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Sanyo Electric under serious fire over alleged shady accounting

TOKYO - Financially troubled Japanese electronics giant Sanyo Electric Co. is facing sharp criticism for allegedly underestimating losses.

The company admitted Friday it was under investigation by Japan’s securities watchdog following the allegations. Its shares plunged 48 yen or 20.96 percent to 181 yen as investors showed alarm at the probe and expressed concerns over a possible delisting.

‘Allegations that Sanyo Electric Co. resorted to shady accounting practices will be a major blow to its restructuring efforts and could shatter investors’ and customers’ trust in the firm,’ the Nikkei business daily said.

‘The market focus is whether Goldman Sachs and Daiwa SMBC will sell their Sanyo shares,’ the newspaper said, referring to financial institutions that are helping in the restructuring of the company.

The Securities and Exchange Surveillance Commission is looking into allegations that Sanyo may have underestimated 190 billion yen (1.56 billion dollars) in unconsolidated losses on its stockholdings in subsidiaries for the year to March 2004, postponing the write-down of most of the losses.

Sanyo will voluntarily restate its earnings, the newspaper said.

Authorities could fine the company if the investigation confirms it filed false accounting documents, the Sankei Shimbun newspaper said.

The company’s auditors doubted Sanyo’s ambitious earnings targets, but they were out-negotiated by Sanyo officials and allowed the shady accounting, the Asahi Shimbun said, citing Sanyo’s internal memos.

‘The auditors failed to serve their functions,’ the Asahi said.

‘Although the auditing in question was over the year to March 2004 and is a problem from the past, the company’s management will feel serious damage if the public questions the company’s information disclosure,’ the Asahi said.

The Osaka-based firm has been accelerating its restructuring and said last year it had managed to complete 14,000 planned job cuts two years ahead of schedule as part of efforts to revive its flagging fortunes.

The scandal could tarnish Sanyo’s brand image, lower employee morale, and may result in a brain drain from the company, the Mainichi Shimbun said.

The Yomiuri Shimbun said the scandal could damage Sanyo’s future earnings.

Sanyo management’s responsibility may come into question, depending on the future course of the investigation, the Yomiuri said.

Some analysts and dealers had suspected for about two years that the company might have been engaged in inappropriate accounting, the Mainichi said.

But Sanyo’s restructuring efforts have improved the company’s financial standing, so the latest scandal should not devastate the company, it added.