An executive at South Korea’s financially-troubled Daewoo Shipbuilding & Marine Engineering Co. (DSME) has been under prosecutor’s investigation in allegations of using accounting tricks to hide 120 billion won ($108.1 million) worth of losses. The special investigation team at the Supreme Prosecutors’ Office that is looking into corruption and irregularities at DSME on Friday called in Kim Yul-jung, the company’s chief financial officer (CFO) and vice president, for questioning.

The 58-year-old is accused of manipulating DSME’s financial statement by underreporting 120 billion won worth of operating losses when settling books for the 2015 fiscal year in March. While looking into DSME’s accounting documents, prosecutors were able to secure evidence and statements from working-level officials that 120 billion won worth of operating losses have been purposely reduced and reported.

Focus is now on whether prosecutorial investigation will expand to include current DSME president and the company’s major shareholder Korea Development Bank (KDB) that is responsible for supervision over management. An unnamed prosecutor official said the probe into current DSME executives is a major issue that will have a big influence on the market. The company was led by Chung Sung-lip - current chief executive and president of DSME who was elected in June last year when the alleged manipulated accounting book was written.

Prosecutors suspect that DSME executive Kim cooked the accounting books on purpose to win steady financial support from creditors amid the sluggish business environment and to prevent the company’s stocks from being under administrative control. All listed companies are subject to administrative monitoring if they are seen to have poorly managed their businesses with capital impairment ratio exceeding 50 percent.

Prosecutors are expected to call in those that are suspected of being responsible for the alleged wrongdoing based on statements obtained from working-level officials and evidence of hiding losses.

DSME executive Kim that was called in on Friday joined the company as CFO in March last year after serving as head of finance at the state-run KDB. He was appointed when Ko Jae-ho, former DSME chief executive, was in top management. Suspicions arose over DSME having fixed its financial statements when current CEO Chung was elected in June last year and the company reported over 3 trillion won worth of losses in the second quarter.

KDB is also expected to be blamed for neglecting DSME’s structural accounting fixing practice involving senior executives. Criticism is likely to reignite over the legitimacy of the government’s 4.2 trillion won worth of additional financial support that was provided to DSME in October last year.

By Chung Joo-won

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