The Securities Deliberation Committee Imposes a 12-Month Securities Issuance Restriction on Jenax for Accounting Standards Violations

[Asia Economy Reporter Park Jihwan] The Securities and Futures Commission under the Financial Services Commission decided on the 15th to impose a 12-month restriction on securities issuance and a 3-year auditor designation on Jenax for preparing financial statements in violation of accounting standards.

The Securities and Futures Commission judged that there was an issue with Jenax's accounting of research and development expenses related to its new secondary battery business as intangible assets (development costs). Research and development expenses are treated as either intangible assets or expenses depending on the commercialization potential. Jenax recognized related research and development costs as intangible assets despite the commercialization potential of the secondary battery business being uncertain and the internally generated development costs not meeting the recognition criteria for intangible assets.

The Securities and Futures Commission also uncovered that Jenax falsely recorded sales and cost of sales from 2015 through the third quarter of 2019. To avoid being designated as a management item due to four consecutive years of operating losses, the CEO supplied goods not traded in the market at high prices on a one-time basis to Company A, controlled by the CEO, and recovered most of the transaction funds through nominee accounts. These transactions, which did not meet the definition and recognition criteria of revenue under accounting standards, were recognized as sales.

The Securities and Futures Commission imposed a 12-month securities issuance restriction, a 3-year auditor designation, and dismissal recommendations for the former CEO and former CFO on Jenax. A fine will also be imposed, with the final amount to be decided by the Financial Services Commission in the future.

Shinhan Accounting Corporation, which served as the auditor, received measures including an additional 50% contribution to the joint compensation fund and a 3-year restriction on auditing Jenax.

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