A Comparative Ethical Analysis Of Accounting Fraud At Toshiba And Enron Using The Fraud
Triangle Framework 1
A COMPARATIVE ETHICAL ANALYSIS OF ACCOUNTING FRAUD AT TOSHIBA AND
ENRON USING THE FRAUD TRIANGLE FRAMEWORK
by [Student’s Name]
ACC 360 - Ethics for Professional Accountants
Arizona State University
City
October 17, 2017
,A Comparative Ethical Analysis Of Accounting Fraud At Toshiba And Enron Using The Fraud
Triangle Framework 2
ABSTRACT
Corporate accounting fraud is a sore breach of market integrity, which destroys investor
trust and makes the entire economic system risky. This paper compares two historic accounting
scandals, Toshiba (2015) and Enron (2001) as a diagnostic in the Fraud Triangle developed by
Donald Cressey. The study will explore the presence of the main elements of the framework in
the pressure, opportunity and rationalization in contrasting corporate cultures and regulatory
conditions. Using the qualitative case study approach, the analysis supports the fact that though
both scandals necessitated the presence of all three factors, they were culturally and contextually
defined. Toshiba'sfraud was a result of the company's institutional nature, being the product of
systemic governance failures rather than isolated cases of misconduct. A consensus-based system
that characterizes Japan, hierarchical authority, and collective responsibility allowed for the
simultaneously exertion of pressure and also, the ethical rationalization of that pressure.
By contrast, the nature of Enron fraud was as a result of capital market pressure to run
exponentially and with the help of a complicated misuse of financial engineering tapped into
with a story of creative exceptionalism. The paper also describes the far-reaching repercussions
in terms of valuation crises and governance failures on investors and synthesizes its results to
contend that substantial fraud prevention must be achieved by going beyond generic controls. It
finds that interventions should be culturally and structurally specific to proactively destabilize
the particular configurations of pressure, opportunity, and rationalization that are characteristic
of an organization of its ecosystem, hence illustrating the long-term applicability of the Fraud
Triangle as a diagnostic model to understand and control systemic fraud.
,A Comparative Ethical Analysis Of Accounting Fraud At Toshiba And Enron Using The Fraud
Triangle Framework 3
Table of Contents
ABSTRACT.....................................................................................................................................2
Introduction......................................................................................................................................4
Application of Fraud Triangle on Toshiba’s Accounting Fraud..................................................6
The motives behind Toshiba’s Accounting fraud as Revealed by the Fraud Triangle..............10
The most significant issues at Toshiba from an investor's perspective in 2015........................15
The available options for Toshiba to prevent Fraud in Future...................................................21
Applying the Fraud Triangle to Toshiba and Enron..................................................................27
What would you do if you were in the same situation as the Toshiba employees?...................32
Conclusion.....................................................................................................................................35
References......................................................................................................................................37
TOSHIBA’S ACCOUNTING FRAUD AND THE FRAUD TRIANGLE
, A Comparative Ethical Analysis Of Accounting Fraud At Toshiba And Enron Using The Fraud
Triangle Framework 4
Introduction
Fraudin corporate accounting is a serious breach that violates not only the financial trust
of investors but also the integrity of the market system, thus representing a great threat to
investors and economies worldwide. Investors lose their confidence in the market system very
quickly, disconnecting it from real monetary losses. A classic example of a corporation whose
demise was caused by its accounting manipulations is Toshiba Corporation, a Japanese industrial
giant from the time of the postwar economic miracle. The disclosure of the scandal led to the
company admitting to over ten years of profit overstatement and cover-up of losses in multiple
divisions. Suzuki and Yamada (2016, p.5) state that the fraudulent activities brought about a
significant failure not only in the accounting standards but also in the proper implementation of
these standards. Investigations into the role of forensic accounting in the detection of such
misdemeanors reveal that they are majorly the manifestations of the organizational cultural
failures and not just the results of individuals' misdeeds (Simeunović et al., 2016, p.45). This
paper aims to work through an understanding of the Fraud Triangle to analyze the case of
Toshiba. Therefore, it tries to identify the essence of corporate governance and fraud-preventing
strategies in the current business w
orld.
