack of independence was a factor
in the creation of the reward package and did not fully build the performance-related components into
Mr. Woof's package. Mr. Woof's remuneration and pension has been affected by the hype and it lacks
objectivity. Compensation committees should not receive input from the executive structure and from
directors commenting on rewards will have their own share. The committee was influenced by the
chief financial officer and others instead to agree to an attractive package that reflected Mr. Woof's
market value. This is their abdication of non-executive responsibility.
In addition, it is not correct for the remuneration committee to receive and act on the letter from Mr.
Woof and agree to the hasty design of the remuneration package. The Commission was irresponsible
in receiving and acting on the letter sent from Mr. Woof.
Ultimately, the committee failed to deliver satisfactory retirement and resignation arrangements that
represent value to Tomato Bank shareholders as well as to Mr. Woof. While pension arrangements
are within the jurisdiction of the remuneration committee and an issue to consider when a new chief
executive officer (CEO) is appointed or removed.
b/ Describe the components of an appropriately designed executive reward package and explain why
a more balanced package of benefits should have been used to reward Mr. Woof.
Answer:
The components of an appropriately designed executive reward package include basic salary, which
is paid regardless of performance; short and long-term bonuses and incentive plans which are
payable based on pre-agreed performance targets being met; share schemes, which may be linked to
other bonus schemes and provide options to the executive to purchase predetermined numbers of
shares at a given favourable price; pension and termination benefits including a pre-agreed pension
value after an agreed number of years’ service and any “golden parachute” benefits when leaving; plus
any number of other benefits in kind (e.g. cars, health insurance, use of company property, etc).
A more balanced package of benefits should have been used to reward Mr. Woof because:
 The overall purpose of a well-designed rewards package is to achieve minimisation of agency costs.
These are the costs the principals incur in monitoring the actions of agents acting on their behalf. The
main way of doing this is to ensure that executive reward packages are aligned with the interests of
shareholders so that directors are rewarded for meeting targets that further the interests of
shareholders. A reward package that only rewards accomplishments in line with shareholder value
substantially decreases agency costs and when a shareholder might own shares in many companies,
such a “self-policing” agency mechanism is clearly of benefit. Typically, such reward packages involve
a bonus element based on specific financial targets in line with enhanced company value.
Although Mr. Woof came to Tomato Bank with a very good track record, past performance is no
guarantee of future success. Accordingly, Mr Woof’s reward package should have been subject to the
same detailed design as with any other executive package. In hindsight, a pension value linked to
performance and sensitivity to the manner of leaving would have been a worthwhile matter for
discussion and also the split between basic and incentive components. And in this case, Mr. Woof
worked in Tomato bank for just five years, during which time he need not worry about the effects of
excessive risk on the future of the company, as he has a generous pension to receive thereafter.

CASE 2- TOSHIBA’S SCANDAL

1) What factors motivated Toshiba to commit accounting fraud? (What pressure?)

- COPORATE’s CULTURE - The main factor that motivated the inappropriate accounting
method in Toshiba came from Toshiba Corporate’s culture. As discussed in the
investigator’s report (2015), “Toshiba had a corporate culture in which management
decisions could not be challenged”, which means the superiors have the highest power to
put pressure on their employees and force them to work under the manager’s dictate. The
board of management often set up profit targets, known as Challenges, to business unit
presidents and they had to complete it.
- TIME PRESSURE TO COMPLETE GOALS - Quarterly profit plans were sometimes set out
near the end of the quarter, putting great pressure on unit presidents to choose to use
fraudulent audit techniques to immediately meet the Challenges.
- PROFIT OBSESSION - The report shows that financial frauds have been found since 2008
under leadership of the CEO Atsutoshi Nishida. In 2008, the global recession occurred,
causing the financial situation of many large corporations to be affected and Toshiba was
one of them. Achieving the profit target during this period is extremely difficult, therefore
Nishida decided to choose a fraudulent accounting method to overstate the company’s
profitability. That highlights Toshiba's obsession with profits throughout its life.
- FAMILY FINANCIAL PRESSURE - 2008 was a difficult year for almost every family in the
world. In order to keep their jobs and salary stable, employees choose to follow the
decisions of their superiors and hide the company's fraudulent practices.

