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Korea Times

Deloitte executive arrested in South Korea over Daewoo Shipbuilding accounting fraud

Suspect is the first from the accounting firm to be arrested

PUBLISHED : Thursday, 03 November, 2016, 11:48am
UPDATED : Thursday, 03 November, 2016, 11:48am

By Kim Tae-gyu 

A Deloitte Anjin executive was detained Wednesday on charges of deliberately ignoring a multibillion dollar accounting fraud involving embattled shipyard Daewoo Shipbuilding & Marine Engineering (DSME).

The Seoul Central District Court issued an arrest warrant for the executive surnamed Bae, the first employee of the accounting firm to be arrested with regard to the DSME scandal.

Deloitte Anjin has come under criticism over its alleged incompetent audit of DSME ―the shipbuilder has been blamed for cooking the books to make huge losses it incurred over the past few years look smaller and even claimed to have made profits.

The total value of the fraud is estimated at more than 5 trillion won (US$43.8 billion) between 2012 and 2014. Anjin has reviewed DSME’s financial statements since 2010.

Allegations have been made that Deloitte Anjin partially admitted its mistakes after a recent confession that around 2 trillion won of DSME’s 5.5 trillion won in 2015 operating losses should have been reflected in 2013 and 2014.

DSME said that it recorded 424.2 billion won (US$37 billion) in operating profit in 2013 and 454.3 billion won the next year although its competitors were stuck in the red amid the protracted slump in the industry.

If the 2 trillion won loss in question had been recognised in the two years it was made, DSME would have faced deficits of more than 700 billion won (US$61.3 billion) during the two respective years.

Observers point out that the restructuring efforts of the struggling shipbuilder would have started much earlier and saved some of the 7 trillion won of taxpayers’ money channelled into it up until now.

The country’s financial watchdog has looked into the case to learn whether Deloitte Anjin accountants were complicit with the accounting fraud with DSME financial officials so as to mislead investors.

Investors have already filed a lawsuit against the accounting firm.

The National Pension Service announced in July that it lodged a 48.9 billion won (US$4.3 billion) damages suit against both the accounting firm and the shipbuilder, while many other groups of individual investors have also resorted to the court to recover their losses.

The combined amount of damage suits is higher than 100 billion won, prompting concerns that DSME and Deloitte Anjin might not be able to pay if they lose in court.

http://www.koreatimes.co.kr/www/news/biz/2016/11/123_217412.html