South Korea’s Financial Services Commission has published enforcement decisions adopted by the Securities and Futures Commission on Nov. 11 over accounting violations at Selvas Healthcare and Daewoo Industrial Development and audit failures at Daejoo Accounting Corp. Selvas Healthcare faces two years of auditor designation, while Daewoo Industrial Development faces three years of auditor designation and a securities issuance ban lasting 12 months. Daejoo is barred from auditing Daewoo Industrial Development for five years.
Selvas Healthcare’s 2018 accounts overstated goodwill by KRW 4.847 billion and also overstated development costs and subsidiary investments while understating inventory valuation allowances. Daewoo Industrial Development adjusted property sales assumptions to make construction receivables appear recoverable, understating bad debt allowances from 2017 to 2021, including by KRW 31.048 billion in 2021. Its failure to properly reflect embezzlement by its former chairman and former chief executive also overstated equity by KRW 18.78 billion in 2021.
Daejoo neglected audit procedures despite knowing the construction receivables were not recoverable and failed to adequately examine related party transactions. It also breached rotation requirements by allowing the same director to conduct audits for seven consecutive financial years. In addition to the firm’s audit ban, four accountants face restrictions on auditing Daewoo Industrial Development lasting two to five years and restrictions on certain other audits lasting one year. Financial penalties for Selvas Healthcare, company officials and Daejoo remain subject to final decisions by the Financial Services Commission.