The Securities and Futures Commission Concludes KT&G Accounting Violations... 'No Intentional Misconduct' Found

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[Asia Economy Reporter Park Jihwan] The financial authorities have made a final judgment that there was no intentional wrongdoing regarding the violation of accounting standards during KT&G's acquisition of the Indonesian tobacco company Trisakti.

On the 15th, the Securities and Futures Commission under the Financial Services Commission held its 14th meeting and finalized the measures following the investigation and audit results on the business reports.

On this day, the Securities and Futures Commission determined that KT&G was not intentional but considered gross negligence. The issues pointed out against KT&G included nine items such as failure to recognize provisions related to product defect compensation and including an associate company without control as a consolidated subsidiary.

KT&G included the Indonesian local tobacco company it invested in 2011 as a consolidated subsidiary in its consolidated financial statements, despite restrictions on exercising voting rights under the shareholder agreement with the former shareholders of the company. Additionally, after acquiring all remaining shares in February 2017 and gaining control, KT&G omitted the business combination accounting treatment such as fair value evaluation of the shares it already held. It was also accused of failing to recognize provisions for product defect compensation, allowance for doubtful accounts on loans to subsidiaries, and allowance for doubtful accounts on tobacco sales receivables held by overseas subsidiaries.

Accordingly, the Securities and Futures Commission resolved to impose a two-month restriction on securities issuance, a one-year auditor designation, corrective demands, and improvement recommendations on KT&G.

Furthermore, on the same day, the Securities and Futures Commission decided to impose fines on A&T&N, which was pointed out for false sales recording in 2017-2018. It also imposed a 10-month restriction on securities issuance, a three-year auditor designation, dismissal recommendation for responsible executives and six-month suspension of duties, auditor dismissal recommendation and six-month suspension of duties, prosecution referral, and improvement recommendations. For Nedec, which was pointed out for underreporting cost of sales in 2016-2017, measures including a four-month restriction on securities issuance, a two-year auditor designation, and prosecution notification were taken.

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