Delistings
It has been reported that over 25% of the listed corporations recorded as “uncertain going businesses” on their audit statements have delisted in the past 2 years.
After analyzing the audit statements of 1,708 companies (with fiscal years ending in December) listed at the Financial Supervisory Service on September 1, there has been a small increase in the ratio of specially-noted audit statements from 25.1% last year to 25.6% (437 corporations) this year.
These special notes are written by the auditors on the statements, and mainly consist of important lawsuits, M&A deals, transactions with specialized representatives, and uncertain going businesses.
By market, 19% of the 2011 audit reports from the securities market were specially noted. The KOSDAQ had 29.5%, which was higher the average. However, the ratio in 2012 showed little difference of 25.3% to 25.8% from the two sources.
Out of the 875 specially noted audit reports from 2012, there were 181 reports (20.7%) about former financial statement revisions. 167 of them (19.1%) were about accounting changes due to standard documentation enactment and amendment. 122 (13.9%) were about transactions with specialized representatives. 16 (7.9%) were about uncertain going businesses. The reason there were so many financial statement revisions is analyzed to be due to business profit and loss related to accounting management standard revisions.
Listed corporations are recorded as “uncertain going businesses” when it is uncertain whether they can operate their business normally due to overwhelming current liabilities, accumulated deficiencies from business losses, or other reasons.
Also, in 2010, 27% of the corporations that have been audited as “proper” but recorded as “uncertain going businesses” have delisted within 2 years. In 2011, 25% of the corporations delisted.
A Financial Supervisory Service associate said, “There is useful financial information included in the special notes of any company’s audit statements,” and added, “It is best to be cautious of investing in corporations with continuous uncertain going business records.”