The secondary battery corporation Kumyang replaced its external auditor from Samil Accounting Corporation to Hanwha Accounting Corporation. Hanwha Accounting Corporation has provided 'unqualified' opinions on Kumyang's external audits for the past 10 years. Additionally, Kumyang hired a director from Hanwha Accounting Corporation as the head of its management diagnosis team three years ago.
Following two consecutive years of 'disqualified' opinions regarding internal accounting management, questions have arisen about whether Kumyang changed auditors due to concerns about going concern uncertainties for its 2023 business content. Analysts suggest that this may be a strategic choice by Kumyang to facilitate smoother audits.
According to the Financial Supervisory Service electronic disclosure system and the financial investment industry on the 11th, Kumyang appointed Hanwha Accounting Corporation as its external auditor for 2024 to 2026. Originally, Kumyang was designated as an audit target corporation and had to assign audits to Samil Accounting Corporation from 2023 to 2025. However, with the change in related regulations in 2023, it was excluded from the designated audit target just one year later.
Initially, listed companies with negative operating cash flows for three consecutive years were designated audit targets. Accordingly, Kumyang also had to assign audits to the accounting firm designated by the government. However, following the implementation of the revised regulations on 'external audits and accounting' in September 2023, this standard switched to an individual basis, leading to Kumyang's exclusion from the designated audit target.
With the expanded flexibility to designate auditors, Kumyang promptly changed its accounting firm. From Kumyang's perspective, there is no need to appoint a designated auditor that examines more rigorously.
Previously, the audit firm Ahn Kyung accounted for the audits for Kumyang during the 2021 and 2022 fiscal years, while Samil Accounting Corporation was the auditor for 2023, both issued 'disqualified' opinions regarding Kumyang's internal accounting control systems for the 2022 and 2023 fiscal years. Notably, Samil pointed out that at the end of 2023, current liabilities exceeded current assets by 288.2 billion won, resulting in a net loss of 60.4 billion won, stating that "going concern uncertainty exists." At that time, Kumyang's debt ratio was 185.3%, and it is estimated to be 579% at the end of last year.
In contrast, Hanwha, which undertook Kumyang's external audit work from 2011 to 2020, had stated that both Kumyang's audit report and internal accounting management systems were 'qualified'.
Particularly, Kumyang's decision to reverse its capital increase of 450 billion won last January led to its designation as a management item following its designation as an unfaithful disclosure corporation, making the results of the audit for the business report due at the end of this month crucial. If audit issues arise, examinations and inquiries by the Financial Supervisory Service could take place. If specific problems are identified, actions ranging from warnings or penalties to criminal charges may occur depending on the circumstances.
Ko Kyung-bum, a researcher at Yuanta Securities Korea, noted that "Kumyang previously had issues reissuing its two-year business reports," and suggested that if the examination and inquiries on the revised items proceed, it could lead to warnings, penalties, or worse, implying that this business report audit may not go smoothly.
In the worst-case scenario, if a 'disclaimer of opinion' arises from this audit, it could lead to a substantive review of listing eligibility, raising the possibility of delisting.
The industry is paying attention to the fact that Lee, a director and management diagnosis team leader at Kumyang, comes from Hanwha. Starting work at Kumyang in 2022, Lee was employed at Hanwha Accounting Corporation from 2005 until early 2011. Kumyang appointed Lee as an internal director during last March's regular shareholders meeting, stating that it was to enhance risk management and corporate value as an expert in accounting, auditing, management diagnosis, and oversight.
ChosunBiz attempted to contact Kumyang regarding the reasons for appointing Hanwha Accounting Corporation, but was unable to connect.