2) List of factors that increased the likelihood of manipulation?

- From the information provided above, Toshiba has maintained personnel rotation policy for
a long time, which means that after a short period of time, personnel changes in senior
positions such as CEO will be forced to take place and the successor will be responsible for
the results from the predecessor even if the results were good or bad. Therefore, during the
time they are still in the management position of the project, they will try to act to benefit
themselves the most even if they have to perform fraudulent acts because once the project
ends, they will also be fired and all their wrongdoing was shouldered by their successor.
- Toshiba's fraudulent accounting practices date back to the 2008 crisis, when the world's
financial situation was severely damaged and the unemployment rate skyrocketed. Fear of job
loss and layoffs forced the company's employees to follow wrong orders from their superiors.
This is also a really good opportunity for managers to easily enforce their profit targets
through unclear audit policies and disguise the company's recovery during a severe economic
downturn.
- The company's weak governance system is also one of the factors that promote employee
fraud because they believe they will never be detected.The successors of the company do
know about the fraud of the previous CEO, but they choose to hide it and believe that what
they do will never be discovered.
3) What are the justifications for committing fraud? (rationalizations for the fraudulent
actions)
- The project initiators are not liable for any financial malpractice as they were fired shortly
after the project ended and therefore the incoming employee will be held accountable and
accountable. about any financial loss during the old project management. Thus, it
encourages project staff to participate in financial missteps.
- The untimely recognition of contract losses, employee turnover every five years, and
underestimation of contract costs led employees to engage in fraud because they believed
they would never be trapped by the company's weak internal control system.
- The 2008 global financial crisis proved to be a perfect platform to engage in misconduct
when the fear of unemployment and lying was on the minds of workers.
- It was also noted that employees were under pressure from some executives to overstate
profits in order to achieve target margins. According to the investigation, "a company that
hired staff discovered that top executives had pressured subordinates to inflate Toshiba's
line for three years". As a result, the employees think that the company is making a lot of
money while their salary is constant, leading to the involvement of financial errors. The
global financial crisis has tightened employee pockets and as a result, they have to engage
in financial missteps in order to meet their financial needs.
4) What options are available for the company moving forward? How can it prevent
such fraud in the future?
The recommendation for Toshiba is to change corporate culture, eliminate profit-targeting
activities, and establish better corporate governance and internal control systems.
In addition, other options available for Toshiba Corporation to move forward are:
- Boards and senior management in positions of power to prevent fraud. By promoting a zero-
tolerance culture for fraud at the highest levels of the organization can reduce the chance for
employees to consider cheating in the long run.
- Toshiba Company should establish and monitor effective internal control systems that can
prevent fraudulent practices and identify where they can be reinforced.
 - The Toshiba company must have a solid anti-fraud policy. Otherwise, employees may not
realize the meaning of their actions. A business must have written policies and procedures
manuals that clarify company expectations, employee behavior, and a clear definition of
fraud and its consequences. terms. These policies should cover every aspect of the business
from tangible to intangible assets. One way to communicate a strict anti-fraud policy is to
enforce it from the start. This can be done through company referrals, company handbooks
and training. This can help establish a zero-tolerance culture and emphasize cheating as
unacceptable within the company.
- An important aspect of encouraging accountability and transparency within the Toshiba
Company is the adoption of a mechanism that allows all employees to responsibly and
effectively express concerns internally when they discover information that they believe is
seriously flawed. Implementing an employee whistleblower hotline gives employees a voice
to confidentially report workplace concerns and allows you to identify and fix problems
before they damage the business, reputation and employee morale.
CASE 2- TOSHIBA’S SCANDAL

1) What factors motivated Toshiba to commit accounting fraud? (What pressure?)

