South Korea’s financial authority on Monday gave a warning to KT alpha Co., an operator of content distribution and commerce, for misrepresenting advance payments in its business report.

According to financial authorities on Monday, the Securities and Futures Commission (SFC) under the Financial Services Commission (FSC) has recently issued a warning to KT alpha according to the rules on external audit and accounting.

According to the SFC, KT alpha falsely accounted for advance payments for the acquisition of intangible assets as current assets instead of non-current assets in its financial statements for 2014 and 2018.

The minutes showed that KT alpha claimed that there are similar practices in the industry of using the expected release date for accounting treatments.

“KT alpha considers itself as an investment distributor,” the FSC said. “Such companies can determine current and noncurrent assets based on the expected release date if they have invested about 50 percent of the total production cost and have ownership of the movie.”

The FSC added that KT alpha can define current and noncurrent assets based on the expected release date if it has played a role similar to that of an investment distributor, but, in this case, it invested in a single over-the-top (OTT) movie that is replaced with an intangible asset and thus should have been logged as a non-current asset from the beginning.

Misrepresenting current assets can distort stability indicators such as the current ratio, which measures the weight of total current assets against total liabilities. Current assets must be able to be cashed within one year.

KT alpha also understated asset impairment losses on some investment advance payments to overstate profits and shareholder equity in its 2018 financial statement.

The financial authority said it issued a caution for negligence as it saw that the error in classifying advance payments as current or non-current assets and understatement of impairment losses were not intentional and thus do not constitute gross negligence.

It also offered a caution to the accounting firm and certified public accountant responsible for the audit procedures.

By Pulse

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