Breach of accounting rules could disrupt SK ecoplant's IPO plan

The logo of SK ecoplant, an SK Group affiliate, is seen outside its headquarters in Seoul in this undated photo. Yonhap

SK ecoplant has repeatedly been found to have breached accounting rules by overstating earnings, with a new judgment from the Securities and Futures Commission (SFC) adding to concerns over its plan to go public, according to industry officials Thursday.

Operating under the Financial Services Commission, the country’s top financial regulator, the SFC said Wednesday that SK ecoplant committed “gross negligence” in reporting the sales and operating profit of its U.S. subsidiary for 2022 and 2023.

This follows an earlier finding by the Financial Supervisory Service (FSS), which concluded that the company had “intentionally” exaggerated the same 2022-23 performance figures.

Violations of accounting standards are classified by severity into three categories — simple negligence, which refers to minor mistakes without intent; gross negligence, which refers to serious carelessness; and intentional misconduct, which refers to deliberate falsification.

Judged as having committed gross negligence, SK ecoplant will face disciplinary action, including a recommendation to dismiss the responsible executive and a six-month business suspension.

The SFC also found that KPMG Samjong Accounting, which audited SK ecoplant’s financial statements, neglected its duty.

The accounting firm accordingly received sanctions including a two-year restriction on auditing SK ecoplant, a 20-point deduction in its designation score and an additional 20 percent contribution to the joint compensation fund.

Although the SFC downgraded SK ecoplant’s violation from the FSS’ earlier finding, market observers expressed concern over the company being found in breach twice by separate authorities.

They said the consecutive judgments are especially troubling given SK ecoplant’s plan to complete its initial public offering (IPO) as an SK Group affiliate by July 2026.

“The violation of accounting standards is still acknowledged, regardless of the lowered level of the breach,” said Jung Eui-jung, head of the Korean Stockholders’ Alliance. “Under these circumstances, the company’s credibility is damaged, and it is likely to face significant challenges in raising enough capital for the IPO.”

Another analyst said SK ecoplant has limited time left before the planned IPO. “The company spent months defending itself against these issues instead of focusing on IPO preparations.”

SK ecoplant said Thursday it will “continue to strengthen and improve the accounting processes for our subsidiaries” in response to the SFC judgment.

“The suspicion that the subsidiary’s sales were deliberately overstated has been cleared. We will carefully consider internal measures moving forward,” the company added.

SK ecoplant declined to comment on whether the IPO process will be affected.