Sports Seoul, where accounting fraud came to light, received heavy sanctions from financial authorities, including a three-year designation of an external auditor and a one-year restriction on issuing securities. Recommendations to dismiss former and current executives were also handed down.
The Securities and Futures Commission under the Financial Services Commission (FSC) held its 20th meeting on the 12th and decided on sanctions for Sports Seoul's violations of accounting standards. Ahnse Accounting Corporation, which handled the audit, and two affiliated certified public accountants were also disciplined, including restrictions on audit duties.
According to an investigation by financial authorities, Sports Seoul committed multiple violations of accounting standards from 2017 to the first quarter of 2019.
The company inflated its equity beyond the actual amount by failing to reflect in its financial statements the embezzlement of funds by the de facto owner. It also distorted its financial condition by errors in equity-method accounting for investment shares in affiliates and by underrecognizing liability by failing to properly reflect option terms when measuring the fair value of convertible bonds.
For these accounting irregularities, the Securities and Futures Commission imposed a three-year designation of an external auditor on Sports Seoul and a one-year restriction on issuing securities. For the former CEO and the vice president, among other management, it issued measures equivalent to a recommendation for dismissal. Four company officials will be fined a penalty surcharge. The size of the penalty surcharge will be finalized later by the Financial Services Commission (FSC).
Ahnse Accounting Corporation, which audited Sports Seoul's financial statements, failed to detect the related errors and did not reflect them in the audit report. The Securities and Futures Commission decided to require the firm to make an additional 30% contribution to the joint fund for damage compensation and to restrict its auditing of Sports Seoul for two years. The two accountants received a one-year restriction on auditing listed companies and an order to complete eight hours of job training.