TSE imposes JPY 20m penalty on Daiichi Commodities

Maria Nikolova

The company conducted inappropriate accounting processing over a long period of time under the direction of successive representative directors.

TSE has designated a stock as a Security on Alert and imposed a listing agreement violation penalty of JPY 20 million on DAIICHI COMMODITIES CO., LTD. (TYO:8746).

DAIICHI COMMODITIES disclosed an investigation report of a third party committee on April 30, 2020 concerning inappropriate accounting processing by the company, and corrections to past earnings reports, etc. on May 1, 2020. These disclosures revealed that, the company had conducted inappropriate accounting processing over a long period of time under the direction of successive representative directors.

These failures include (i) unduly overstating reversal of allowance for doubtful receivables from fictitious collection of unrecoverable loans receivables and fictitious collection of accounts receivables regarding customers with margin shortfalls as well as (ii) fictitiously posting advertising expenses to secure funds that were used to fabricate said fictitious collections.

As a result, the company was deemed to have disclosed earnings reports, etc. that contained falsehoods from the fiscal year ended March 2015 through to the third quarter of the fiscal year ended March 2020, and the corrections revealed that the company’s income at each step of its multi-step income statements for the fiscal years ended March 2018 and March 2019 were reversed to become positive instead of negative.

Furthermore, there was a lack of awareness regarding compliance among the top management of the company, as demonstrated by such facts as that the past representative director & president, who showed absolute obeisance with the intention of the representative director & chairman, had directed to start the fictitious collection of unrecoverable loans and that successive representative director & presidents continued to carry out said fictious collection and went further to conduct fictitious collection of accounts receivables by increasing advertising expenses.

Also, there were no traces of questions being raised at board of directors meetings on material agenda items, including the purposes of use of the large amount of money lent out and the background of the delays in collection.

In addition, statutory auditors were deemed to have not adequately performed their supervisory functions despite attending board of directors meetings, as demonstrated by the fact that there were no signs of questions, comments, or such acts made toward providing check and balance on the performance of duties by the board of directors for making important decisions.

There was also a chronic shortage of staff in the internal audit division in response to the representative director & chairman’s disregard of internal audit.

Finally, some officers and employees did not point out nor blow the whistle despite being aware of the irregularity of the advertising expenses and employees of several departments blindly followed instructions that were clearly irregular from the representative director & presidents.

This case involves inappropriate disclosure that has considerable impact on investment decisions, and improvements in the company’s internal management system, etc. are deemed highly necessary. Therefore, TSE designates its stock as a Security on Alert.

Furthermore, TSE deems that the fact that inappropriate accounting processing was conducted at the Company for a long time under the direction of successive representative director & presidents has undermined the confidence of shareholders and investors in the TSE market. That is why, TSE decided to impose a listing agreement violation penalty on the company.

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