The financial authorities of South Korea and those in the local accounting industry are in confrontation with each other over the disciplinary action to be taken against Deloitte Anjin for its poor auditing provided for Daewoo Shipbuilding & Marine Engineering (DSME).
According to industry sources, the authorities recently notified that the accounting firm’s business would be suspended for three to six months. The notification was sent before the first review committee meeting for the discussion of the level of the disciplinary action. After the review committee meeting, the Financial Supervisory Service (FSS) of South Korea is to make its final decision on the matter in April.
The FSS is not going to give up on its stern action in that the auditing failure involves no less than five trillion won. Prosecutors already arrested and charged a former director of the accounting firm and indicted two managing directors and one accountant without detention. Those in the accounting industry, including Deloitte Anjin itself, are strongly opposed to this stance of the authorities.
The most important part of the issue is whether the poor auditing was intentional or it was a gross negligence. The future of the accounting firm hinges on this part. The financial authorities are claiming that it was intentional but Deloitte Anjin is trying to refute the claim. “The South Korean government has provided a large amount of public fund for the shipbuilder, which is the one that committed illegal acts, without punishing its executives while looking to suspend the business of the accounting firm,” said a local group of accountants, adding, “This will lead to the autonomy of auditors impaired by the authorities themselves, which are supposed to protect it.” On January 18, the court acquitted former DSME CEO Koh Jae-ho and former DSME CFO Kim Kap-joong of collusion in the company’s accounting fraud. Instead, the court sentenced them to 10 and seven years in prison for connivance, respectively.
Another hot issue is when the disciplinary action is to be taken. The financial authorities are trying to move up the date to the maximum extent possible, mentioning that the decision should be made by April at the latest because that month is when companies and external auditors sign their contracts and a decision made in the following month or later can negatively affect the market. However, Deloitte Anjin is claiming that the date should be May 21 at the earliest because of the result of the first trial will become available that day.
Industry experts point out that the accounting firm will have few options but to shut down its business in the case of a suspension of business in April. Then, a large number of its employees are likely to leave the company to compound the matter.