External audit firm: "Yeongpo did not present government documents or contracts"... Securities and Futures Commission minutes

*This content was translated by AI.

While Yeongpo was severely sanctioned by financial authorities for understating contingent liabilities, including environmental remediation costs at the Seokpo Smelter, in the scale of hundreds of billions of won, it has been confirmed through the Financial Services Commission's minutes that the external audit firm responsible for the audit encountered circumstances where key materials were concealed by the company during the audit process.

According to the minutes of the 10th Securities and Futures Commission (SFC) recently released by the Financial Services Commission, the accounting firm in charge of Yeongpo's external audit testified that it requested core evidence related to remediation obligations, such as revised government documents and additional land remediation contracts during the audits in 2021 and 2022, but did not receive them. Interviews with then-responsible officials for finance and the smelter site also revealed no mention whatsoever of reduced pollution areas or changes to relevant government documents.

The audit firm stated that it only learned late in the day about the criminal prosecution of smelter employees for reducing the pollution area and the existence of omitted polluted areas when reaching the Financial Supervisory Service's supervision stage. The auditor remarked, "It was difficult to discover through general audit procedures alone that even the government documents themselves, which were judged to be the most reliable, could have been distorted." When an SFC member asked, "Was it because of the limitation of not receiving materials from the company that you could not make a reasonable judgment at the time?" the auditor replied, "That is correct," and emphasized that if they had known about these facts in advance, they would have immediately expanded the audit procedures.

The minutes also included statements from officials at the Seokpo Smelter site. An official from the accounting firm relayed interview content with smelter officials during a past audit, stating, "We received an answer that only 20% to 30% of the area for which the company set aside contingent liabilities was actually remediable." This suggests the possibility that contingent liabilities were arbitrarily reduced based on an unfeasible remediation plan.

Furthermore, circumstances emerged indicating that Yeongpo concealed its business report during the process of evaluating production stoppage losses due to environmental sanctions. The auditor testified, "We only learned of the existence of an updated report containing a 90-day sales reduction effect during the supervision stage," adding, "At the time, since the operating profit and loss difference based on the 60th-day standard was not significant, we accepted the company's claim; however, if the updated report had been presented, we would have strongly recommended a revision."

Previously, the SFC determined that Yeongpo violated major accounting standards by omitting or understating contingent liabilities for soil and groundwater remediation costs around the Seokpo Smelter from 2021 to 2024 and failing to properly reflect impairment assessments of tangible assets resulting from production stoppage repercussions. Consequently, the Financial Services Commission imposed a fine of 204.741 billion won on Yeongpo and decided on severe sanctions including recommending the dismissal of former and current executives and designating an auditor for three years.

Experts in the accounting industry and financial sector pointed out, "The basic premise of external audits is the transparency and integrity of information provided by management," and noted that "intentionally hiding important materials from auditors or providing distorted information is a serious crime that shakes the foundation of trust in the entire capital market."

In response, Yeongpo is conducting an administrative lawsuit against the financial authorities' sanctions regarding the accounting treatment of soil and groundwater remediation costs at the Seokpo Smelter. While Yeongpo maintains its position that this is a difference in accounting opinion and judgment, the authorities hold the stance that it was an intentional violation for failing to properly reflect established remediation obligations in the financial statements.

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*This content was translated by AI.