Samsung BioLogics faces probe over alleged accounting fraud

Company denies allegations of fraudulent bookkeeping; stock plunges 3.5%

By Nam Hyun-woo

The Financial Supervisory Service (FSS) said Thursday it will look into allegations that Samsung BioLogics falsified its accounting books to facilitate the company’s initial public offering (IPO).

The financial regulator made the decision earlier this week and is now checking internal protocols to launch the special inspection of the company, officials said.

“Following reports from civic groups and politicians, the FSS examined the audit report on Samsung BioLogics done by the Korean Institute of Certified Public Accountants, and decided that it needs more clarity,” an FSS official said.

The announcement immediately prompted investors to dump Samsung BioLogics stocks, which closed at 177,000 won Thursday, down 3.54 percent from the previous day.

Regarding the regulator’s move, Samsung BioLogics said in a statement that it has not yet received any official notification from the FSC regarding a special audit.

It denied all allegations circulating on the market.

“We believe our bookkeeping standards are clear. We have reviewed the standards with several accounting firms and five global securities firms and have fully explained the legality of our standards to the relevant authorities and our investors,” it said.

“Should there be a review, the company will fully cooperate and expects to clarify that our standards were appropriate.”

The People’s Solidarity for Participatory Democracy, a progressive civic group here, has claimed that the company’s report of 1.9 trillion won ($1.7 billion) in net profit in 2015 was problematic.

Samsung BioLogics had been reporting deficits from 2011 to 2014 but turned profitable in 2015, which was possible because it changed the accounting method for its subsidiary Samsung Bioepis.

According to a Samsung BioLogics statement, the swing to earnings came from “a one-off profit as Bioepis was no longer accounted for as a consolidated subsidiary and instead became an investment in an associate.”

The change in accounting method allowed Samsung BioLogics, which holds a 91.2 percent stake in Bioepis, to book a surge in Bioepis’ stock value as its earnings.

“Taking out the amount already reflected in the financial statements, the valuation gain amounts to 4.45 trillion won.”

However, the civic group has raised doubts on the legitimacy of the change in the accounting method ahead of the IPO.

Samsung BioLogics carried out its IPO on the main Seoul bourse in 2016.

In response, the company said that it did not commit any wrongdoing.

“Samsung BioLogics did not want to change its valuation method as it could be misleading, due to large-scale valuation gains,” the company said.

“However, we accepted a change to the valuation method because we respected the recommendation of our external auditors who advised us that it should be strictly evaluated according to the International Financial Reporting Standards (IFRS), enhancing accounting transparency as a global company.”

The company added Samjong KPMG believed that the company should carry out a fair value evaluation under the IFRS, and Deloitte Anjin, its designated external auditor in 2016, determined that the accounting was correct.

The FSS move came after a number of lawmakers questioned Gov. Zhin Woong-seob over the issue last month. Then, Zhin said the regulator would make a decision after consulting with related institutions. Some market observers raised suspicions that the financial authorities were acting under pressure from the political sector.