ETRON is set to be delisted from the KOSDAQ market due to accounting fraud charges, receiving a penalty surcharge from the financial authorities and being reported to the prosecution. Another KOSDAQ-listed company, Wave Electronics, along with EcoVibe—which was expelled from the KOSDAQ market two years ago—will also face penalties. While monitoring the financial statements of these companies, measures such as restrictions on audit duties have been taken against audit firms and certified public accountants that violated audit standards and qualifications.
The Securities and Futures Commission under the Financial Services Commission noted on the 26th it has deliberated and approved measures such as penalty surcharges and audit assignments against ETRON and two other companies that violated accounting standards when preparing and publicly disclosing their financial statements.
According to financial authorities, ETRON, an affiliate of the Ihwa Group, failed to classify investment stocks as equity investment stocks between 2019 and 2022, and provided financial assets as collateral to the underscriber of its newly issued convertible bonds without disclosing this in the notes.
In 2022, it was reported that ETRON misclassified convertible bonds that did not meet the transfer conditions under accounting standards as if they were transferred, resulting in an understated evaluation loss of 7.5 billion won related to the convertible bonds.
In relation to the convertible bond transfer contract, a separate supplementary agreement conveying the substance of the contract was drafted but not submitted to the auditors. This constitutes interference with external audits.
In response, financial authorities designated the company with a three-year audit assignment and issued recommendations for the dismissal of one former CEO and two former executives. The company, one former CEO, and one former executive have been reported to the prosecution, and the scale of the penalty surcharge for the company and its officials will be decided by the Financial Services Commission.
The audit firms Sejeong Accounting Corporation and Donghyun Accounting Corporation responsible for auditing ETRON have been criticized for failing to properly reflect ETRON’s violation of accounting standards in their audit opinions due to careless audit procedures. The penalty surcharges against these two firms will also be finalized by the Financial Services Commission in the future. ETRON faces a two-year restriction on audit duties and has been ordered to contribute an additional 30% to the joint compensation fund.
Audit duties have also been restricted for the assigned certified public accountants regarding ETRON and public companies.
On the same day, the Securities and Futures Commission also imposed a two-year audit assignment, recommendations for dismissal of responsible executives, and a six-month suspension to Wave Electronics, a KOSDAQ-listed company. The penalty surcharge will be determined by the Financial Services Commission.
The company was found to have recognized research costs as assets despite not meeting the recognition criteria for intangible assets, which resulted in an overstatement of equity and net income.
It also used the financial statements of affiliate companies that recognized redeemable convertible preferred stocks as capital rather than financial liabilities without any review, leading to an overstatement of equity investment stocks and net income.
EcoVibe, which was delisted in 2023, received a three-year audit assignment designation, fines of 4.8 million won for omitting accounting for borrowing funds and provisions, and recommendations for the dismissal of the former CEO. The Securities and Futures Commission has also reported the company, the former CEO, and the former executive officer to the prosecution. The scale of the penalty surcharge against the company and its officials will be determined by the Financial Services Commission.
The Securities and Futures Commission also deliberated on two cases regarding auditors violating external audit laws. The commission imposed a one-year restriction on audit duties against Taeil Accounting Corporation for conducting audits on companies that its employees have debt relations with, which is against regulations. The responsible certified public accountant received a recommendation for a one-year suspension and a five-year limitation on audit duties concerning the corresponding corporation.
Hanmi Accounting Corporation violated regulations by conducting audit work for three consecutive fiscal years for a large non-listed corporation, which prevents them from conducting audit work for the subsequent three fiscal years. Consequently, the corresponding certified public accountant received a one-year restriction on audit duties regarding listed and designated companies.