- COPORATE’s CULTURE - The main factor that motivated the inappropriate accounting
method in Toshiba came from Toshiba Corporate’s culture. As discussed in the
investigator’s report (2015), “Toshiba had a corporate culture in which management
decisions could not be challenged”, which means the superiors have the highest power to
put pressure on their employees and force them to work under the manager’s dictate. The
board of management often set up profit targets, known as Challenges, to business unit
presidents and they had to complete it.
- TIME PRESSURE TO COMPLETE GOALS - Quarterly profit plans were sometimes set out
near the end of the quarter, putting great pressure on unit presidents to choose to use
fraudulent audit techniques to immediately meet the Challenges.
- PROFIT OBSESSION - The report shows that financial frauds have been found since 2008
under leadership of the CEO Atsutoshi Nishida. In 2008, the global recession occurred,
causing the financial situation of many large corporations to be affected and Toshiba was
one of them. Achieving the profit target during this period is extremely difficult, therefore
Nishida decided to choose a fraudulent accounting method to overstate the company’s
profitability. That highlights Toshiba's obsession with profits throughout its life.
- FAMILY FINANCIAL PRESSURE - 2008 was a difficult year for almost every family in the
world. In order to keep their jobs and salary stable, employees choose to follow the
decisions of their superiors and hide the company's fraudulent practices.

2) List of factors that increased the likelihood of manipulation?

- From the information provided above, Toshiba has maintained personnel rotation policy for
a long time, which means that after a short period of time, personnel changes in senior
positions such as CEO will be forced to take place and the successor will be responsible for
the results from the predecessor even if the results were good or bad. Therefore, during the
time they are still in the management position of the project, they will try to act to benefit
themselves the most even if they have to perform fraudulent acts because once the project
ends, they will also be fired and all their wrongdoing was shouldered by their successor.
- Toshiba's fraudulent accounting practices date back to the 2008 crisis, when the world's
financial situation was severely damaged and the unemployment rate skyrocketed. Fear of job
loss and layoffs forced the company's employees to follow wrong orders from their superiors.
This is also a really good opportunity for managers to easily enforce their profit targets
through unclear audit policies and disguise the company's recovery during a severe economic
downturn.
- The company's weak governance system is also one of the factors that promote employee
fraud because they believe they will never be detected.The successors of the company do
know about the fraud of the previous CEO, but they choose to hide it and believe that what
they do will never be discovered.
3) What are the justifications for committing fraud? (rationalizations for the fraudulent
actions)
- The project initiators are not liable for any financial malpractice as they were fired shortly
after the project ended and therefore the incoming employee will be held accountable and
accountable. about any financial loss during the old project management. Thus, it
encourages project staff to participate in financial missteps.
- The untimely recognition of contract losses, employee turnover every five years, and
underestimation of contract costs led employees to engage in fraud because they believed
they would never be trapped by the company's weak internal control system.
- The 2008 global financial crisis proved to be a perfect platform to engage in misconduct
when the fear of unemployment and lying was on the minds of workers.
- It was also noted that employees were under pressure from some executives to overstate
profits in order to achieve target margins. According to the investigation, "a company that
hired staff discovered that top executives had pressured subordinates to inflate Toshiba's
line for three years". As a result, the employees think that the company is making a lot of
money while their salary is constant, leading to the involvement of financial errors. The
global financial crisis has tightened employee pockets and as a result, they have to engage
in financial missteps in order to meet their financial needs.
4) What options are available for the company moving forward? How can it prevent
such fraud in the future?
The recommendation for Toshiba is to change corporate culture, eliminate profit-targeting
activities, and establish better corporate governance and internal control systems.
In addition, other options available for Toshiba Corporation to move forward are:
- Boards and senior management in positions of power to prevent fraud. By promoting a zero-
tolerance culture for fraud at the highest levels of the organization can reduce the chance for
employees to consider cheating in the long run.
- Toshiba Company should establish and monitor effective internal control systems that can
prevent fraudulent practices and identify where they can be reinforced.
- The Toshiba company must have a solid anti-fraud policy. Otherwise, employees may not
realize the meaning of their actions. A business must have written policies and procedures
manuals that clarify company expectations, employee behavior, and a clear definition of
fraud and its consequences. terms. These policies should cover every aspect of the business
from tangible to intangible assets. One way to communicate a strict anti-fraud policy is to
enforce it from the start. This can be done through company referrals, company handbooks
and training. This can help establish a zero-tolerance culture and emphasize cheating as
unacceptable within the company.
- An important aspect of encouraging accountability and transparency within the Toshiba
Company is the adoption of a mechanism that allows all employees to responsibly and
effectively express concerns internally when they discover information that they believe is
seriously flawed. Implementing an employee whistleblower hotline gives employees a voice
to confidentially report workplace concerns and allows you to identify and fix problems
before they damage the business, reputation and employee morale.
CASE 3.

