Toshiba Triangle Fraud Theory

1. How can the fraud triangle to be applied to explain Toshiba’s fraud and reveal the motives behind it?

The Fraud triangle theory is a theory explaining the reason behind a worker’s decision to commit workplace fraud. In this theory, there are three aspects, pressure, opportunity and rationalisation.

The pressure is the motivation for an individual to making fraud. Usually that individual is facing problems on financial, such as debts, unpaid bill. When there was pressure, the individual will try to find the opportunity, chance, for making fraud, which the probability to be caught are very little. The rationalization problems come up when the individual can’t identified the unethical act for making fraud in this situation. The individual may grab the chance for making fraud, as long as the company could run as normal job. And the eager to making fraud will be more when the individual hasn’t been caught. At last, when the fraud figure become too large, then the individual could be caught and realise the doings are unethical act.

In this case study, fraud case was detected when Toshiba have overstated earnings of ¥152 billion in July 2015. First aspects of the fraud triangle theory model are motivation aspect, which in this case study, Toshiba had incurred an operating loss of ¥11 billion, and leading to a loss attributable to shareholders amounting ¥12.3 billion in March 2015.

In 2009, Toshiba’s face problems on their financial which is not stable and suffered a decline in most time during this period. SESC’s investigation in response to a whistleblowing tip, come out that there are recovery emails showing the CEO wanted to use misleading practices, such as underestimating costs, contract losses were not recorded in a timely manner, and this situation influence interpretation for financial statement users and gain investors’ confidence.

The opportunity aspect comes out, because there is Toshiba’s personnel rotation policy every few years. In this case study, when a project was finished, a new successor will take over the position of former CEO, and also he will be responsible for losses what the former CEO made before. The chance for the former CEO to commit fraud is high as it has low possibility to be revealed if they can be reasonable when making accounting commitment while in position and just leave the company and financial difficulties to the new CEO. This situation creates possibility and opportunity for managers to do accounting fraud when financial performance was smooth as always.