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DSME may have cooked its books in 2013, 2014

Daewoo Shipbuilding & Marine Engineering (DSME) has revised its earnings reports for 2013 and 2014 due to what it describes as accounting errors - although some suspect cooked books.

According to the Financial Supervisory Service (FSS) on Wednesday, DSME changed its 440.9 billion won ($385.5 million) operating profit reported in 2013 to an operating loss of 778.4 billion won, and revised a 471.1 billion won operating profit in 2014 to a 742.9 billion won loss.

The nation’s financial watchdog said the changes were made after DSME’s outside accounting firm, Deloitte Anjin, confessed to accounting errors in those two years. DSME previously reported it had 5.4 trillion won in losses in 2015, but about 2.433 trillion won of those losses actually came from 2013 and 2014, the accounting firm said.

“We weren’t able to find anything related to accounting irregularities,” DSME CEO Jung Sung-leep said after a company shareholders meeting on Wednesday. “Anjin’s corrections had reasonable grounds.”

Deloitte Anjin said it made errors estimating DSME’s total costs for offshore plant projects. But DSME is now suspected of window dressing its accounts, and the auditor came under fire for mistakes that influenced investment decisions by individual and institutional investors.

The accounting firm said last year there were no errors on their audits.

The FSS has been reviewing Anjin’s audit since January after it found some signs of intentional window dressing. Other shipbuilders, including the nation’s biggest, Hyundai Heavy Industries, and Samsung Heavy Industries, started reporting losses in their offshore plant businesses in 2013, but DSME said it was more efficient and successfully dealt with risks. Deloitte Anjin has been managing DSME’s financial audits since 2010.

DSME was the only company reporting profits among the top three shipbuilders in 2014. A share of DSME was traded above 30,000 won that year, but the value had plunged to 5,150 won per share on Wednesday.

Following the correction, lawsuits might be filed by individual and institutional investors.

“The number of calls from individual investors seeking compensation is significantly increasing,” said a spokesman for the law firm Hannuri Law. “We will keep collecting litigants until mid-April.”

Separate from the FSS review, prosecutors are investigating suspected book cooking by former DSME executives, including two former CEOs, Nam Sang-tae and Ko Jae-ho.

“We will continue our audits while listening to DSME and take its explanations into consideration, and determine if the misreported numbers were a genuine mistake,” Park Hee-choon, head of the FSS accounting division, said at a press conference Wednesday.

If the errors were a mistake, a fine of up to 2 billion won could be imposed on the shipbuilder, and Deloitte Anjin could be banned from issuing securities.

BY KWON SANG-SOO, KIM JI-YOON [kwon.sangsoo@joongang.co.kr]