Channel-Stuffing Reinvented: Earnings Management in Toshiba’s Personal Computers Division

This case describes how Toshiba, a well-known Japanese conglomerate, creatively used the technique of channel-stuffing to inflate its earnings by $478 million during 2008–2014. Students evaluate the uniqueness of Toshiba’s practice of channel-stuffing, determine whether Toshiba’s financial statements faithfully depicted the economic reality of underlying transactions, and understand the spiraling effects of channel-stuffing on reported profits. Students also learn that the responsibility for integrity in financial reporting lies not just with the top management, but also with the junior employees. The case requires an understanding of only basic accounting concepts and can be used in a variety of courses, especially in the M.B.A. introductory accounting course, and in the intermediate accounting courses at the undergraduate or graduate level.