The Fraud Triangle is a theory of criminology created by the inventor of occupational
fraud Donald Cressey, who elaborates on the reasons behind such individuals perpetrating such
fraud. This model holds that fraud takes place when three factors collide, which include
perceived pressure, perceived opportunity, and rationalization. The stress is usually due to the
inability to share financial issues or the unrealistic performance demand. Weak internal controls
or excessive power of managing leads to an opportunity, whereas rationalization enables one to
excuse unethical conduct. The framework has been found to be helpful especially in
investigation of complex cases involving corporate fraud. Instead of focusing on individual
Triangle Framework 1
A COMPARATIVE ETHICAL ANALYSIS OF ACCOUNTING FRAUD AT TOSHIBA AND
ENRON USING THE FRAUD TRIANGLE FRAMEWORK
by [Student’s Name]
ACC 360 - Ethics for Professional Accountants
Arizona State University
City
October 17, 2017
,A Comparative Ethical Analysis Of Accounting Fraud At Toshiba And Enron Using The Fraud
Triangle Framework 2
ABSTRACT
Corporate accounting fraud is a sore breach of market integrity, which destroys investor
trust and makes the entire economic system risky. This paper compares two historic accounting
scandals, Toshiba (2015) and Enron (2001) as a diagnostic in the Fraud Triangle developed by
Donald Cressey. The study will explore the presence of the main elements of the framework in
the pressure, opportunity and rationalization in contrasting corporate cultures and regulatory
conditions. Using the qualitative case study approach, the analysis supports the fact that though
both scandals necessitated the presence of all three factors, they were culturally and contextually
defined. Toshiba'sfraud was a result of the company's institutional nature, being the product of
systemic governance failures rather than isolated cases of misconduct. A consensus-based system
that characterizes Japan, hierarchical authority, and collective responsibility allowed for the
simultaneously exertion of pressure and also, the ethical rationalization of that pressure.
By contrast, the nature of Enron fraud was as a result of capital market pressure to run
exponentially and with the help of a complicated misuse of financial engineering tapped into
with a story of creative exceptionalism. The paper also describes the far-reaching repercussions
in terms of valuation crises and governance failures on investors and synthesizes its results to
contend that substantial fraud prevention must be achieved by going beyond generic controls. It
finds that interventions should be culturally and structurally specific to proactively destabilize
the particular configurations of pressure, opportunity, and rationalization that are characteristic
of an organization of its ecosystem, hence illustrating the long-term applicability of the Fraud
Triangle as a diagnostic model to understand and control systemic fraud.
,A Comparative Ethical Analysis Of Accounting Fraud At Toshiba And Enron Using The Fraud
Triangle Framework 3
Table of Contents
ABSTRACT.....................................................................................................................................2
Introduction......................................................................................................................................4
Application of Fraud Triangle on Toshiba’s Accounting Fraud..................................................6
The motives behind Toshiba’s Accounting fraud as Revealed by the Fraud Triangle..............10
The most significant issues at Toshiba from an investor's perspective in 2015........................15
The available options for Toshiba to prevent Fraud in Future...................................................21
Applying the Fraud Triangle to Toshiba and Enron..................................................................27
What would you do if you were in the same situation as the Toshiba employees?...................32
Conclusion.....................................................................................................................................35
References......................................................................................................................................37
TOSHIBA’S ACCOUNTING FRAUD AND THE FRAUD TRIANGLE
, A Comparative Ethical Analysis Of Accounting Fraud At Toshiba And Enron Using The Fraud
Triangle Framework 4
Introduction
Fraudin corporate accounting is a serious breach that violates not only the financial trust
of investors but also the integrity of the market system, thus representing a great threat to
investors and economies worldwide. Investors lose their confidence in the market system very
quickly, disconnecting it from real monetary losses. A classic example of a corporation whose
demise was caused by its accounting manipulations is Toshiba Corporation, a Japanese industrial
giant from the time of the postwar economic miracle. The disclosure of the scandal led to the
company admitting to over ten years of profit overstatement and cover-up of losses in multiple
divisions. Suzuki and Yamada (2016, p.5) state that the fraudulent activities brought about a
significant failure not only in the accounting standards but also in the proper implementation of
these standards. Investigations into the role of forensic accounting in the detection of such
misdemeanors reveal that they are majorly the manifestations of the organizational cultural
failures and not just the results of individuals' misdeeds (Simeunović et al., 2016, p.45). This
paper aims to work through an understanding of the Fraud Triangle to analyze the case of
Toshiba. Therefore, it tries to identify the essence of corporate governance and fraud-preventing
strategies in the current business w
orld.
The Fraud Triangle is a theory of criminology created by the inventor of occupational
fraud Donald Cressey, who elaborates on the reasons behind such individuals perpetrating such
fraud. This model holds that fraud takes place when three factors collide, which include
perceived pressure, perceived opportunity, and rationalization. The stress is usually due to the
inability to share financial issues or the unrealistic performance demand. Weak internal controls
or excessive power of managing leads to an opportunity, whereas rationalization enables one to
excuse unethical conduct. The framework has been found to be helpful especially in
investigation of complex cases involving corporate fraud. Instead of focusing on individual
