[EDITORIALS]Book-cooking is chronicIn a market economy, manipulating accounting books is a fraud that cheats markets. That said, the SK Group’s alleged accounting irregularities have shocked and disappointed the public. Prosecutors say that Korea’s third-largest business conglomerate cooked the books of its trading affiliate, SK Global, which had suffered huge losses from overseas investments since the 1970s. Prosecutors have also detained the SK Corp. chairman, Chey Tae-won, on charges of incurring losses to group affiliates through illegal stock transactions in a bid to tighten his grip on the conglomerate. Such a typical method of fraudulent bookkeeping clearly demonstrates that many local companies still serve the interests of their owners at the expense of shareholders’ interests.
Accounting irregularities at local corporations is a chronic problem. Since 1990, 35 percent of about 1,500 companies that were audited by the Financial Supervisory Service were found to have cooked their books.
Considering that prosecutors have opted to perform surgery on this disease rather than hiding it, the latest probe into the SK Group may be welcomed by international financial markets as Korea’s effort to enhance local firms’ management transparency. But an investigation may aggravate an already shaky situation in the local economy. Therefore, the financial authorities should do their best to minimize the impact of this accounting fraud scandal on the local financial markets.
The challenge now is how Korea should handle such illegal practices that most local businesses are believed to have committed in the past. Investigations into other companies’ pasts will likely reveal that their situations are not much different from the SK Group.
Widespread accounting malpractice is the result of inadequate supervision by financial authorities. Late last year, the government drew up measures to reform the local accounting and auditing systems. But the SK scandal has proved that those measures failed. Attempts at book-cooking need to be nipped in the bud, rather than finding them later. The government should be quick to make clearer accounting-related laws and regulations.