Seegene Disciplined for Accounting Irregularities by Authorities... What Is the Impact on Stock Price?

[Asia Economy Reporter Park Jihwan] Seegene, the leading domestic diagnostic kit company, has been disciplined by financial authorities for accounting irregularities, but the securities industry believes the stock price decline will be limited. This is because most of the issues pointed out in this disciplinary action were already identified in the 2019 audit, and related measures have either been implemented or are planned.

Earlier, on the 8th, the Securities and Futures Commission under the Financial Services Commission decided on measures against Seegene for violating accounting standards, including recommending the dismissal of the responsible executive and appointing an auditor for three years.

It was investigated that from 2011 to 2019, Seegene arbitrarily shipped excessive quantities of products exceeding actual orders to distributors and recognized all of these as sales, thereby overstating sales revenue and cost of sales. Convertible bonds with early redemption conditions within one year were classified as non-current liabilities instead of current liabilities, and research and development expenses related to diagnostic reagents that did not meet asset recognition criteria (technical feasibility) were inflated as development costs, according to the Securities and Futures Commission's judgment.

However, the securities industry assesses that additional risks from fines imposed by the Securities and Futures Commission are limited. Kim Choonghyun, a researcher at Mirae Asset Daewoo, explained, "Regarding accounting violations such as overstating sales revenue and cost of sales and misclassifying the liquidity of convertible bonds, Seegene has been reporting results based on standards reflecting these issues since the third quarter of 2019."

Regarding the issue of overstated development costs, he added, "Since 2019, conservative accounting treatment has been applied, such as expensing intangible assets." The absence of measures such as prosecution, trading suspension, or delisting in this financial authority action is also analyzed to be due to these prior measures having been taken.

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