The executive compensation committee of Blue Cross Blue Shield Board has
come up with the following reward package for the CEO, Redmayne for the
coming year:

· Base salary: $1 million. This salary is the standard for the CEO of a large
public corporation. The Blue Cross Blue Shield Corporation does not want
to cross this $ 1 million since the amount exceeding $1 million would not
be tax-deductible.
· Short term incentive: For every 1% over a threshold of 7% ROE, Redmayne
received a $1,500,000 bonus. He also received an additional $250,000 for
every 0.5% improvement over the prior year.
· Long-term incentive: Redmayne had received stock options for 500,000
shares at $15 dollars a share 5 years earlier. Since then, Redmayne had
received annual grants of 100,000 shares (see the following table for
details)

Year 2012 2013 2014 2015

ROE (%) 12.04% 11.5% 6.5% 7.8%

Actual year Number of shares Exercise price ($)

issued upon exercise
of outstanding
options

2011 500,000 15
2012 100,000 20
2013 100,000 25
2014 100,000 30
 2015 100,000 27

a/ Calculate the cash compensation of Redmayne for the three years 2013, 2014, 2015.

2013: 1 million + (11.5- 7) x $1,500,000 = $ 6,750,001

2014: 1million

2015: 1million + (7.8-7) x 1,500,000 + 2x (7.8-6.5) x 250,000 = 1,850,001

b/ In what year should Redmayne exercise his stock options to maximize the
proceeds? (Assuming that he has to exercise all his outstanding stock options up to
that year)

Actual year Number of shares Exercise price ($)

issued upon exercise
of outstanding
options

2011 500,000 15
2012 100,000 20
2013 100,000 25
2014 100,000 30
2015 100,000 27

Year 2015 2014 2013 2012 2011

Gain/Loss -2,100,000 3,500,000 3,000,000 2,500,000 0

ð Redmayne should exercise his stock options in 2014 to maximize the

 proceeds

Case 1:
a. - The agreed items are subjective when receiving and agreeing hastily to invite Mr. Woof to
the company.

- There are no items to shape and monitor standards that need to be guaranteed
performance during work

- Agreed to signing of extremely beneficial terms for the pension package even if the work
goals are not fulfilled

Tomato bank’s remuneration committee has decided hurryly without considering the huge risk Woof
could raise. His package's division into fundamental and performance-related components was not
thoroughly evaluated. Two members in remunerationn committee was Woof’s former collegues,
which put their trust in Woof’s performance. They’re not independent. Moreover, details of his
reward package were not considered importantly.

Criticize the performance of Tomato bank’s remuneration committee in agreeing Mr. Woof’s reward
package.

Criticisms of remuneration committee...

There is evidence of a lack of independence in the functions of the committee's non-executive

directors (NEDs). Mr. Woof's old colleagues were two of the NEDs on the remuneration committee,
contributing to the conflict.

