*This content was translated by AI.
The Securities and Futures Commission (hereinafter the Commission) has released the results of its investigation and supervision into Yeongpoong's violation of accounting standards and decided on severe disciplinary measures, drawing criticism that Yeongpoong's audit committee failed to function properly.
Recently, the Commission publicly disclosed the results of its investigation and supervision of Yeongpoong's business reports and other documents, and decided on penalties including a fine, a three-year ban on appointment as an auditor, a recommendation to dismiss the former CEO, a recommendation to dismiss (terminate) the responsible executive and former responsible executive, a six-month suspension of duties, and a requirement for corrective measures.
The identified issues include the understatement of soil remediation reserve liabilities and groundwater remediation reserve liabilities for the surrounding forests and the area beneath the smelter, as well as the understatement of impairment losses on fixed assets of the smelter.
In particular, the inclusion of a measure equivalent to a recommendation to dismiss the former CEO is interpreted as the financial authorities considering the matter serious. In the accounting industry, since a recommendation to dismiss the CEO is imposed at a high level of sanction where intent is recognized, the severity of this measure is seen as not light. It is analyzed that because the CEO at the time of the understatement had already stepped down, the measure taken was not a recommendation to dismiss the current CEO but rather a "measure equivalent to a recommendation to dismiss."
According to data from the Commission, Yeongpoong did not recognize reserve liabilities in 2021 and 2022 despite clear legal obligations for remediation regarding the order to clean up contaminated soil in the area surrounding the smelter. It was pointed out that in 2023 and 2024, reserve liabilities were calculated on the premise of remediation methods not permitted under relevant laws and regulations. Furthermore, it was determined that although the conditions for recognizing reserve liabilities for contaminated soil beneath the smelter were met, Yeongpoong failed to recognize them.
The scale of the understatement of reserve liabilities related to groundwater remediation was also significant. According to data from the Financial Services Commission, the amount of understated groundwater remediation reserve liabilities for Yeongpoong was 111.4 billion won in both 2023 and 2024. Yeongpoong bore the legal obligation to remediate contaminated groundwater at the smelter following a 2019 order to prevent groundwater pollution, but the Commission determined that Yeongpoong reflected only the actual contract amount with the remediation company as reserve liabilities, rather than the total costs expected to be incurred during the future remediation process.
Responsibility for the audit committee is also being questioned. According to Yeongpoong's business report, the audit committee has the authority to request business reports from directors, investigate the company's operations and financial status, and approve the board of directors' approval of financial statements. Questions are raised as to whether the accounting issues were thoroughly examined up to the point of severe disciplinary action by the financial authorities.
The independence and expertise of the audit committee are also cited as points of concern. A, an outside director who served on the audit committee in 2021, assumed the role of audit committee chairperson in April 2022. The Institute for Good Corporate Governance analyzed the agenda of Yeongpoong's 2023 annual general meeting of shareholders and recommended against A's candidacy, noting that A had studied at the same university at the same time as Jang Hyung-jin, Honorary Chairman of Yeongpoong Group, who is the same person as Yeongpoong Group, raising concerns about the independence of the outside director.
In the industry, a consensus is forming that Yeongpoong's audit committee should transparently disclose what reports it received and what reviews it conducted during the accounting process regarding violations of accounting standards such as the understatement of reserve liabilities.
Consequently, demands are being raised by environmental groups and civic organizations for legal and administrative measures against those responsible, along with the public disclosure of plans to improve internal control and accounting management systems. There are also calls for the audit committee to conduct its own investigation and publicly disclose measures to prevent recurrence.
Meanwhile, Yeongpoong has stated its objection to the Commission's measures. Through a public disclosure, Yeongpoong said, "We plan to proceed with legal procedures, including an application for suspension of execution and the filing of an administrative lawsuit," and added, "We will do our best to ensure transparent and reliable accounting in the future."
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*This content was translated by AI.
