Toshiba's Westinghouse Dilemma

In October 2017, the managing director at Ohtani Capital faced a critical decision—should the company divest its long-term investment in Toshiba Corporation (Toshiba)? Recent events surrounding Toshiba's disagreement with its auditor over how to best report the writedown of its US nuclear power unit (Westinghouse Electric Co. LLC) had negatively impacted the company’s profitability and internal management, leading to the company’s possible delisting from the Tokyo Stock Exchange. The managing director needed to decide if Toshiba could overcome its difficulties, improve its internal management, and return to profitability, which would then enable the company to secure the necessary emergency funding to survive.

This case is suitable for use in a managerial accounting course at the undergraduate or graduate level. Students should have a basic understanding of the role of the auditor, familiarity with financial statements, and an understanding of governance and control systems. The case could also be used from a bigger-picture perspective to introduce these concepts or to discuss governance issues within corporations, auditors, and regulators. After completion of this case, the students will be able to<ul><li>identify effective managerial controls and oversight procedures;</li><li>understand the dynamics and pressures that lead to aggressive accounting practices and how such practices can lead to accounting frauds;</li><li>analyze management dynamics and the culture within organizations and the underlying extent of their influence on company policies and corporate governance systems;</li><li>analyze the audit relationships between corporations and auditors to understand the issues of auditor liability and how auditors make judgments; and</li><li>discuss the relevance and impact of regulators such as listings on stock exchanges in corporate and auditor decision-making.</li><ul>

• writedown, governance, auditor, culture