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Daewoo Shipbuilding & Marine Engineering (DSME) has been raided by a special investigation team under the Supreme Prosecutors' Office.
Daewoo Shipbuilding & Marine Engineering (DSME) has been raided by a special investigation team under the Supreme Prosecutors' Office.

 

As Daewoo Shipbuilding & Marine Engineering (DSME), which was raided by a special investigation team under the Supreme Prosecutors' Office that specializes in corruption cases on June 8, failed to reflect a loss of trillions of won, allegations have emerged that the shipbuilder’s management intentionally manipulated its books to gain more loans from its creditors. DSME allegedly hid a 2 trillion won (US$1.74 billion) loss for two years from 2013 to 2014.

The company announced a 2015 operating loss of 5.5 trillion won (US$4.77 billion) in March. However, the external auditor for DSME concluded that the 2 trillion won (US$1.74 billion) out of the 5.5 trillion (US$4.77 billion) loss should be added to its 2013 and 2014 statements right after its earnings release. The accounting company omitted losses that the company suffered from its Songa Offshore project in Norway as well as the long-term trade receivables in the 2013 and 2014 balance sheet. DSME also reduced the estimated cost of construction.

When reflecting omitted losses, the company’s balance sheets in 2013 and 2014 turned towards the red from the black. DSME officially announced earlier that it posted 15.31 trillion won (US$13.28 billion) in sales and 440.9 billion won (US$382.56 million) in operating profits in 2013. However, the company revised its sales and operating profit figures to 14.72 trillion won (US$12.78 billion) and 773.1 billion won (US$670.8 million), respectively. DSME also said that it recorded 16.79 trillion won (US$14.57 billion) in sales and 471.1 billion won (US$408.76 million) in operating profits in 2014, but it corrected that it had sales of to 15.47 trillion won (US$13.42 billion) and operating losses of 737.7 billion won (US$637.87 million).

Accordingly, its operating losses last year, which were estimated at 5.5 trillion won (US$4.76 billion) earlier, totaled 2.94 trillion won (US$2.54 billion).

As DSME is found to manipulate its financial statements, the company faces allegations that it intentionally manipulated figures by abusing the unique accounting system of shipbuilders in order to make it appear financially healthier than it really was.

With the allegations emerging, individual investors, who bought shares of DSME during the period when it allegedly reduced its losses on purpose, plan to file a compensation lawsuit against the company. If the latest accusation is proved to be true, DSME will face aftermath. 

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