Financial authorities detected that Kumyang(001570) had committed acts such as falsely recording sales, overstating shareholders' equity, and obstructing external audits. The financial authorities issued measures including recommending the dismissal and suspension from duties of the CEO and others, filing a complaint with prosecutors, and designating an auditor for three years.
The Securities and Futures Commission under the Financial Services Commission said it decided on measures including auditor designation for Kumyang for preparing and disclosing financial statements in violation of accounting standards at the 15th meeting held on the 2nd.
It also decided on measures such as additional contributions to the joint compensation fund for Sunjin Accounting Corporation, which carried out audit work in violation of key audit procedures.
According to the Securities and Futures Commission (SFC), Kumyang in 2022 recognized about 10.3 billion won in fake sales by receiving and issuing false tax invoices as if it had sold physical inventories without transfer.
It also erred when determining the scope of consolidated financial statements. Kumyang performed consolidated accounting even though it jointly controlled a Mongolian entity through an agreement with the second-largest shareholder, thereby overstating shareholders' equity and other items.
It also failed to recognize an impairment loss on investments in joint ventures. Kumyang did not recognize an impairment loss despite signs of significant deterioration in expected operating profit and loss at the Mongolian entity, overstating shareholders' equity and other items.
Obstruction of the external audit was also uncovered. During the 2022 external audit, Kumyang, in collusion with a counterparty, presented false transactional evidence and moved inventories to a warehouse operator with which the company does business so the auditor would inspect them as if they were the company's inventories, then retrieved them again to obstruct the external audit.
During the financial authorities' review process, it also submitted fabricated receipts of acceptance and falsely said inventories were delivered normally and that it had not interfered with the auditor's inventory inspection.
The SFC imposed three years of auditor designation and a corrective action order on Kumyang. It also voted to recommend the dismissal and impose a six-month suspension from duties on the CEO and three others, and imposed a measure equivalent to a dismissal recommendation on a former head of sales and one other person.
Kumyang, the CEO, and a former responsible executive will be referred to prosecutors. It said a former head of sales and two others will be notified to prosecutors. The amount of the penalty surcharge will be finally determined later by the Financial Services Commission (FSC).
Regarding Sunjin Accounting Corporation, it judged that while auditing a listed company's financial statements, it performed control tests and substantive tests related to sales and cost of sales in a grossly inadequate manner.
Accordingly, it voted to impose an additional 20% contribution to the joint compensation fund on Sunjin Accounting Corporation and to restrict audit work for that company for two years.
It also imposed measures such as restrictions on audit work and job training on two certified public accountants belonging to the firm. The penalty surcharge on Sunjin Accounting Corporation will also be finally determined later by the Financial Services Commission (FSC).