Updated : 2015-07-17 19:02
Deloitte Anjin criticized for lax supervision
By Kim Jae-won
Deloitte Anjin is drawing criticism over lax supervision of Daewoo Shipbuilding & Marine Engineering (DSME), which allegedly committed accounting fraud by hiding billions of dollars in losses. A local member of Deloitte Touche Tohmatsu said that it found nothing out of the ordinary with the shipbuilder’s financial report in the first quarter, which was submitted to the Korea Exchange in May. Deloitte Anjin also said DSME’s financial reports in 2013 and 2014 were written appropriately and they found nothing unusual with them. However, Deloitte Anjin’s evaluations of DSME is in contrast with remarks by the shipbuilder’s CEO Jung Sung-leep who said earlier this week that the company will include its accumulated losses in its marine plant business in the second quarter, which have not been reflected over the last few years’ reports.
Jung did not specify the exact losses, but confirmed it would amount to a few billion dollars. Market watchers expect it will reach around $2 billion.
Deloitte Anjin declined to comment on the matter.
Market watchers say Deloitte Anjin may not avoid responsibility for the DSME case regardless of whether the accounting firm knew about the hidden losses or not.
They said if Deloitte Anjin did not know about the losses, it failed to supervise the company properly. If the accounting firm acknowledged the losses but overlooked reflecting them on the balance sheet, then it is an even more serious problem than violating its responsibility to supervise the company, according to observers.
Deloitte Anjin signed with DSME to be paid 546 million won for its accounting supervision service for the shipbuilder this year. It was given the same amount for the service last year, and 470 million won in 2013.
The shipbuilder’s creditors, led by state-run Korea Development Bank, will pick two accounting firms this week which will conduct audits of the shipyard’s financial status starting next week. The financial regulator said it is monitoring the case carefully to determine whether the accounting supervision on DSME has been conducted properly.
Shares of Daewoo Shipbuilding continued to tumble on the Seoul bourse, closing at 7,980 won on Friday, down 200 won, or 2.44 percent. On Thursday, shares of the shipbuilder plunged 6.51 percent, after dropping daily price limit of 30 percent on Wednesday over concerns that it may have to book a cumulative loss of some 2 trillion won on its balance sheet.
Daewoo Shipbuilding has been suffering because of shrinking orders amid the global economic slump for years. Daewoo Shipbuilding posted a loss of 172 billion won in the first quarter of the year and logged an operating loss of 43.3 billion won.
In particular, local shipyards reported massive losses last year largely due to a rise in shipbuilding costs and losses from offshore plant construction. Hyundai Heavy Industries swung to a net loss of 2.2 trillion won in 2014 from a net profit of 146.3 billion won the previous year.
The Ulsan-based company also recorded its biggest operating loss ever of 3.25 trillion won last year, a stark downturn from an operating profit of 802 billion won a year ago.