Deloitte Anjin faces credibility crisis; Accounting firm suspected of “deliberately” inflating Ssangyong Motor’s losses

2014-02-14 16:50

Deloitte Anjin faces credibility crisis

Accounting firm suspected of inflating Ssangyong’s losses

 Accounting firm suspected of inflating Ssangyong’s losses

By Na Jeong-ju
Deloitte Anjin is at risk of losing market trust because of allegations that it “deliberately” inflated potential losses of Ssangyong Motor to help it cut more than 2,600 jobs in 2009.
Last week, an appeals court ruled that the layoffs were invalid because it was based on the accounting firm’s “wrong” evaluation of Ssangyong’s value. If the ruling is upheld by the Supreme Court, the fired Ssangyong workers will get their jobs back.
The ruling has prompted the prosecution to re-investigate the case. Depending on the probe results, the firm’s accountants involved in the assessment may be deprived of their licenses.
Under the current rules, regulators can’t take punitive measures against accounting firms as well as their executives if they are not directly involved in accounting violations.
The fraud allegations also could damage Deloitte Anjin’s earnings. Deloitte Anjin is one of the country’s four major accounting firms.
“This case is a matter of trust for Deloitte Anjin. The firm may lose its corporate clients if found to be involved in manipulating numbers,” an industry source said on condition of anonymity.
Following the court’s decision, the firm issued a statement to criticize the judge, claiming its calculations of Ssangyong’s assets and debts were correct.
An issue of contention is Ssangyong’s project to develop new cars at the time. The judge said Deloitte Anjin failed to reflect the values of the project in evaluating the automaker’s financial status.
The accounting firm thus inflated Ssangyong’s potential losses by 517.6 billion won ($486 billion), providing the basis for the restructuring, the judge said.
Deloitte Anjin refuted these claims.
“Back then, it wasn’t possible to calculate the values of the development project because it didn’t look feasible,” the firm’s head Lee Jae-sul said in the statement. “This is the common view of all professionals in this industry. However, the court didn’t accept our opinion.”
In 2012, Ssangyong’s union filed a complaint with the prosecution to investigate Deloitte Anjin and former Ssangyong CEO Choi Hyung-tak, claiming they engaged in an accounting fraud to lay off workers.
The prosecution said at the time that it found no irregularities committed by the accounting firm and Choi. It now says it will re-examine the case.
“Based on the appeals court’s ruling, we will look into the suspicions raised by the Ssangyong union again,” a prosecutor told reporters.
The court ruling has also put the Financial Supervisory Service (FSS) in trouble.
The regulator earlier cleared Deloitte Anjin of fraud suspicions after examining the case for about six months, saying there were no major problems in evaluating Ssangyong’s value.
Deloitte Anjin’s questionable accounting for Ssangyong could become a political issue.
On Wednesday, Chung Mong-joon, a lawmaker of the ruling Saenuri Party, called for a National Assembly probe into the fraud allegations.
“The court’s decision means the FSS sided with Ssangyong Motor and Deloitte Anjin to cover up their wrongdoings. This is a serious problem,” Chung said in a statement.
“The fact is the FSS has hired a number of accountants from big firms, including Deloitte Anjin, for investigations into complicated fraud cases. This suggests a possible collusion between the regulator and Deloitte Anjin.”
An FSS official denied these claims.
“Our conclusion is that there were no major irregularities committed by Deloitte Anjin. Its calculations of Ssangyong’s potential losses were fair,” the official said.
This case could deal a severe blow to the accounting firm, which has engaged in a cutthroat battle with its competitors ― Samil PwC, Samjong KPMG Advisory and Ernst & Young Korea, among others ―  to attract more corporate clients.
This year, more than 500 companies, including Samsung, POSCO, Doosan, CJ and KB, are scheduled to decide on whether to renew their current accounting contracts with the same firms or find different accounting firms for fresh contracts.