Securities Deliberation Committee Acknowledges Celltrion's Accounting Violations... Trading Suspension Avoided (Comprehensive)

Incheon Songdo Celltrion Plant 2 Overview. / Incheon - Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporters Ji Yeon-jin and Lee Chun-hee] Financial authorities have determined that the Celltrion Group violated accounting audit standards in relation to allegations of accounting fraud. However, since intentionality was not recognized, the level of sanctions was lowered, avoiding a trading suspension. Celltrion stated, "We respect the authorities' decision" and "We will focus on our business from our original position."

The Financial Services Commission's Securities and Futures Commission held the 7th extraordinary meeting on the afternoon of the 11th and announced that it took measures such as recommending the dismissal of responsible executives and designating 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 substantial review of listing eligibility is conducted only when the company or its executives are reported or prosecuted for violating accounting standards, the companies avoided being subject to trading suspension.

Previously, the Securities and Futures Commission had intensively deliberated on this agenda through a total of 19 extraordinary meetings, including 14 meetings of the Audit Committee, since November last year.

The Commission found that Celltrion overstated inventory assets used from 2017 to 2020 for purposes such as reducing logistics costs, despite these not meeting the recognition criteria for intangible assets. It judged that this inflated the amount by a total of 114.9 billion KRW. It also confirmed that Celltrion did not disclose related-party inventory exchange transactions in the notes and failed to recognize impairment losses on inventory assets of subsidiaries that could not be sold externally. Additionally, research and development expenditures that did not meet the recognition criteria for development costs were also overstated as assets.

Six accounting firms?Samil, Samjong, Han Young, Anjin, Samyoung, and Lian?and their affiliated certified public accountants who audited the company's financial statements in violation of accounting audit standards were also subject to measures such as restrictions on audit work.

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

The 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 measures to provide investors and external auditors with transparent and accurate accounting information, reporting the results to the Commission.

Furthermore, the Financial Supervisory Service was recommended to prepare improvement measures regarding the long audit period and the protection of the rights of those subject to measures, preventing excessive prolongation of audit periods. It was also advised to prepare measures to effectively protect the defense rights of those subject to measures during the investigation stage.

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

Celtreon anticancer drug 'Herzuma' finished product process scene. / Incheon=Photo by Hyunmin Kim kimhyun81@

The Celltrion Group responded to the Securities and Futures Commission's measures by stating, "We respect the financial authorities' decision regarding the accounting treatment of major affiliates" and "We will now focus on our business from our original position."

The group explained that the long-term audit has ended, misunderstandings arising from differing opinions with the financial authorities have been largely resolved, and uncertainties in the financial market related to the group have been dispelled.

However, they added, "It is regrettable that the Commission judged some accounting treatments as violations of accounting standards due to differences in interpretation of accounting applications related to the special nature of biopharmaceuticals and related global regulations," but also stated, "We humbly accept the financial authorities' results."

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