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Photo courtesy of Yonhap News |
[Alpha Biz= Paul Lee] SEOUL, Oct. 15 — Model Solution, an affiliate of Korea & Company Group, has been fined by South Korean financial authorities for inflating its sales and violating accounting standards.
The Financial Services Commission’s Securities and Futures Commission (SFC) announced at its 18th regular meeting on Tuesday that it has imposed a fine of 190 million won and a three-year mandatory auditor designation on Model Solution. The fines for three company officials involved will be finalized in a separate decision by the Financial Services Commission.
Another company, SDM Co., was also sanctioned with a fine, a three-year auditor designation, a recommendation for auditor dismissal and six-month suspension, and a recommendation to appoint a new chief financial officer.
According to the SFC, Model Solution incorrectly recognized sales and cost of goods sold (COGS) on a gross basis for transactions related to cost-bearing supplies, resulting in inflated financial statements. The company overstated its sales and COGS by 2.57 billion won in 2022 and 2.08 billion won in 2023.
Additionally, Model Solution failed to account for certain raw material purchases in 2022 and, upon discovering the omission in 2023, improperly reflected the correction in current-year earnings rather than retroactively adjusting past statements — thereby overstating shareholders’ equity and misstating net income.
SDM was found to have overstated and understated construction revenue, costs, and inventories by using recognition criteria other than the standard percentage-of-completion method.
The SFC also imposed penalties on the companies’ auditors. Dohyun Accounting Corporation, Model Solution’s auditor, was fined and barred from auditing for one year for neglecting to review contract terms and failing to verify the correction of accounting errors. Individual certified public accountants involved were ordered to complete additional professional training.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
