Near-record fines for DSME accounting fraud

The country’s financial authorities hit Daewoo Shipbuilding & Marine Engineering (DSME) with 4.5 billion won ($4 million) in fines Friday for massive accounting fraud. This was the second largest fine levied on a single company by the Financial Services Commission, the country’s top financial regulatory agency.

The debt-plagued shipyard falsely overstated its assets and understated its debt to the tune of 3.5 trillion won. It also exaggerated its profits and put random numbers in its accounts instead of actual performance figures in order to meet profit goals between 2008 and 2016.

Also punished were former and current CEOs - Ko Jae-ho and Jung Sung-leep - who will face fines of 16 million won and 12 million won each for their involvement in the fraud.

The maximum fine for audit fraud stood at 2 billion won but the regulator amended a law to allow for higher fines.

Samjong KPMG, an auditing firm that handled work for DSME from 2008 to 2009, will be barred from auditing the shipbuilder. The FSC also ordered the firm to set aside 6 percent of their audit revenue annually as a reserve to compensate for potential damages caused from false auditing. The normal figure in such cases is 4 percent.

“Four auditors of Samjong KPMG who are involved in the DSME case will be banned from handling securities-related work and auditing some other designated companies as well as DSME,” said a source at the Financial Services Commission.

The regulator has yet to announce punishment for Deloitte Anjin, Korea’s second largest accounting firm, which worked with DSME between 2010 and 2016. The scale of DSME’s accounting fraud reached a peak during the period.

A key point is whether Anjin’s actions were done by the company as a whole or only by individual employees.

Four accountants in charge of auditing DSME had been either detained or prosecuted.

Anjin audited DSME’s balance sheets starting in 2010. Until 2014, the accounting firm gave the company “a clean opinion,” which means the financial statements provided by the company were free from material misstatements. But it said in March 2016 that 2 trillion won in operating losses on some 5.5 trillion won revenue in 2015 should be included in the company’s 2013 and 2014 balance sheets.

It was later found that DSME suffered an operating loss of 789.8 billion won in 2013 and 754.6 billion won in 2014, though the initial financial disclosure approved by the audit company said that the shipbuilder’s operating profit reached 424.2 billion won in 2013 and 454.3 billion won in 2014.

Multiple media outlets reported that Anjin might face a temporary shutdown.

BY PARK EUN-LEE [park.eunjee@joongang.co.kr]