Accounting & Tax

Toyota U.S. Unit Finds Accounting Errors

Timing of revenue and expense recognition is the matter at issue.
Stephen TaubFebruary 4, 2005

Toyota Motor Credit Corp. announced it found errors primarily relating to its accounting for certain currency-related derivative transactions. Toyota has not determined whether it will need to restate its financial results.

“The company believes that the errors primarily involve the timing of revenue and expense recognition and therefore, when corrected, will not affect the company’s operating cash flows or cash position and thus will not affect the company’s ability to repay outstanding debt obligations as they become due,” Toyota stated in a regulatory filing. “At this time the company does not believe that the errors, when corrected, will have a significant effect on its financial condition.”

The U.S. auto-loan unit of the Japanese carmaker added that the transactions relate to notes and loans payable and derivative transactions accounted for in accordance with accounting policies it established in 2000 when it initially adopted FAS 133, Accounting for Derivative Instruments and Hedging Activities. In the filing, Toyota observed that the application of this “complex standard…has evolved over time,” and as a result “the company is reconsidering its previous accounting treatment.”

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Toyota explained that it uses derivative contracts to hedge foreign currency exposure on foreign-denominated notes and loans payable and to hedge its interest-rate exposure; the company stressed that it does not use derivatives for trading purposes. It added that the errors were discovered during a regular review of its accounting policies.

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