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Fraudulent financial reporting: an application of fraud diamond to Toshiba’s accounting scandal

Journal of financial crime, 2022-03, Vol.29 (2), p.729-763 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited. ;ISSN: 1359-0790 ;EISSN: 1359-0790 ;EISSN: 1758-7239 ;DOI: 10.1108/JFC-05-2021-0108

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  • Title:
    Fraudulent financial reporting: an application of fraud diamond to Toshiba’s accounting scandal
  • Author: Demetriades, Polydoros ; Owusu-Agyei, Samuel
  • Subjects: Accounting changes ; Decision making ; Earnings management ; Financial statements ; Fraud ; Inventory ; Return on assets ; Scandals ; Stockholders ; Valuation ; White collar crime
  • Is Part Of: Journal of financial crime, 2022-03, Vol.29 (2), p.729-763
  • Description: Purpose The purpose of this paper is to examine Toshiba’s fraudulent financial reporting in relation to the fraud diamond (pressure, opportunity, rationalisation and capability). Design/methodology/approach A quantitative empirical research, analysing secondary data from Toshiba’s published annual reports before restatement, from 2008–2014 has been used. A simultaneous equations approach was used to test the hypothesis. Excel software was used to analyse secondary data and to carry out correlation analysis and descriptive statistics analysis. Findings This study uncovers evidence that pressure proxied by return on assets (ROA), the opportunity proxied by ineffective monitoring (BDOUT), rationalisation proxied by audit opinion (AO) and capability proxied by board member changes (BCHANGE) had moderate to strong relationship to financial statement fraud (FSF) (proxied by Beneish M-score model). However, ROA has a negative and significant effect on Toshiba’s FSF. BDOUT, AO and BCHANGE have positive and significant effect on Toshiba’s FSF. Furthermore, there is no multicollinearity problem within the four variables. Overall, this study has statistically proven that all dimensions of fraud diamond are required for the explanation of Toshiba’s accounting scandal. Originality/value Although a few studies discuss the four dimensions (fraud diamond), none, to our surprise, exists which explain the circumstances led Toshiba’s high-level executives to commit fraud. This study is the first thorough investigation of Toshiba’s accounting scandal that uses all four dimensions to explain Toshiba’s FSF.
  • Publisher: London: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 1359-0790
    EISSN: 1359-0790
    EISSN: 1758-7239
    DOI: 10.1108/JFC-05-2021-0108
  • Source: AUTh Library subscriptions: ProQuest Central
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