Concerns are rising among investors due to some listed companies’ adverse audit opinions or non-submission of half-yearly reports by August 14. Those companies may be kicked out of the stock market without pre-deadline half-yearly or re-audit report submission. Accounting firms are more meticulous this year and delisting may follow one after another. In addition, auditor designation will be applied to more companies next year, which means the number of unqualified opinions may be reduced.
On August 14, the Korea Exchange blocked trading of Sam Hwa Electronics shares from 10:06 a.m., telling the KOSPI-listed company to explain rumors about its adverse audit opinion. Such cases can lead to administrative issue designation or delisting. According to the Financial Supervisory Service, 192 companies have been delisted for the past three years and an adverse audit opinion or emphasis upon going-concern uncertainty preceded delisting of 57% of them.
Starting from this year, every listed corporation has to disclose its half-yearly and quarterly reports on a consolidated basis for examination and opinion expression by an auditor. The opinions are divided into unqualified, qualified, adverse, and disclaimer and an opinion type and its basis should be mentioned in the case of a non-unqualified opinion.
At present, 15 KOSDAQ-listed companies, including DSK and M-Venture Investment, are facing delisting attributable to an adverse opinion. The companies have yet to submit a re-audit report. They can postpone delisting by up to 15 trading days by applying for re-audit report submission deadline extension, but none of them has applied for it so far. This means a large number of companies may be delisted late this month.
Haengnamsa, Ilkyung, and YD Online are on the precipice, too. As of the end of last year, each had a capital impairment ratio of at least 50% along with an equity capital of less than one billion won to become an administrative issue. They become subject to delisting unless they address the reasons for the administrative issue designation in their half-yearly reports. Haengnamsa is one of the largest porcelain makers in South Korea, with a history of 76 years, and was listed 25 years ago. The company’s capital impairment ratio has exceeded 50% for two years in a row due to its business diversification failure.