The Securities and Futures Commission (SFC) of the Financial Services Commission (FSC) has requested the Financial Supervisory Service (FSS) to supplement its audit report on Samsung BioLogics.
SFC made the decision because it judged that it was necessary to go over Samsung BioLogics’s accounting books for years before 2015 in order to figure out the company’s control of its subsidiary Samsung Bioepis.
The FSS conducted a year-long audit on Samsung BioLogics and alleged in early May that the company committed accounting fraud in 2015. The regulator’s allegations were based on Samsung BioLogics’ change of the status of Samsung Bioepis from a subsidiary to an affiliate.
The SFC plans to reach a conclusion on the FSS’s allegations by the middle of next month at the latest.
The SFC’s deliberation is focused on whether or not there was a violation of accounting rules and whether or not there was a problem with Samsung BioLogics’ disclosures about the call options it had given to Biogen, a US company that Samsung BioLogics had partnered to establish Samsung Bioepis.
Samsung BioLogics had posted losses annually since its establishment, but it posted a net profit of 1.9 trillion won in 2015 due to a change in its accounting method.
However, Samsung BioLogics explained that the company changed the status of Samsung Bioepis as it became more likely that Biogen of the US would exercise its call option.
In 2012, when Samsung BioLogics set up Samsung Bioepis, the company gave Biogen a call option right to acquire up to 49.9 percent of Samsung Bioepis shares.
If Biogen exercises the call option, Samsung BioLogics would lose an exclusive control over Samsung Bioepis. Hence the change in the status of Samsung Bioepis. This is Samsung BioLogics’ logic.
But critics note that if Samsung BioLogics was concerned about the loss of its control due to Biogen’s execution of the call option, the company should have changed the status of Samsung Bioepis in 2012 not in 2015.
But Samsung BioLogics had not even publicly disclosed before 2016 that Biogen had the call option.
The company’s audit reports for 2015 and earlier years have no specific reference to Biogen’s call option. But in its 2016 audit report, Samsung BioLogics states that Biogen has a right to purchase up to 49.9% of Samsung Bioepis.
In the end, the SFC decided to review the appropriateness of Samsung BioLogics’ accounting practices in the period prior to 2015.