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Toshiba to gain qualified auditor approval for fiscal 2016 earnings, sources say

Kyodo

Toshiba Corp. is set to gain partial approval from its auditor for its fiscal 2016 financial results and submit the report by the Thursday deadline, sources close to the matter said.

Auditor PricewaterhouseCoopers Aarata LLC will issue an “opinion with qualifications” for Toshiba’s annual earnings report, which means the results are deemed fairly presented in general but contain minor problems.

However, the auditor will issue an “adverse opinion” on Toshiba’s internal controls because the company overlooked massive losses related to its now-bankrupt U.S. nuclear unit, the sources said.

The declaration of an adverse opinion, in this case, implies that the auditor found problems with the process used to compile the financial statement.

Toshiba said Wednesday it will submit the signed-off financial results to the Kanto Local Finance Bureau on Thursday, after having missed a deadline in June. The troubled conglomerate will also present an earnings report for the April-June period of fiscal 2017, for which the auditor will also issue a qualified opinion, the sources said.

Toshiba President Satoshi Tsunakawa will hold a news conference Thursday to explain the financial statement and the current status of negotiations for its chip unit sale, a transaction the company desperately needs to improve its financial standing and avoid delisting of its shares.

Toshiba is currently scrambling to cover the huge losses through the sale of its profitable chip unit Toshiba Memory Corp. But negotiations with its preferred bidder have stalled, forcing the Japanese company to miss a self-imposed deadline to seal a deal.

A legal row with its joint venture partner Western Digital Corp., which is fiercely opposed to any sale without its consent, also lingers over the sale process.

The company will face a forced delisting from the Tokyo Stock Exchange unless it eliminates its negative net worth by next March.

Toshiba had been struggling to gain approval from PwC Aarata over its accounts as the two companies disagreed over losses related to former U.S. nuclear unit Westinghouse Electric Co., which filed for Chapter 11 bankruptcy protection in March.

An auditor forms an opinion on a company’s financial statement and internal governance and different opinions can be given in each respective category.

Toshiba’s corporate governance was already in question following an accounting scandal in 2015.

The firm has argued that it booked the massive losses at Westinghouse as soon as it acknowledged them in December 2016, but PwC Aarata pointed out that the Japanese company likely noticed the losses earlier.

Following investigations, PwC Aarata has judged that while questions remain over Toshiba’s accounts, the statement is fairly presented overall.

In its earnings report for the April-June period, Toshiba is likely to show a strong group operating profit, helped by the performance of its flash memory production operations.