IPO and Delisting Ahead, Falsified Performance Detected... Financial Supervisory Service Discloses Major Accounting Violations

[Financial News] #. Company A, engaged in manufacturing, recognized false sales and cost of sales by exchanging funds without actual product delivery to avoid being designated as a management item due to four consecutive years of operating losses. The Financial Supervisory Service detected this and notified the exchange of the violation, initiating delisting procedures.

The Financial Supervisory Service announced on the 27th that as a result of reviewing and auditing the financial statements of 458 companies with high incentives for accounting fraud over the past three years, fines were imposed on 52 companies, and 22 companies were prosecuted, with a total of 214 companies facing sanctions. 
The total amount of fines is 77.2 billion won, averaging 25.7 billion won annually. The amount of fines imposed more than doubled from 35.6 billion won, averaging 11.9 billion won annually, over the previous three years (2019-2021).
The Financial Supervisory Service particularly selected IPO-expected companies with high incentives for accounting fraud as targets for review and audit, preventing companies inflating their value through accounting fraud from entering the capital market in advance. Among these companies, all three that received major actions had their listings postponed, and trading suspension measures were taken against companies where accounting fraud was discovered immediately after the IPO.
Additionally, 31 companies with financial risks, such as marginal companies, and 12 companies that caused social controversy, such as embezzlement and breach of trust, with high relevance to accounting fraud, were selected for review and audit. Among the 36 companies where review and audit were completed, actions were imposed on 17 companies, with 7 cases receiving major actions, indicating that the fraud detection function has been strengthened.
Meanwhile, among the 14 cases of accounting review and audit pointed out by the Financial Supervisory Service in the second half of last year, the most significant type was 'false recognition of sales and cost of sales' (4 cases).
The Financial Supervisory Service has been disclosing review and audit pointed cases since 2011, and since last year, the disclosure cycle has been shortened from once a year to twice a year. Including the cases from the second half of last year, there have been a total of 182 pointed cases.
The pointed cases in the second half of last year consisted of false recognition of sales and cost of sales (4 cases), omission of notes (2 cases), overstatement of investment stocks (1 case), and 7 other cases related to financial liabilities and other assets/liabilities.
The Financial Supervisory Service plans to distribute major pointed cases of review and audit to companies and auditors through related organizations such as the Korea Listed Companies Association, KOSDAQ Association, and the Korean Institute of Certified Public Accountants to prevent recurrence of similar cases and assist investor decision-making. Additionally, it plans to regularly disclose major pointed cases of review and audit annually to continuously accumulate a database.

nodelay@fnnews.com Park Ji-yeon Reporter