Ethics Newsline®

TOKYO
A Japanese firm being bailed out by the government revealed last week that it had inflated profits by $1.37 billion over the past four years in what may be the country’s largest accounting fraud involving a non-financial firm.

Kanebo Ltd., a household goods giant, said an internal investigation launched last year had uncovered a lengthy run of bogus bookkeeping, reversing recorded profits to losses for four of the past five years.

The move caused the company’s stock price to plunge and sparked an investigation by the Tokyo Stock Exchange, whose rules require a firm to be de-listed after posting a negative net worth for more than three years, reported the Japan Times.

Kanebo’s overstatement means that the company actually had a negative net worth for fiscal years 1999 through 2003, chairman Akiyoshi Nakajima conceded last week, saying the company was considering suing its former management.

The government-owned Industrial Revitalization Corporation of Japan (ICRJ), which agreed to pump funds into Kanebo two years ago, last week said it would continue to bail out the company, reported Bloomberg.

“The revision is related to inappropriate management practiced by Kanebo in the past,” the IRCJ said, according to a report from the Reuters news agency. “Kanebo now has an appropriate management system in place.”