The remuneration committee failed to show good practices when they accepted Mr. Woof’s request
in such a hasty manner without considering it carefully. Instead of making their own independent
decision about the appropriate components for Mr. Woof’s package, it was entirely based on
“whatever he wants”. They shouldn’t have carelessly approved of an unreasonable “generous non-
performance related pension settlement”, because despite his previous track record, there was
nothing to guara

-Everybody in the remuneration committee was so confident that Mr. Woof would bring success to
Tomato Bank, and the purpose was to pull Mr. Woof back to Tomato Bank without caring about the
rest that might affect the company.

- Mr. Woof is known as the best banker globally, and people only focus on Mr.Woof as one of the
world's best bankers, so they have to bring him back to the company

The remuneration committee should not wholeheartedly follow the advice of the finance director –
John Temba, or 2 of Mr. Woof's former colleagues in the committee since that were just ill-bilateral
perspectives. Instead, the remuneration committee should have scrutinized the success he brings to
the bank in the future, after becoming CEO.

It is evident that the renumeration committee of Tomato Bank lacked independence in deciding on
reward package for George Woof. (Two of the renumeration committee directors were Mr. Woof
former co-workers) Thus, this would create an unbalanced reward package since objectivity of the
committee would be distorted.

In addition, there was a great breach of professionalism since the committee acted much on the
letter from Mr. Woof and agreed to design the package in such a hasty manner.
The agreement of Tomato Bank’s remuneration committee with Mr. Wool’s reward package was a
worse decision. To explain this, several following reasons are listed.

Firstly, high expectation of Tomato’s BOD for Mr. Wool is considered as one of the remarkable
reasons. The over-evaluation leads to the hurried decision of remuneration committee agreeing with
his package.

Secondly, The biased advices from other member of remuneration committee also leads to this
decision.

The committee failed to construct a proper and balanced reward package since the rewards were
not aligned with performance of Tomato bank and shareholders’ interest, and there was no
resignation arrangement between Mr. Woof and Tomato Bank.

b. should include basic salary, bonuses and balance between short term & long term incentives
such as ESOP since its purpose is to minimize agency costs.
- rewarded when meeting targets of further interest of the shareholders or getting a bonus
based on specific financial targets in line with the company's value.
- An intersection of a long-term working performance and the living manner of the director
and it must align with the shareholder’s interest.
First of all, the company should ask Mr Woof to sign a contract that ensures his compliance to the
national laws and the bank’s regulations. Any violations would result in significant fines and the
amounts should be as much as his pensions.

Secondly, Mr. Woof’s reward package should be restricted with conditions. After a period of time (2 to
3 years), if the loss resulted from Mr. Woof’s decisions is significantly higher than the profits came:
Option 1: He has to return the rewards package (if the company already paid)
Option 2: He has to compensate for the financial losses (if the company already paid the rewards)
Option 3: He will not receive the reward when he is no longer in the current position

Or, the reward package should be designed in terms of hierarchy. For example, if Mr. Woof can create
5% of improvement or raise the market shares of 2% within 2 years, he will receive 100% of the
rewards.
A 4% rise will earn him 80%, 3% - 60% and so on.

Explanation: Mr. Woof’s previous achievements might be outstanding, but it is unlikely that the
successful streak would last forever. The successful strategies that Mr. Woof applied might not be
suitable for the development strategy of Tomato Bank. Consequently, he might not worth to earn that
many rewards, in other words, he might not be able to create that much profits for the company as the
ideal scenario.
- A more balanced package helps to balance the interests of both parties, allowing - Shareholders to
feel fair. In addition, it will help the CEO to be responsible for the company's interests and carefully
consider his decisions.
- In this case, Mr Woof still gets high compensation even though he failed, Because compensation
does not depend much on performance.
‘’Even if he is kicked out of the company, he still gets rewarded "for failure."’’
Instead of promising a generous amount of pensions to invite Mr. Woof to the company, the
remuneration committee should have just promised about the rewards that he would be able to earn
after bringing tremendous growth to the bank. Also they should have imagined any potential failure
may come, since it seems like the remuneration had put too much trust on Mr. Woof.
executive compensation packages typically utilize six distinct compensation components:

