Supervision Case about Accounting Fraud of Corporation in Danger of De-listing
Park Jae Whan, Se Chul Lee, Ko Young Woo · Korean Accounting Journal · 2015
This study analyzed an accounting fraud of corporation A in danger of de-listing and a case of supervision. The Korea Exchange has listing guidelines for corporations about sales, profitability and impaired capital ets. If a corporation does not meet its standards, the corporation will result in the delisting by the Korea Exchange. Delisting to the corporate is a critically negative factor that is apparently resulting in the stock price plummeting and rising cost of capital, ultimately reducing the value of the corporation and possibly ending up bankrupt. The corporations facing the risk of delisting are struggling to remain listed on the stock market. In case of not meeting the requirements, it is assumed that the corporation tends to make an attempt to do accounting fraud. There is high possibility of accounting fraud such as raising profit, overstating sales and assets and underreporting debts through financial statements. We analyzed types of accounting fraud of the corporation facing delisting risk and drawed several implications for auditor through the analysis of supervision case of FSS (Financial Supervisory Service) from the auditor & supervision body’s point of view. Detail accounting frauds Corporation A made to avoid delisting were to manipulate considerable amount of sales and cost of sale and overstate worthless asset including intangible assets to overvalue net asset of Corporation A. Although business deterioration cause accounting fraud, accounting fraud also can be arising from a inferior corporate goverance system, bad accounting control system and unsound audit environment. We found that a internal control system without even a segregation of duties and the worst governance structure without audit committee is one of main causes of accounting fraud, in addition to the worst business situation of corporation A. Furthermore, we found a accounting firm provided an audit and non-audit service in consecutive 3 year. It may imply any back-scratching alliance between corporation A and a accounting firm. We contributed to provide a rare practical corporation case analysis manipulating earning and overstating the net asset to avoid delisting. We draw implications that not only accounting environment including internal control system, auditing & supervision system etc but governance regulations including governance structure should be well organized and managed to