[EDITORIALS]Leniency for innocent errorsKorean Air is the first conglomerate to voluntarily disclose its past accounting fraud since the class-action law was passed. However, for the first two-years, companies that come forward with accounting manipulations are exempt from class-action law suits, including Korean Air.
The company admitted its inventory of airplane parts was incorrect, reporting it had some 88.8 billion won ($88 million) of airplane parts in its 2003 business statement when it in fact did not.
Fortunately, shares of Korean Air slightly gained yesterday and did not greatly impact the financial markets.
The financial regulators are also planning to lower the punishment for companies that voluntarily publicize past accounting fraud and exclude them from the accounting supervision for a while.
On Wednesday, the Securities and Futures Commission of the Financial Supervisory Commission has lowered the punishment on Kia, which misreported its accounting irregularities.
The financial regulators expect that further admissions could come as strict punishments could be implemented after the grace period ends.
But still, it is not easy for companies to reveal their past accounting irregularities. Although they will not face the class-action suits, they could still face civil and criminal responsibility under criminal law and the Securities and Exchange Act.
Thus, the decision of financial regulators and judicial authorities on the Korean Air case is likely to greatly impact other companies’ decisions on whether to publicize past accounting discrepancies.
As accounting manipulation had been a habitual practice in the past, remission is necessary for unintentional accounting errors. If the measure doesn’t fit, financial regulators and judicial authorities should be more lenient.
While there are discussions over the remission of politicians who have been punished over political funds, should the government bind the hands and feet of companies because of the past practices?
It is time companies should implement aggressive management in order to spur domestic consumption and increase investment. It is not even enough. The government should not force companies to hide their past irregularities and show restraint when adjudicating their cases.