FSS Identifies 69 Companies with Accounting Errors Through Thematic Inspections... "Resolving Uncertainty"

[Asia Economy Reporter Lee Jung-yoon] It has been revealed that accounting errors were found in 69 companies from 2014 to June of this year through the thematic audit system, which pre-selects key accounting issues for focused and expedited inspection. The thematic audit system was introduced in 2013 to prevent investor damage caused by the disclosure and circulation of incorrect financial information and to encourage thorough preparation by companies and auditors.

The Financial Supervisory Service (FSS) announced on the 20th that from 2014 to June of this year, it selected 230 companies and inspected 32 accounting issues, resulting in corrective disclosures of accounting errors for 69 companies. Among these, 31 companies were subject to severe measures such as fines and restrictions on securities issuance.

Among the 69 companies with discovered accounting errors, 44 were listed on KOSDAQ, 19 on KONEX, and 6 on the KOSPI market. Additionally, 33 companies had assets under 100 billion KRW, representing the largest proportion, 29 companies had assets between 100 billion and 1 trillion KRW, and 7 companies had assets exceeding 1 trillion KRW. By auditor type, 50 companies were audited by small and medium-sized accounting firms, while 19 were audited by the Big Four accounting firms.

The FSS pointed out errors related to pre-announced accounting issues in 50 of the 69 companies. Looking at the annual trend of thematic audit results, after the comprehensive inspection of development costs in the pharmaceutical and bio sectors in 2018 and the introduction of the financial statement audit system in 2019, the rate of errors related to pre-announced accounting issues showed a decreasing trend?from 30% in 2019 to 17.9% in 2020, and 3.2% last year. In 19 companies, other violations of accounting standards were detected during the thematic audit process. Among the pre-announced accounting issues, the highest error rates were for intangible asset recognition and valuation at 41.7%, followed by valuation of non-marketable assets at 41.2%, and revenue recognition related to long-term construction contracts at 28.9%.

Furthermore, a total of 168 violations were identified across the 69 companies. The main types of violations included revenue recognition (48 cases), development costs (19 cases), disclosure of related party transactions (13 cases), valuation of unlisted investment securities (11 cases), allowance for doubtful accounts (9 cases), provisions and liabilities (8 cases), and disclosure of guarantees and collateral (8 cases).

The FSS judged that 37 companies committed errors due to simple mistakes or minor breaches of duty of care, considering these as negligence. Twenty-six companies were found to have committed gross negligence due to a lack of rationality in applying accounting standards, and 6 companies were judged to have intentionally violated rules through falsification or alteration of accounting books.

An FSS official stated, "The thematic audit has been established as a risk management-centered proactive supervisory method, contributing to the reduction of market uncertainty and enhancement of predictability," adding, "We plan to continuously activate the thematic audit system by considering error types with high detection rates when selecting future accounting issues."

He continued, "Since simple accounting errors identified through thematic audits are concluded with mild measures, listed companies and others need to review pre-announced accounting issues and promptly make voluntary corrections if errors are found," emphasizing, "Especially, companies with weak accounting infrastructure should strengthen inspections of accounting issues through active consultations between internal monitoring bodies and external auditors."

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