Base Salary
Short-Term Incentive
Long-Term Incentive
Employee Benefits
Perquisites
Severance/Change-in-Control Payments
- The more balanced package of benefits should have been used to reward Mr. Woof because it
would be more fair the the shareholders based on his past failure
Case 2:
1. The first pressure to be named is the middle of the global financial crisis in 2008. In the
middle of that crisis, Toshiba's profitability was drastically reduced which put a heavy
pressure on the shoulders of the company leaders.
The continuous decrease in Toshiba's total sales from 2009 to 2013: During 2009, Toshiba
recorded disappointing results. In fact, from 2009 to 2013, Toshiba’s total sales decreased
from ¥6.5 trillion to ¥5.8 trillion, a fall of approximately 11 per cent.
The new management strategy of Hisao Tanaka in June 2013: This new policy had pushed
his employees to their limit in the way of meeting the budget targets. As a consequence, A
system where immediate goals is a priority at all cost had truly bec
The worsening situation in 2015: The net sales of the company stood at ¥1,349 billion.
Moreover, There was an even worse picture when it came to operating income. The company
incurred an operating loss of ¥11 billion, leading to a net income (loss) attributable to
shareholders amounting to ¥12.3 billion.
1. The pressure from the top management: BOD placed too much emphasis on achieving profitability
over risk and control within the organization. Accounting irregularities bypassed internal controls and
control activities to prevent the fraud and the processes to deter and detect fraud also were not
implemented effectively.
2. Corporate culture within Toshiba: When being pressured by impossible profit targets, employees
are afraid to protect or speak out against their superiors. This led to a breakdown in communication
of risk management and internal controls
3. Unattainable financial targets: The resident and senior executive set aggressive and unattainable
financial targets for its frontline employees. This led to set unreasonable risk tolerances for
employees that cause various fraudulent activities committed.
4. Auditor failures: The external auditors are unable to identify the gaps in the internal control process
and flag out an alarming of inflated profits.
Case 2.1:
1. Pressure to meet the budget target
2. Bonuses based on a financial performance
3. Investor and analyst expectations on company earnings

Nhựt Võ Hoàng Minh15:35

1. The financial pressures : the company’s financial performance clearly reflect its deteriorating
performance after 2008 in all categories
2. Huge emphasis on profits: Toshiba stressed the importance of being profitable. The deteriorating
perfromance gave sufficient reasons for the company to commit fraud.
3. Pressure from the market: beating market expectations and analysts’s forecasets is another strong
reason saving the company’s reputation
Phúc Tín Nguyễn15:36
Case 2.2: 1. The new management strategy of Hisao Tanaka in June 2013: According to the strategy,
only the successors are the one who take the responsibility for the losses of one project by the time
the project is finished because the person who initiated it had already gone for good. Therefore, this
policy had further fueled the scandal.

The oppressive corporate culture of Toshiba: According to a summary of the investigator’s report,
“Toshiba had a corporate culture in which management decisions could not be challenged.”
Therefore, once the managers put pressure on employees to conduct inappropriate accounting such
as postponing loss reports or moving certain costs into later years, the conflicting opinions and timely
intervention could not be raised.

