[EDITORIAL] How To End Accounting Fraud

Details are coming to light to underscore how shaky the Korean economy has been. Dong-Ah Construction Industrial Co. has disclosed that it cooked books for 10 years, starting in 1988, by ballooning up the money due from its overseas constructions, amounting to 470 billion won ($372 million). The owners and professional managers of that period admitted that in fact the involved money was close to 700 billion won. Several days ago, the prosecution announced that Daewoo doctored books amounting to 41 trillion won in 1997 and 1998. In addition, the Financial Supervisory Service revealed that according to its investigations of 100 listed companies suspected of having committed accounting improprieties for the last three years, a third of them resorted to irregularities.

The account books are the very basic of basics in the economy. Only when they are accurate, are transparent management and corporate reform possible. Investors and creditors make their decisions based on prospective companies' account books. Of all frauds, fraudulent bookkeeping is a crime that merits the severest punishment. For this reason, double or triple systems are already in place, such as internal inspections, external audits and watchdog systems. Yet, South Korea has neglected the very basic. We cannot even rebut a foreign observer's remark: "Of Korea's listed firms, only about 10 offer credible corporate information."

At this point, "a war against window-dressing accounting" should be staged in earnest. Not to mention the firms that provide misguiding information, punishment should be stepped up against the auditors who collude with the companies and turn a blind eye. In the United States, the penalty in such cases is so severe that concerned companies and auditors are almost driven to bankruptcy. Also, a more competitive audit system is in order. For instance, the supervisory system should be reinforced, audit committees' independence guaranteed and the number of auditors increased. The watchdog function on the part of investors and creditors should be beefed up as well. Above all, the government's role is of utmost importance. Irregular accounting and slipshod audits have been rampant largely due to the government's negligence. In addition to toughening up the systems and regulations, external auditors must be conscientious about their work. Even if side effects ensue, such as dwindling corporate loans and a slump in the stock market, we should regard them as unavoidable.