Financial Services Commission Fines Model Solution for "Accounting Violations"

The Financial Services Commission announced on November 19 that it will impose fines on Model Solution and others for preparing and disclosing financial statements in violation of accounting standards.

Model Solution omitted accounting for raw material purchases in 2022. Although this was discovered in 2023 and should have been retroactively corrected, it was instead reflected in the 2023 profit and loss. As a result, shareholders' equity and net profit for 2022 and 2023 were overstated and understated, respectively. In addition, by recognizing revenue on a gross basis for paid consignment transactions, both sales and cost of sales were overstated.

The Financial Services Commission designated the company for mandatory auditor appointment for three years and imposed fines of 190 million won on the company, 6.3 million won on the CEO, and fines of 6.3 million won and 6 million won on the former and current responsible executives, respectively.

Donghyun Accounting Corporation, the auditor, was found to have neglected audit procedures by failing to review contract terms related to paid consignment and to examine the correction of accounting errors, and thus did not appropriately reflect the company's violation of accounting standards in its audit opinion.

The accounting firm was fined 67.5 million won, ordered to make an additional 10% contribution to the joint compensation fund, and prohibited from auditing Model Solution for one year. Two certified public accountants from the firm were also prohibited from auditing designated companies for one year.