Mơ Trần15:36
- Work culture (policy and cultural), because the company has a policy to consider changing personnel
after a few years => the people who come later do not know the company's long-term direction or
goals because the go-ahead has been fired => may cause missed information.
- Or lay off employees, so it causes missed accounting.
-2008 was in the world financial crisis => the company was also affected

-financial problems: sale, profit, ROE, ROA: promoting fraudulent behavior. The company sets a target
and is forced to reach the target by all means => target pressure
-This is an old company, afraid of losing its position, losing its market position
-Pressured employees to achieve the company's target.
-fear of disappointing shareholders and investors withdrawing capital from the company
-The newcomer only listens to his predecessor's advice, only fulfills his assigned responsibilities
without

Mơ Trần15:38
caring about what the final goal is; the new person will have to bear the consequences of the loss left
by the old one. In addition, employees know that they will be fired after ten years, so they will only set
short- or medium-term goals and are not too progressive.
This is group ans
Hải Yến Huỳnh15:39
1. The financial crisis in 2008-2009 caused the decrease in Toshiba’s profitability
2. Corporate culture: Toshiba had a corporate culture in which management decisions could not be
challenged.” It can be said that the employees are afraid to whistleblowing when there was a fraud or
dilemma within the company
3. The management stategies which are inappropriate to revive the company from the sufering from
the crisis
4. Pressure from the market with the high expectation on the company income
Group Lê Bảo Trâb
quy Le15:41
:v
2 đời tốt.... tới đời thứ 3 hỏng
bất quá tam Cô ơi kaka

Quách Mỹ Nghi15:44
Case 2b group ans
+During fraud, there are more executives than outside directors to double-check the system, poor
governance, no internal control system => internal uncertainty, => increased fraud.
+Toshiba implemented a plan to carry over and overstate profits by adjusting profits and losses
+Toshiba used a cash-based accounting method instead of the accrual method.

Phúc Tín Nguyễn15:45

Cáe 2.3: 1. Did not record a provision on the balance sheet for any loss-making contracts: Even
though the cost of the ordered work In some of the company manufacturing contracts was surely
expected to exceed the negotiated price, once the situation reversed and there was a loss, they
refused to record these types of losts.
2. Overstated its cost reductions: A review of the contract work concluded that ¥1.7 billion could be
shed in costs; however, in reality, the costs were only reduced by$10m.
3. Using a cash-based method for its accounting instead of using the accrual method: Toshiba
implemented a plan to carry over and overstate profits by adjusting profits and losses—a practice that
had been going on since 2008.
4. Did not fully record some items: Toshiba had failed to correctly and fully record many important
items such as valuation losses, loan loss allowances, and so on.
Hoàng Kim Long Bùi15:45
Case2.4:
1. reformation of the corporate culture
2. elimination of the Challenge system of profit targeting
3. reestablishment of internal controls and strong corporate governance
4. Robust whistleblowing practices

Phúc Tín Nguyễn15:45

5. Manipulated to falsify financial-related evidence and documents: Toshiba requested its vendors to
issue post-dated invoices in order to show those expenses in the next quarter, even though the
expenses had already been incurred.

Quách Mỹ Nghi15:45
+Pressure from superiors => even if employees find out that the company is cheating or the plan has
errors, they do not dare to speak up because of pressure from their superiors and fear of being fired
by the company.

Nhựt Võ Hoàng Minh15:46

case2.4 1.Clarification of the responsibility of executives involved in inappropriate accounting
treatment: an investigation must be carried out to discover the direct of indirect involvement of some
senior executives in the fraudulent accounting
2.Changes in the mindset of top management: top management has to maintain strict compliance
and a self-aware attitude toward proper financial reporting. They must understand that the current
inappropriate accounting standards will lead ot a loss of cr
Case 2.4: 1. Eliminate monthly resident meetings where directives to achieve unrealistic goals of the
top managers are dictated and imposed on employees
2. Sell some of its assets to recover part of the funds lost due to the fraud
3. Change into a more transparent organization: Replace the current systems of executives with
outside directors who are more objectives in their motivations. There is a high percentage of a dim
future for: Concerns are growing that this will begin to affect the company's relationships with
financial institutions. This will make it take more time for Toshiba to regain its original trustworthy
position. However, Toshiba can still have a chance to remake the future due to the fact that business
supplied smartphone makers such as Apple Inc., and was expected to provide a majority of the
company’s operating profit in the current year.