Chasing Nidec: Third-Party Probe Finds Widespread Accounting Misconduct

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After issues surfaced related to inappropriate accounting practices, Nidec Corporation established a third-party committee in accordance with the Japan Federation of Bar Associations' Guidelines for Third-Party Committees in Corporate Misconduct Cases.

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On March 3, 2026, the company published an investigation report summarizing the committee's findings.

The investigation began in September 2025 and used a range of methods. These included document reviews, interviews with 319 individuals, forensic analysis, questionnaires, and a dedicated hotline.

The committee's investigation remains ongoing, and a separate report detailing the final calculation of the financial impact of the wrongdoing and additional findings will be released at a later date.

Misconduct Across the Board

The third-party committee findings confirmed accounting irregularities at multiple locations within Nidec. A notable feature was that the irregularities were not confined to a single type of accounting issue but spanned several accounting areas.

First, it found fraud related to inventory and fixed assets. It identified multiple cases in which the company treated raw materials and products with extremely low prospects for future use or sale as viable assets to avoid recognizing impairment losses.

*Nidec headquarters in Minami Ward, Kyoto.*

In addition, it found an instance where the company improperly used sales plans with low-probability projects as assumptions for fixed-asset impairment tests to avoid recording losses. Personnel expenses and other costs that should have been treated as expenses were recorded as fixed assets, thereby deferring their recognition through depreciation.

Second, it identified cases of misconduct involving provisions and liabilities. These included provisions for the repayment of government subsidies that had been recorded at the subsidiary level but were improperly reversed in the consolidated financial statements. There were also cases in which loan loss provisions for non-performing loans were not properly recorded.

Third, revenue recognition fraud was also identified. It confirmed instances in which government grants, which by their nature should not be recognized as revenue, were recorded as revenue by falsifying them. Separate cases were also identified in which revenue was recognized through transactions that lacked economic substance.

The Financial Toll

As the cumulative result of these irregularities and errors, the negative impact on net assets in the consolidated financial statements as of the end of the first quarter of fiscal 2025 was provisionally estimated at approximately ¥139.7 billion (about $930 million).

According to Nidec's release, corrections to prior-year financial results may require the additional recognition of impairment losses on goodwill and fixed assets in addition to the above impact identified through the third-party committee's investigation.

At present, the investigation has not yet been completed, making it difficult to determine the amount or timing of such recognition.

However, the goodwill and fixed assets currently under review — primarily related to the automotive business — are estimated at approximately ¥250 billion ($1.67 billion).

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Pressure to Deliver

The third-party committee identified "excessive pressure" to achieve performance targets, particularly operating profit targets, as the root cause of the misconduct and its persistence.

For many years at Nidec, unrealistic performance targets were set top-down by the founder. These were strongly imposed on frontline operations as mandatory goals under the belief that "deficit is a sin."

*Kaku Hirao (center), head of the third-party committee investigating Nidec's accounting scandal, speaks at a press conference on March 3 in Tokyo's Chiyoda Ward. (©Sankei by Masahiro Sakai)*

This pressure cascaded down to business units and subsidiaries through the company's executive officers and CFO, and situations requiring the “accumulation” of numerical values even after the fiscal year-end had become the standard.

It was alleged that this encouraged actions aimed at meeting targets by postponing the recognition of losses and distorting the accounting treatment.

Furthermore, assets of questionable value were allowed to remain on the books for extended periods as "negative legacies," with their disposal postponed in relation to the performance targets.

*Shigenobu Nagamori, former CEO and founder of Nidec.*

Failures of Governance

Although asset revitalization projects and structural reforms were implemented in the past, these measures were limited and premised on meeting performance targets. Therefore, they failed to bring about a fundamental resolution.

Non-performing assets that should have been disposed of were preserved, becoming a breeding ground for subsequent accounting fraud.

Regarding top management, the report concluded that while there was no evidence that the founder himself directly ordered or led individual instances of accounting fraud, he was aware of and tolerated the systematic handling of accounting irregularities that should have been corrected immediately.

It further stated that, because the excessive pressure to meet performance targets originated with the founder, he "should bear the greatest responsibility."

At the same time, the report found no evidence that the current top management directed or tacitly approved the fraud.

As for internal controls and governance, the report sharply criticized the failure of the accounting department, the internal audit department, the audit and supervisory committee, and the outside directors to adequately address the root causes of excessive performance pressure. To that end, the checks and balances failed to function effectively.