Deloitte Anjin LLC is under prosecution probe on charges of conspiring with Daewoo Shipbuilding &Marine Engineering (DSME) in accounting fraud to hide near $5 billion losses from 2010 to 2015 and cause massive damages to investors, thus neglecting its legal duty as outside auditor.

According to sources on Monday, prosecutors investigating DSME and state-owned Korea Development Bank (KDB) in charge of the shipbuilder for breach of trust and other illegalities plan to summon and question a high-ranking executive of the accounting firm as early as next week for turning a blind eye to the misconduct.

Since the executive’s title is partner manager of the company, his decision should be considered as an act made at a corporate level. Prosecutors already investigated some 10 accountants involved in the auditing of DSME and could stretch the questioning to former incumbent chief executives of Deloitte Anjin.

Prosecutors have reportedly focused investigations on charges that the accounting firm aided the shipbuilder in fraudulent accounting based on evidence seized after raids into the executive’s office in June. The prosecution will investigate to determine whether the executive’s auditing without confirming and analyzing the shipbuilder’s major accounting data was conducted at the request of the shipbuilder, whether the executive intentionally ignored the window-dressing irregularities and whether he issued an unqualified opinion on the shipbuilder’s financial statements on expectations of extension of auditing contracts and additional consulting orders, sources said.

According to officials familiar with the case, Anjin’s outside auditors requested DSME to submit details of evidence for calculation of total expected costs during auditing in 2014, but the shipbuilder did not follow the instruction citing lack of data.

The auditing team should have pressed for the data but did not follow up on the procedure. Some auditors protested the shipbuilder’s practice but the executive, then the top decision maker, reportedly let them complete auditing with the issue left unresolved.

The accounting company immediately declined the charges, arguing there was no tolerance at a corporate level for illegal activities.

Suspicion arises in the local accounting industry that Anjin condoned DSME’s accounting schemes in return for high-priced fees or more consulting contracts. DSME has been suspected of changing its independent auditing company from Samjong KPMG LLC to Deloitte Anjin in 2010 under the instruction of Min Yoo-sung, then-CEO of KDB. Anjin was selected as an independent auditor for DSME for 2010-2012 period and again 2013-2015 period, receiving a total of 6 billion won ($5.35 million) worth auditing and consulting orders from DSME for six years.

If Anjin is found to have aided or condoned DSME’s accounting fraud at a corporate level, financial authorities can slap the maximum penalty on the company or go far as suspending operation or revoking business license under the domestic Certified Accountant Law.

By Lee Hyun-jung and Chung Joo-won

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