This article was published on April 9, 2025, at 5:52 p.m. on the ChosunBiz MoneyMove site.
Similar types of large-scale accounting errors have occurred successively at Korea Investment & Securities and Shinhan Investment Corp. The Financial Supervisory Service has commenced an accounting review of Korea Investment & Securities, and it is reported that Shinhan Investment Corp. may also enter into a review. Accounting experts unanimously noted that for such errors to occur at large securities firms indicates a flaw in the internal control system.
According to the accounting industry on the 9th, Korea Investment & Securities double-counted profits and losses from foreign exchange transactions between internal departments in its financial statements as both revenue and expenses. This led to revenue being inflated by approximately 57 trillion won, necessitating a revision of the last five years' business reports. Shinhan Investment Corp. also corrected its semi-annual and third-quarter reports last year for similar reasons. An exchange rate recording error occurred during the processing of internal foreign exchange transactions, causing revenue to appear inflated by about 400 billion won.
Accounting experts agreed that the processing of foreign exchange transactions is complex and difficult. It is not easy for securities firms to decide how to handle accounting each time they create a new financial product. Professor Kwon Se-won of Ewha Womans University stated, "Even large securities firms have various operations, which means the accounting department might not fully grasp everything, and if such matters were handled conventionally, they might not have recognized them."
Many explained that the allegations of cooking the books raised in some quarters are somewhat overstated. This is because these securities firms reduced foreign exchange transaction losses and operational expenses through internal transactions, which did not affect their operating profits or net profits. An accounting industry official remarked, "Cooking the books requires intent, opportunity, and internal validity, but considering that this was voluntarily reported, it seems difficult to argue that there is intent or internal validity."
Another accounting industry official noted, "Accounting processing does not cut cleanly, and depending on perspective, the results can differ," adding, "In the case of Kakao Mobility, due to differences between net and gross methods, the Financial Supervisory Service applied 'intentional phase one' for allegedly inflating revenue by violating accounting standards, but ultimately, the Financial Services Commission's Securities and Futures Commission did not deem it a 'serious negligence.'"
Nevertheless, experts pointed out that it is hard to understand how securities firms could remain unaware of accounting errors for such a long time. In particular, it was mentioned that Korea Investment & Securities had a greater degree of negligence for having made errors over five years in the business reports, where precise audits are conducted, compared to Shinhan Investment Corp., which had errors in its quarterly reports. In fact, the Financial Supervisory Service has initiated a review of Korea Investment & Securities, and they may transition to supervision after assessing the revenue scale and intent.
Nevertheless, accounting errors related to foreign exchange transactions are repeatedly being overlooked. In February 2021, Kiwoom Securities received a penalty of 16 million won alongside institutional warnings for correcting nine years' worth of business reports from 2015 to 2019. Kiwoom Securities was criticized for accounting errors due to foreign exchange transaction profits and losses (overstated), as well as accounts receivable and accounts payable (understated).
Professor Kim Bum-jun of Catholic University stated, "If the auditor had ample time to review but failed to discover the errors and continued to issue audit reports, the external auditor cannot escape liability." He further predicted, "Even if the losses do not impact profits due to this accounting error, the structure appears inflated, so the Financial Supervisory Service will scrutinize it very closely."