Cases of Accounting Review and Audit Findings in the First Half of the Year
On the 11th, the Financial Supervisory Service (FSS) announced that it disclosed 13 cases of accounting review and audit findings in the first half of this year, including companies that falsely inflated sales and concealed circular transactions of funds.
Among the FSS's pointed cases, four were related to investment stocks (subsidiaries and affiliates), the most frequent category, followed by two cases of false recording of sales, two cases involving inventory and tangible assets, and two cases of false recording of accounts receivable and other assets to conceal embezzlement.
In a major case, KONEX-listed company A, while pursuing a transfer listing to KOSDAQ, disguised a sharp decline in sales of product P as if it were being exported overseas, and manipulated the records to appear as if the proceeds were used to purchase a new product for a different purpose.
The FSS explained that company A fabricated the appearance of normal sales and new raw material purchases to inflate sales and net income for the current period, thereby falsely recording sales and cost of sales. The FSS advised that during accounting reviews and audits, detailed information on export-import items and payment terms should be examined in addition to the evidence presented by the company.
There was also a case involving KOSDAQ-listed manufacturer D, which recorded operating losses for three consecutive years and conducted circular transactions of funds with overseas subsidiaries, fabricating that long-term uncollected receivables were properly collected and reversing allowance for doubtful accounts. This company, in a state of complete capital erosion, had already impaired all equity investments and should have recognized additional equity investments as impairment losses, but concealed the circular transactions by not recognizing these as separate impairment losses.
The FSS advised that for subsidiaries whose investment equity has been fully impaired due to complete capital erosion, attention should be paid to circular transactions, performance improvements, and other transaction motives when the company makes additional investments.
Additionally, telecommunications equipment manufacturer F was included in the pointed cases for recognizing sales revenue without recognizing the corresponding cost of sales, even though sales proceeds should be recorded as sales (revenue) and product costs as cost of sales (expenses).
An FSS official stated, "We plan to distribute these pointed cases to related organizations to help prevent recurrence of similar cases."
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