Keum Yang (001570.KS), which faces delisting after failing to secure a clean audit opinion, has been referred to prosecutors on suspicion of accounting fraud.
The Securities and Futures Commission decided at a regular meeting on the 2nd to impose a series of sanctions on Keum Yang over violations of accounting standards, the Financial Services Commission said. The measures include three years of auditor designation, a recommendation to dismiss the chief executive along with suspension from duties, and referral of the company, its chief executive and a former executive in charge to prosecutors. Fines on the company and related individuals will be finalized at a future FSC meeting.
A regulatory review found that Keum Yang inflated its disclosed revenue by 10.3 billion won in 2022 by issuing false tax invoices and other documents that made unsold inventory appear to have been sold. The company also overstated its equity by consolidating a Mongolian unit even though it jointly controlled the entity under a shareholder agreement with its second-largest shareholder. When earnings at the Mongolian unit deteriorated and an impairment loss should have been recognized, the company ignored it.
Keum Yang is also suspected of obstructing the external audit and the regulator's accounting review. During the auditor's physical inventory count, the company deceived the auditor by moving inventory to a warehouse operator it did business with and then retrieving it. During the Financial Supervisory Service review, it submitted falsified receipts and falsely stated that the inventory had been properly delivered.
Keum Yang received a disclaimer of opinion on its audit report for two consecutive years and was ordered delisted by the Korea Exchange in May. The company immediately filed for an injunction to block the delisting, though analysts see little chance it will be granted. Keum Yang has yet to file its half-year report for this year. If the court rejects the injunction, the delisting will be final.
