We have been hearing many accounting irregularities in the US.

Do you know that even Asian countries like South Korea have their fair share of massive accounting fraud cases?

One notable incident involved Daewoo Group. It was reported that: “On July 1, 2005, South Korean prosecutors indicted Kim Woo-choong,69 the founder of Daewoo Group for accounting fraud, obtaining illegal bank loans and laundering US$25 billion through a secret British front corporation. Daewoo collapsed under its multi-billion debt and went into government restructuring.”

In South Korea, we have a regulator, Financial Supervisory Service (FSS), which conducts yearly auditing on the previous year accounting reports of listed companies. Randomly, they will select up to 10% of listed companies to check for any fraudulent accounting.

Between 1998 and 2003, the FSS reprimanded more than 400 Korean-based companies including conglomerates, for fraudulent accounting amounting to about 30 trillion won.

The FSS in its 2004’s reports to the National Assembly, said that seven of the top 10 conglomerates have been implicated in irregular bookkeeping practices over the past three years. The groups include LG, Hyundai, SK Group, Hanwha and Kumho.

Interestingly, the statistics from the FSS reports reveal:

“In 1997, 20 out of 53 companies (38%) committed fraudulent accounting, in 1998:10 of 41 (24%), in 1999 by 6 of 22 (27%), 12 of 56 in 2000 (21%), six of 44 in 2001(14%), 15 of 116 in 2002, (13%) violated the accounting rules, the lowest since 1997.”

There was also this survey by the Federation of Korean Industries (FKI), released in early August 2004, which further reveals the startling fact that:

• one out of every five companies listed on the Korean stock market have engaged in accounting irregularities,
• about 13 per cent of the firms were able to avoid reproach from the FSS mainly due to the early detection by auditors, whilst seven percent were caught in FSS crackdowns,
• another 30 percent of the 129 companies were found to have corrected their financial statements due to changes in the nation’s accounting standard (13%), voluntary moves (8%) or technical mistakes (9%)