Regulator to penalize Deloitte Anjin
By Nam Hyun-woo
Korea’s financial regulators are increasingly seeking to secure documents in their investigation of alleged misconduct by Deloitte Anjin, a well-known accounting company, over its suspected deliberate involvement in manipulating the balance sheets of Daewoo Shipbuilding and Marine Engineering (DSME).
Sources familiar with the situation told The Korea Times, Sunday, that the regulator is cooperating with the Korea Stock Exchange to probe the accounting fraud by Deloitte Anjin and the shipbuilder.
Deloitte Anjin is being accused of intentionally engaging in producing misleading balance sheets that artificially inflated DSME’s reported sales and revenue, hurting the interests of investors.
Deloitte Anjin, recently confessed that 2 trillion won out of DSME’s 5.5 trillion-won operating loss in 2015 should have been reflected in 2013 and 2014. The “cooked books” had the effect of making DSME appear to be more profitable than it actually was.
The Financial Supervisory Services (FSS) is said to focusing on whether DSME teamed up with Deloitte Anjin to intentionally deceive investors.
But the FSS remained tight-lipped about the amount of penalties that the authorities are considering imposing on the auditing firm.
It is possible that Deloitte Anjin may face heavy civil and criminal lawsuits from investors.
Hannuri Law said Friday that it will file a class action suit against DSME and Deloitte Anjin on behalf of retail investors who bought DSME stocks from April 1, 2014, to July 14, 2015. The law firm earlier launched a number of similar suits against the two firms.
Deloitte Anjin audited DSME’s financial statements from 2010 to earlier this month. In 2013, DSME announced that it had posted 424.2 billion won in operating profit and recorded 454.3 billion won the following year. If the 2 trillion won loss had been reflected, the company in fact was in the red during those two years.
The level of penalties could be lowered by one level, if fraudulent statements were corrected after a government review. Two levels would be lowered if the correction was made before the review, said the sources.
The fraudulent numbers inevitably caused a nightmare to small investors in DSME. Its stocks plunged from 18,650 won to 5,070 won last year.
Speculation is rising that it will stir financial fiascos such as one in September, when Daewoo E&C was fined 2 billion won for accounting fraud. Also in 2011, investors filed a series of lawsuits against accounting firms for erroneous auditing when a number of savings banks went bankrupt.
Further angering investors was the fact that more than 4 trillion won of taxpayers’ money was pumped into DSME. Last year, DSME’s creditors, led by the state-run Korea Development Bank and Eximbank Korea, agreed on liquidity support worth 4.2 trillion won, in order to rescue the shipbuilder from its liquidity status.
“While auditing the fiscal year of 2015, the company has found evidence and asked DSME for further information. And we judged that there were clear errors and asked to rewrite the previous statements,” Deloitte Anjin said.