Toshiba's Creative Accounting for Construction Contracts

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 which 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 the assurance of integrity in financial reports.