The Securities and Futures Commission Acknowledges Celltrion's Accounting Fraud... Trading Suspension Avoided

[Asia Economy Reporter Ji Yeon-jin] Financial authorities have determined that bio-pharmaceutical company Celltrion violated accounting audit standards in relation to allegations of accounting fraud. However, since intentionality was not recognized, the level of sanctions was lowered, allowing the company to avoid a trading suspension.

On the afternoon of the 11th, the Financial Services Commission's Securities and Futures Commission held the 7th extraordinary meeting and announced that it had taken measures such as recommending the dismissal of responsible executives and appointing auditors for three companies?Celltrion, Celltrion Healthcare, and Celltrion Pharm?that prepared and disclosed financial statements in violation of accounting standards.

However, since the Korea Exchange's substantive review of listing eligibility is conducted only when a company or its executives are prosecuted or reported to the prosecution due to violations of accounting standards, Celltrion will be excluded from the review target as a result of this measure.

The Securities and Futures Commission confirmed that Celltrion overstated inventory assets used from 2017 to 2020 for purposes such as logistics cost reduction, despite these assets not meeting the recognition criteria for intangible assets. The inflated amount reached 114.9 billion KRW.

Additionally, Celltrion did not disclose related-party inventory exchange transactions in the notes, and it was also confirmed that the company did not recognize impairment losses on inventory assets of subsidiaries that could not be sold externally.

The company also overstated research and development-related expenditures as assets, despite not meeting the recognition criteria for development costs.

The Securities and Futures Commission held a total of 19 extraordinary meetings, including 14 audit committee meetings since November last year, to intensively review this agenda.

Furthermore, six accounting firms?Samil, Samjong, Han Young, Anjin, Samyoung, and Lian?and their affiliated certified public accountants who violated accounting audit standards while auditing the company's financial statements were subject to measures such as restrictions on audit work.

The Securities and Futures Commission also reviewed fines under the Capital Markets Act and the External Audit Act for the company, its executives, and auditors, with the imposition and amount of fines to be finalized by the Financial Services Commission's resolution.

The Securities and Futures Commission also resolved four improvement tasks deemed necessary.

It requested the Celltrion Group to improve accounting policies and internal accounting control systems, and to develop and implement improvement plans to provide important accounting information transparently and accurately to investors and external auditors, then report these to the Securities and Futures Commission.

Additionally, the Financial Supervisory Service was advised to prepare improvement measures regarding the long audit periods and the protection of the rights of those subject to measures, to prevent excessive prolongation of audit periods, and to ensure that the defense rights of those subject to measures are effectively protected even during the Financial Supervisory Service's investigation stage.

The accounting industry was also urged to form audit teams primarily composed of personnel with expertise in the industries of the companies subject to external audits to conduct audits.

The Securities and Futures Commission plans to take a more proactive approach to resolving accounting uncertainties in new industries going forward.

An Accounting Standards Application Support Team (within the Korea Accounting Standards Board), consisting of accounting-related experts from the Financial Services Commission, Financial Supervisory Service, Korea Accounting Standards Board, accounting firms, and academia, will be operated. The support team will review contentious issues arising between companies and auditors during external audits and interpretive guidelines related to accounting standards interpretation, report and finalize these with the Securities and Futures Commission, and promptly announce the content to early resolve market uncertainties.

The Securities and Futures Commission stated, "The support team's first task will be the pharmaceutical and bio sectors involved in this issue, and it will gradually expand to other industries."

This content was produced with the assistance of AI translation services.