"'Recommendation to dismiss the CEO' is a severe sanction by the Financial Services Commission's Securities and Futures Commission regarding Yeongpoong's accounting risks"

*This content was translated by AI.

It has been pointed out that Yeongpoong's repeated violations of accounting standards were "intentional."

The Securities and Futures Commission (SFC) under the Financial Services Commission recently decided to sanction Yeongpoong for preparing and disclosing financial statements in violation of accounting standards. Yeongpoong was criticized for understating major accounting items such as soil remediation provisions and impairment losses on assets at the Seokpo Smelter. In response, the SFC decided on measures including a recommendation to dismiss Jeon (CEO) directors, fines, designation of an auditor for three years, and orders to rectify the situation.

In particular, a recommendation to dismiss the Gi Gan-ui (CEO) director was issued. A recommendation to dismiss the CEO is generally interpreted as a representative severe sanction imposed by financial authorities for "intentional" violations of accounting standards.

According to the Enforcement Rules on Regulations Concerning External Audits and Accounting, the "recommendation to dismiss the CEO" is explicitly stipulated only at the "intentional" level, which is the highest level of action for violations of accounting standards. In cases of "gross negligence" or "negligence," which are lower than this, the measures typically amount to no more than a "recommendation to dismiss the executive in charge."

The Enforcement Rules define "intentional" as "an act of violating laws and regulations while recognizing the illegal fact or its possibility." In particular, it is considered intentional when companies and employees intentionally conceal, manipulate, or omit accounting information, such as by omitting liabilities, to prepare financial statements. This can be interpreted as having a clear difference from "gross negligence," which is imposed when accounting treatment judgments lack rationality or are not conducted through ordinary procedures, in terms of "intent."

Among business circles, there is an analysis that Yeongpoong receiving a recommendation to dismiss the CEO means that it has been judged to have reached the "intentional" level, where the company recognized the illegal facts but still violated the laws and regulations.

There is also a view that the SFC's sanctions related to Yeongpoong's Seokpo Smelter share the same context. The SFC pointed out that from 2022 to 2024, Yeongpoong understated impairment losses while performing impairment assessments of tangible assets related to the suspension of operations at the smelter. In particular, in the 2023 asset impairment assessment, the SFC viewed that Yeongpoong "arbitrarily" removed the profit and loss effects of the suspension of operations.

Impairment losses are an accounting treatment where the difference is recognized as an expense when the book value of a company's tangible assets is judged to be higher than the amount expected to be recoverable. Understating this implies that the asset value on the books may have been maintained higher than its actual value.

An industry official diagnosed, "Yeongpoong's excessive valuation of the actual value of the Seokpo Smelter could lead investors and shareholders to mistakenly believe that the profitability of the asset is higher than it actually is."

In business circles, considering this, it is pointed out that Yeongpoong's violation of accounting standards could be at an even more serious level. While Yeongpoong has emphasized environmental improvement investments and responsible management at the Seokpo Smelter, there is also an opinion that it must be noted that the authorities have concluded that the costs required for environmental pollution remediation were not properly reflected in the financial statements.

An industry official pointed out, "Yeongpoong's recent violation of accounting standards means that environmental and suspension-of-operations risks that have persisted for years were not properly reflected." The official added, "Considering the level of sanctions, it is difficult to avoid suspicions of intent rather than simple errors." The official also stated, "Rather than accepting this as a simple technical error, Yeongpoong should review whether there are problems with its internal control system and overall governance and transparently explain this to the market and shareholders."

Furthermore, some voices even suggest that if Yeongpoong tries to explain this as a simple error, it may not be able to escape responsibility.

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*This content was translated by AI.