Financial Supervisory Service Discloses 15 Accounting Audit Findings from Last Year

[Asia Economy Reporter Lee Jung-yoon] The Financial Supervisory Service (FSS) disclosed 15 cases of accounting errors pointed out during accounting inspections last year on the 28th to prevent accounting errors similar to those arising from the application of International Financial Reporting Standards (IFRS).

The pointed-out cases included 4 cases related to sales and cost of sales such as false or exaggerated sales recording, 3 cases of errors in the valuation of investment stocks and derivative products, and 3 cases of overstatement (false recording) of inventory and tangible and intangible assets.

Regarding sales and cost of sales, Company A inflated its sales figures by exploiting the characteristics of the IT industry, artificially recording sales and cost of sales by inserting itself without any significant role into already confirmed sales and purchase transactions among various hardware and software suppliers. Company B, in the case of sales through agents acting only as intermediaries, should recognize revenue when the products are sold to the final demand destination, but it arbitrarily shipped excessive quantities to agents and recognized all of them as revenue, thereby overstating sales and cost of sales.

Regarding intangible assets, Company C overvalued intangible assets acquired during a business combination with Company D by estimating the future demand and selling price of a new drug under development by Company D at unreasonably high levels without reasonable grounds and omitting clinical costs.

Regarding derivative assets and liabilities, Company E failed to separate and recognize embedded derivatives included in complex investment products (convertible bonds (CB) and bonds with warrants (BW)) and did not evaluate call options granted to third parties related to these complex investment products at fair value, resulting in omission of derivative assets/liabilities and related valuation gains and losses.

Such information can be searched in the Inspection and Audit Findings menu on the FSS website. The FSS has disclosed a total of 123 cases of pointed-out issues from 2011 to 2021.