The CEO and President, Hisao Tanaka would be replaced by Chairman, Masashi Muromachi, effective on Wednesday.
The company said in a statement that it was considering appointing outside directors to over half of its board seats.
On Monday, an independent panel appointed by Toshiba, said the firm had overstated its operating profit by a total of 151.8bn yen ($1.22bn, £780m).
The overstatement was roughly triple an initial Toshiba estimate.
Tanaka’s predecessors, Vice Chairman Norio Sasaki and adviser, Atsutoshi Nishida, would also step down after the third-party report showed they also played a part in the overstatement of profits going back to the 2008 financial year.
The inquiry found that the misreporting of profits began after the financial crash seven years ago, when senior managers began imposing unrealistic performance targets.
“Within Toshiba, there was a corporate culture in which one could not go against the wishes of superiors,” the report said.
“Therefore, when top management presented ‘challenges’, division presidents, line managers and employees below them continually carried out inappropriate accounting practices to meet targets in line with the wishes of their superiors.”
The findings are expected to lead to the restatement of earnings, a board overhaul and potentially hefty fines at the computers-to-nuclear conglomerate in Japan’s worst corporate scandal since Olympus Corp was found to have covered up $1.7 billion in losses in late 2011.
Japanese Finance Minister, Taro Aso said earlier on Tuesday that the accounting irregularities at Toshiba were “very regrettable”, coming at a time when Japan is trying to regain global investors’ confidence with better corporate governance.
“If (Japan) fails to implement appropriate corporate governance, it could lose the market’s trust”.
Aso declined to comment when asked if Toshiba would face any kind of financial penalty. Sources told Reuters that regulators were beginning their own review of Toshiba’s book-keeping, based on Monday’s report.
The investigation came just as Prime Minister, Shinzo Abe had implemented new guidelines to improve the country’s corporate governance.
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