S. Korea's top financial regulator, the Financial Supervisory Service (FSS), is anticipated to hold the state-owned Korea Development Bank (KDB) accountable for Daewoo Shipbuilding & Marine Engineering (DSME)’s second-quarter losses, worth billions of dollars.
Poring over the results of creditors’ due diligence on the DSME, which are due out on August 17, the FSS will probably conduct an audit quality review to find out why KDB belatedly factored in losses and when the amount of losses was calculated, according to the FSS and the financial industry.
The FSS’s audit quality review is a procedure aimed at evaluateing the credibility of a company’s financial statements and the fairness of the external auditor's audit report. In other words, the FSS takes matters into its own hands when it cannot trust a company’ financial records and the audit work done by external auditors (certified public accountants (CPAs). The DSME reported on July 29 a provisional second-quarter operating loss of KRW 3.03 trillion (USD 2.62 billion).
The FSS is also considering consulting the Financial Services Commission (FSC) to launch a probe into KDB, the DSMEs’ largest shareholder, because KDB’s excuse that it was simply unaware of the DSME’s hidden losses sounds implausible.
“KDB parachuted one of its own officials into the CFO post at the DSME, but it argues that it didn’t know about the DSME’s deteriorating financial conditions. It is absurd,” said a financial industry insider.
