Toyota’s new data system stalls after $89m hedging blunder

Toyota has said that a new accounting system being installed at one of its US
divisions to remove the chances of human error may not be in place until the
second quarter of 2009.

Toyota Motor Credit Company has started an overhaul of its accounting systems
after finding an $89m (£44.9m) understatement of debt in its books, but said
there was no guarantee the new hardware would be in place by next March.

In an SEC disclosure document, Toyota said: ‘We continue to believe that the
new debt and derivative accounting system currently being installed represents
an improvement in our internal controls as it will automate many functions
currently performed manually. We anticipate completing the installation of the
new debt and derivative accounting system before the end of this fiscal year,
but there can be no assurances this will occur.’

TMCC took an $89m hit to its numbers after mistakes were uncovered in its
debt and derivatives accounting for the past three years, but only found the
issues because of a probe into an earlier internal controls problem.

The US division stressed that its issues were down to human error and not
because of a failure to apply the standards governing its derivatives.

SFAS 133 governs the accounting for derivative instruments and hedging
activities in the US, but Toyota put its problems down to clerical mistakes
‘relating to certain manual processes’.

The company funds its operating activities using many types of debt notes,
including some in foreign currencies. Toyota tried to smooth out the effects of
currency fluctuations by hedging the exposures, but market values of the debt
were incorrectly recorded by Toyota staff.

The effect of these errors was to understate debt and interest expense in
each quarter, beginning in the fiscal year ended 31 March 2005, Toyota said.

After the restatement, TMCC’s CFO, John F Stillo, launched a probe into the
company’s disclosure controls and procedures and found they were not fit for

The company added that it will now be keeping a close eye on its systems to
achieve reporting standards. ‘We will continue to complete the installation of
our new debt and derivative accounting system and will continue to evaluate our
processes to ensure financial results are recorded in compliance with US GAAP.’

Related reading