Compensation Amount Increased from 4.9 Billion in First Trial to 5.5 Billion in Second Trial... Supreme Court: "Negligence in Duty of Care and Supervision"
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[Asia Economy Reporter Heo Kyung-jun] Minority shareholders who claimed damages due to false disclosures caused by STX Shipbuilding & Marine Engineering's accounting fraud have won the lawsuit.
The Supreme Court's 3rd Division (Presiding Justice Kim Jae-hyung) announced on the 21st that it upheld the lower court's ruling ordering STX Shipbuilding & Marine Engineering, former STX Group Chairman Kang Deok-su, and Samjong Accounting Corporation to pay approximately 5.5 billion KRW to about 300 minority shareholders in a damages claim lawsuit.
STX Shipbuilding & Marine Engineering manipulated the shipbuilding progress rate to overstate gross profit and prepared false financial statements in this manner, disclosing business reports containing these financial statements. Samjong Accounting Corporation, as the external auditor of STX Shipbuilding & Marine Engineering, conducted an audit of the financial statements and issued an audit report with an 'unqualified opinion,' which was disclosed along with the business report.
In response, shareholders filed a lawsuit demanding compensation for damages caused by STX Shipbuilding & Marine Engineering's accounting fraud.
The first trial recognized that STX Shipbuilding & Marine Engineering committed accounting fraud by understating the total estimated construction cost and arbitrarily substituting costs per ship to manipulate the progress rate and overstate gross profit, ordering compensation of about 4.9 billion KRW to the shareholders.
The second trial additionally recognized the causal relationship between the false disclosure and the damages suffered by the shareholders, increasing the compensation amount to about 5.5 billion KRW.
The Supreme Court also agreed with the second trial's judgment. The court stated, "The CEO must fulfill the duty of care in preparing financial statements and business reports in their position and must also fulfill the supervisory duty to monitor and oversee other directors' accounting fraud. As part of fulfilling the supervisory duty, a reasonable internal control system must be established and operated."
It further pointed out, "Accounting firms should not blindly trust management's statements or materials submitted by the audited company without careful verification. Considering the nature of accounting work, the industry characteristics of the audited company, and the company's management situation, if there are areas prone to fraud or errors during the accounting process, audit procedures should be conducted more rigorously than usual."
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