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By Bloomberg

In an accounting scandal that has tainted one of the most fabled brands in Japan and brought pressure on its top executives to step down, Toshiba Corp. said it will correct earnings by at least 152 billion yen ($1.2 billion).

The company’s top executives set unrealistic profit targets that systematically led to flawed accounting, a summary of a third-party investigation released Monday showed. The irregularities were “skillfully” hidden from outside observers, according to the summary.

President Hisao Tanaka and his predecessor Norio Sasaki sought to delay booking losses and employees were unable to go against management orders, according to the report. Toshiba said it will cut earnings from more than six years in Japan’s biggest accounting scandal since Olympus Corp.’s $1.7 billion in irregularities in 2011.

“There is no question that the current management will have to change,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo. “But it’s difficult to change the company culture.”

The stock has declined 20 percent since Toshiba initially announced its accounting probe on May 8, compared with a 7 percent gain for the Nikkei 225 Stock Average. Toshiba rose 3 percent to 387.9 yen as of 10:58 a.m. in Tokyo.

“The amount of fraudulent profits, the involvement of top management and their subsequent resignation have already been priced in to an extent,” said Naoki Fujiwara, Tokyo-based chief fund manager at Shinkin Asset Management Co. “If the management structure responsible for this is renewed and dealt with accordingly, things will return to normal.”

Accounting Probe

Sasaki will resign from Toshiba at an extraordinary board meeting Tuesday, Japanese Economy Minister Akira Amari told reporters, citing a conversation with the executive.

Tanaka, who has led the company for two years, is scheduled to hold a press briefing Tuesday afternoon in Tokyo following the release of the full report from the committee.

“We will disclose about the responsibility of the management in the afternoon,” Hirokazu Tsukimoto, a spokesman for Toshiba, said by phone.

In May, the company named two lawyers and two certified public accountants to the committee that would be headed by Koichi Ueda, a former investigator with Tokyo District Public Prosecutor’s Office.

That followed the decision to withdraw forecasts and cancel the year-end dividend and widened the accounting probe.

The amount of earnings revision announced Monday is almost triple the 55 billion yen writedown the Tokyo-based company had previously estimated.

Reactors and PCs

The largest single earnings figure to be corrected is 85.8 billion yen of pretax profit in the 2012 fiscal year, according to the probe. The company’s own internal probe also found 4.4 billion yen in inaccurate entries.

At least eight analysts have suspended their ratings on the company’s shares amid uncertainty about the investigation’s scope.

The company initially uncovered irregularities related to “percentage of completion” estimates used on infrastructure projects, including nuclear, hydroelectric, wind-power equipment, air-traffic control and railway systems. Toshiba then appointed a third-party committee to expand the investigation to its visual products, PC and chip businesses.

Toshiba had previously projected operating income of 330 billion yen on sales of 6.7 trillion yen for the year ended March.

The company will review fiscal 2014 earnings with auditors and submit its result by the end of August, it said Monday.

The company may sell assets worth 200 billion yen, including part of its stake in atomic power plant maker Westinghouse Electric, the Nikkei reported on July 9, without saying where it got the information.

There is no change to the plan to sell part of the Westinghouse stake, spokesman Hirokazu Tsukimoto said at the time. Toshiba had said as early as 2012 that it was considering a sale of as much as 36 percent of that business. “This leaves foreign investors with a vague feeling of uncertainty towards Japanese corporate earnings,” said Fujiwara of Shinkin Asset. “It impacts all Japanese companies going forward and we may see a lack of buying on dips.”