Daewoo Engineering & Construction Co. (Daewoo E&C), one of South Korea’s top three builders, is estimated to have registered huge losses in the fourth quarter of last year by reflecting all possible losses in the future based on stricter account rules applied after an accounting firm refused to audit the builder’s third-quarter earnings reports.

“Daewoo E&C turned more conservative about its accounting in the fourth quarter at the advice of its external auditor Deloitte Anjin,” a person in the construction industry, who refused to be named as the company’s earnings are not officially announced, said on Thursday. “Hundreds of billions of dollars of losses were allegedly booked for that period.”

Previously, Deloitte Anjin rejected the third-quarter earnings report submitted by the builder, saying it could not verify the listed company’s balance sheet because of its insufficient financial documents. Experts believe Daewoo E&C enforced much stricter accounting rules for the fourth quarter to avoid consecutive opinion rejections that could cause it to be kicked out of the stock market.

If the builder reports operating loss in the October-December period, it would mark its first quarterly operating loss since the fourth quarter of 2013.

The stricter accounting practice came after scandal-stricken accounting company Deloitte Anjin was investigated by the prosecution for its lax accounting supervision of Daewoo Shipbuilding & Marine Engineering (DSME) and was facing sanctions from financial regulators.

Daewoo E&C may even swing to operating losses for full year 2016. The builder’s operating profit in the first three quarters of last year was 264.1 billion won ($230 million).

Another unnamed official in the construction industry expected that future uncertainty will be significantly eased in the builder thanks to the advance booking of potential losses and this would result in a massive operating profit for several years forward. The official even forecast the company’s operating income would exceed 1 trillion won in 2017 alone.

On Friday, Daewoo E&C shares closed at 5,350 won, up 1.5 percent, or 80 won, from Thursday.

By Kim Dae-gi and Yong Hwan-jin

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]