[E-Daily Reporter PARK MIN ] The Securities and Futures Commission (SFC), under the Financial Services Commission, announced on the 2nd that it held its 15th regular meeting and voted to impose measures—including the designation of an auditor—on the secondary battery materials company Kumyang(001570)for preparing and disclosing financial statements in violation of accounting standards.

In addition, the Commission imposed measures—including requiring additional contributions to the Joint Compensation Fund and restricting auditing activities—on SUNJIN Co., Ltd for violating key audit procedures during a separate audit of a listed company.

According to the Securities and Futures Commission, Kumyang recognized 10.3 billion won in fictitious revenue in 2022 by receiving and issuing false tax invoices and other documents to make it appear as though it had sold physical inventory assets without actually transferring them.

It also distorted the scope of its consolidated financial statements. Despite jointly controlling a Mongolian subsidiary through an agreement between its second-largest shareholder and other shareholders, Kumyang applied consolidated accounting treatment, resulting in the overstatement of its equity and other items.

It also failed to properly reflect impairment losses on investments in joint ventures. Despite signs of impairment—such as a significant deterioration in the Mongolian subsidiary’s projected operating profit and loss—Kumyang did not recognize impairment losses, thereby overstating its equity and other items.

The company was also found to have obstructed the external audit. Investigations revealed that during the 2022 external audit, Kumyang colluded with a business partner to present false transaction documentation and transferred inventory to a warehouse operator with which it was doing business. The company then arranged for the auditor to conduct a physical inventory count as if the items were the company’s own inventory assets before retrieving them.

It was also revealed that during the financial authorities’ supervisory review, the company submitted falsified receipts and made false statements claiming that the inventory had been delivered normally and that it had not obstructed the auditor’s physical inventory count.

Consequently, the Financial Services Commission (FSC) imposed a three-year audit firm designation restriction on Kumyang and ordered corrective measures. It resolved to recommend the dismissal and a six-month suspension of duties for the CEO and three other executives, and to impose measures equivalent to a dismissal recommendation on the former executive in charge of sales and one other individual.

Furthermore, the Commission filed criminal complaints with the prosecution against Kumyang, its CEO, and the former executive in charge, and decided to report the former sales executive and two others to the prosecution. The amount of the administrative fine will be finalized by the Financial Services Commission at a later date.

Sanctions were also imposed on SUNJIN Co., Ltd. The Securities and Exchange Commission determined that SUNJIN Co., Ltd. had performed control tests and detailed tests related to revenue and cost of goods sold in a significantly deficient manner while auditing the financial statements of a listed company.

Consequently, the Commission resolved to require SUNJIN Co., Ltd. to make an additional 20% contribution to the Joint Compensation Fund and to restrict its auditing activities for that company for two years. It also imposed measures, such as restrictions on auditing activities and mandatory professional training, on two certified public accountants affiliated with the firm. The fine to be imposed on SUNJIN Co., Ltd. will also be finalized by the Financial Services Commission at a later date.