Gov't to get tough with accounting fraud

More than 20 accountants will likely face criminal charges for insider trading

By Nam Hyun-woo

Korea’s financial regulator will take tougher action against accounting companies alleged to have committed fraud, following a series of auditing scandals.

The Financial Supervisory Service (FSS) said Wednesday it will review the financial statements of 154 companies, up 23 from last year. Also, it will amend regulations to impose higher fines, lifting the previous limit of 2 billion won per case.

“Companies that committed accounting fraud should be punished more severely,” FSS Deputy Governor Park Hee-choon said. “Given the financial damage and losses investors suffer because of accounting fraud, strengthening the penalty is necessary.”

Park cited the case of Hyosung Group. The chemical and textile giant was involved in an 800 billion won accounting fraud for about 10 years from 2003. Chairman Cho Suk-rae was sentenced to a three-year prison term. The FSS then could only slap the group with a “mere” 2 billion won fine because of regulatory limits per case.

The amended regulation will allow the FSS to impose a fine of up to 2 billion won for each violation.

The previous regulation recognized a company’s multiple report frauds in a continuing period as a single case. But the amended regulation recognizes each fraudulent report as a separate violation.

The FSS also will review 10 accounting firms this year as well as shortening its review cycle; and will bolster its cooperation with the United States’ Public Company Accounting Oversight Board to help the latter better review three Korean accounting firms auditing companies here that are listed on the NASDAQ and the New York Stock Exchange.

The FSS’s move came after major conglomerates and leading accounting firms were discovered to have committed fraudulent auditing.

A day earlier, leading accounting firms faced action for auditing companies their accountants held shares in.

The Financial Services Commission (FSC) said its Securities and Futures Committee agreed to suspend 12 accounting firms for doing this.

Those being investigated include accountants from four major accounting firms operating here -- Samil PricewaterhouseCoopers, Deloitte Anjin, EY Hanyoung and Samjung KPMG. Seven are from Samjung KPMG, two from EY Hanyoung, and one each from Deloitte Anjin and Samil PwC.

An FSC official said a separate investigation will be launched to decide how to charge them for allegedly exploiting their access to non-public information.

The probe comes after the prosecution indicted 13 accountants who allegedly gained some 660 million won through insider trading last year.

Regulations stipulate that accountants who trade shares in companies they audit can be suspended for up to two years. The accountants also can be prosecuted if they are found to have traded shares after receiving non-public information.

Another case dealing a heavy blow to accountants’ reputations is the alleged two trillion won accounting fraud involving Deloitte Anjin and Daewoo Shipbuilding and Marine Engineering (DSME).

Deloitte Anjin said it had failed to reveal that DSME allegedly altered its accounting books, and 2 trillion won of DSME’s 5.5 trillion won operating loss in 2015 should have been reflected in 2013 and 2014.

The prosecution is investigating the alleged fraudulent accounting committed by the former management of DSME, while financial regulators are reviewing Deloitte Anjin’s audit. The two firms also will likely face several class action suits from investors who suffered losses.