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(Photo = FSS) |
[Alpha Biz= Reporter Paul Lee] According to Kyunghyang Shinmun on the 20th, the Financial Services Commission referred a case involving suspicions of inadequate investigation into LS Cable & System's accounting practices to the Financial Supervisory Service earlier this month. The Financial Supervisory Service stated to the National Assembly last week that it is internally assessing the circumstances regarding its handling of the matter in 2019.
After it was revealed that a subsidiary of LS Cable & System had manipulated test certificates for power cables supplied to Korea Hydro & Nuclear Power in 2012, LS decided to contribute 100 billion won to the nuclear safety development fund to refurbish its image. A memorandum of understanding signed with the Nuclear Safety Commission in 2017 stated that LS Cable & System would contribute a total of 100 billion won, or 100 billion won annually from 2018 to 2026. LS Cable & System paid 100 billion won twice in 2018 and 2019.
However, during a review of the fund's financial statements by the Audit Office, it was found that the money promised by LS Cable & System was not accounted for as receivables or contingent liabilities. Although LS Cable & System had reflected the 100 billion won it would receive as income in the budget for the corresponding fiscal year, it had not been recorded as an asset. This was a problem caused by LS Cable & System treating the 1 trillion won from its own accounts not as debt but as "donations."
In early 2019, the Audit Office verbally questioned the Financial Supervisory Service to look into LS Cable & System's accounts. If the promised 1 trillion won was indeed a liability, LS Cable & System would have recorded a deficit in the 250 billion won range for that year, given that its net profit for 2017 was 745 billion won. If it was intentionally treated as donations instead of debt, it would constitute accounting fraud.
In April 2019, the Financial Supervisory Service conveyed a verbal opinion to the Audit Office that there was a need to consider the facts further despite meeting the criteria for recognizing accrued liabilities. According to internal review documents of the Financial Supervisory Service at the time, it was written that they had "created legitimate expectations by publicly announcing future payment plans" and "considered it the same as the Audit Office's opinion that it was an accrued liability, not a donation."
However, the Financial Supervisory Service took no further action afterward. A Financial Supervisory Service official stated, "There were no penalties when LS Cable & System did not contribute in 2020 due to COVID-19," adding, "As a result, it was difficult to prove that the 1 trillion won was an obligation to be treated as debt, not as donations, and actual auditing was practically impossible." A Financial Services Commission official also said, "Since there were no penalties when the contribution was not made, it is difficult to see it as debt."
However, some argue that the claim that auditing was impossible due to the non-payment of contributions in 2020 contradicts the fact that the issue of LS Cable & System's accounting was recognized in early 2019.
There is also disagreement about the interpretation by financial authorities regarding whether penalties are necessary to determine whether it is an accrued liability. International Financial Reporting Standards (IFRS) treat even matters without legal obligations, such as refund policies of retailers, as accrued liabilities.
AlphaBIZ Paul Lee(hoondork1977@alphabiz.co.kr)
