Kakao Mobility May Submit Audit Committee Agenda as Early as March

Financial Supervisory Service building in Yeouido, Seoul. Photo by Younghan Heo younghan@

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The Financial Supervisory Service (FSS) plans to notify Kakao Mobility of the audit results as early as the end of February and submit the agenda to the Audit Committee under the Financial Services Commission (FSC) in March. Regarding this year's accounting audit, the key issue is the stance of "handling it as quickly as possible according to the principles."

On the 21st, a financial investment industry insider familiar with the authorities hinted, "It is known that the audit measures regarding the suspected accounting fraud at Kakao Mobility will be notified as soon as possible, the company's opinions will be heard, and then the matter will be submitted to the FSC Audit Committee."

The accounting audit process involves the FSS investigation → Audit Committee (FSC) → Securities and Futures Commission (FSC), which then issues sanctions. The Audit Committee usually meets every other Thursday, and the regular meetings of the Securities and Futures Commission are held every other Wednesday. The Audit Committee meetings in March are scheduled for the 7th and 21st. Considering the procedure where the FSS notifies Kakao Mobility of the audit measures, reflects the company's opinions, and allows the audit committee members time to prepare, it is highly likely that the agenda will be submitted at the end of March. Even if the audit committee holds multiple meetings, the case is expected to be brought before the Securities and Futures Commission within the first half of the year.

In July last year, the FSS began an accounting audit on Kakao Mobility, which operates the taxi-hailing platform 'KakaoT,' on suspicion of inflating sales. Kakao Mobility operates a franchise taxi business by contracting with transportation companies through KM Solution, which it owns 100% of the shares. The transportation companies pay KM Solution a 20% commission on 'KakaoT' ride revenues. Additionally, Kakao Mobility has signed a 'business partnership contract' with the transportation companies and pays them 16% of the fare in exchange for driving data and advertising exposure.

The issue was how to account for this. Kakao Mobility recognized the franchise contract and the business partnership contract as separate businesses and recorded the 20% commission as revenue in its financial statements. However, the FSS's position is that since these contracts are interdependent, only 4% should be recognized as revenue after deducting the 16% for advertising and driving data from the 20% commission.

There is no significant change in the stance regarding the allegations of revenue inflation by Kakao Mobility. The FSS intends to complete the investigation as quickly as possible. The audit, which had taken longer than expected, began to accelerate recently following FSS Governor Lee Bok-hyun's directive to "respond as swiftly as possible to important issues." The responsible department is also reportedly finalizing its work.

Meanwhile, on the 14th, Governor Lee stated at an executive meeting, "We will respond strictly based on principles regarding the accounting audit and cooperate organically with related agencies." This was interpreted as an internal encouragement in response to criticism both inside and outside the FSS that recent accounting audits, such as the Supreme Court ruling on Samsung Biologics and the Securities and Futures Commission decision on Doosan Enerbility, were excessive.

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