South Korea’s Financial Supervisory Service (FSS) initiated audit inspection for Hyundai Engineering & Construction Co. (Hyundai E&C) and its external auditor Deloitte Anjin LLC. to see whether their financial statements and auditing reports are in conformity with the nation’s auditing regulations and standards.

The financial authority reportedly has questioned the construction company’s handling of its unclaimed bills and construction cost estimation in its accounting books and Deloitte Anjin’s auditing process. Hyundai E&C’s unclaimed construction bills amounted to 3.6 trillion won ($3.03 billion) in the third quarter ended September last year, accounting for 27 percent of its sales.

An unclaimed construction bill is the amount of bill that is not yet claimed to the commissioning entity. It is counted as losses in a company’s accounting books.

According to sources from the construction and financial industries on Friday, the FSS ordered Hyundai E&C to submit documents related to its unclaimed construction bills and construction cost estimations. It was also reported to have asked the builder’s external auditor Deloitte Anjin, under inspection related to accounting fraud of Daewoo Engineering & Construction, to hand in its auditing reports on the company over the past five years.

Market observers speculate that the financial authority is conducting an unusual audit inspection at the beginning of the year because it has discovered some problems in the financial statements and auditing of Hyundai E&C.

“The audit inspection of the FSS might have a significant impact on the company’s stocks,” said an unnamed source from the construction industry. “It is very unusual for the financial authority to carry out an audit inspection at the beginning of the year for a big builder conducting many overseas projects,” he added, saying that it appears to try to prevent other accounting irregularities like those of Daewoo Shipbuilding & Marine Engineering. The FSS would focus on examining past five years of financial books of Hyundai E&C since it was acquired by Hyundai Motor Group in 2011.

Shares of Hyundai E&C closed Friday at 42,650 won, down 1.61 percent or 700 won from the previous session.

By Hong Jong-sung and Bae Mi-jung

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