The accounting irregularities that engulfed Toshiba Corp. have developed into a major scandal that appears likely to result in the resignation of its president and his predecessor over their responsibility for the padding of the major electronics group’s profits to the tune of ¥200 billion over five years to the business year that ended in March 2014. A third-party panel of lawyers tasked to probe the improper accounting will disclose its findings as early as Friday, and Toshiba itself is scheduled to explain the outcome later. The company needs to get to the bottom of the structural problems that allowed accounting irregularities of this magnitude to take place. This, along with clarifying the responsibilities of its top management, will hold the key to its efforts to prevent future problems and regain the public’s trust.

The irregularities came to light in February when the Securities and Exchange Surveillance Commission launched its probe in response to a whistle-blower report. Toshiba acknowledged the problem and began its own internal investigation in April. It set up the third-party panel the following month as the scope of the irregularities appeared to be much wider than initially believed. Toshiba was meanwhile forced to postpone the announcement of the financial results for its latest business year.

Toshiba initially said it confirmed that its group operating profit had been overstated by at least ¥54.8 billion over the five years, mainly in its infrastructure business division. However, the third-party probe has reportedly uncovered that the padding of profits will reach up to ¥200 billion, with improper accounting also discovered in the group’s other mainstay sectors such as semiconductors, personal computers and televisions. The scope of the problem raises suspicions that the illicit accounting — which is said to have involved understating or deferring the reporting of costs and manipulating profits by failing to properly booking appraisal losses — may have been carried out in an organized manner within the giant group.

A focus of the third-party probe has been the motives and background to the irregular accounting. One probable explanation would be that the company tried to make its performance look better than it really was after its profits fell short of target. The period when the reported improper accounting took place coincides with tough times for Toshiba, including the global recession following the 2008 collapse of Lehman Brothers as well as the shock from the March 2011 Great East Japan Earthquake and the Fukushima nuclear crisis, which spelled trouble for the group’s nuclear power plant business.

The third-party panel is said to have examined the records of Toshiba’s in-house conferences and email communications to determine whether the group’s top management was either aware of the profit padding or ordered it. Media reports of the probe suggest that the top executives — president Hisao Tanaka, who took up the post in June 2013, and vice chairman Norio Sasaki, Tanaka’s predecessor as president since 2009 — put pressure on their junior officials to achieve the targeted business performance, and that the panel is moving toward determining that such pressure effectively led the junior officials to pad the profits in an effort to meet the targets.

Both Tanaka and Sasaki are reported to be considering tendering their resignations to take responsibility for the fiasco. But what’s more important will be for the company to put in place a mechanism to ensure that the same problem does not happen again. Toshiba is reportedly considering the creation of a new in-house surveillance body to beef up corporate governance and forestall wrongdoing. Some reports say that it may increase the number of outside directors so they comprise a majority of its board members. But Toshiba already had four outside directors in its board, supposedly to monitor the firm’s management from the viewpoint of outsiders not tied to its inner interests. Unless it’s determined why Toshiba’s existing governance mechanism failed to prevent the accounting irregularities, there’s no guarantee that creating new positions will work any better.

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