Hanchang (005110) and The Technology (043090), formerly known as Hanchang Biotech and a past subsidiary of Hanchang, have been referred to or reported to prosecutors for preparing and disclosing financial statements in violation of accounting standards.
The Securities and Futures Commission (SFC) under the Financial Services Commission (FSC) announced the ruling at its regular meeting on Thursday.
According to the SFC, KOSPI-listed Hanchang overstated revenue and cost of sales from steel product distribution transactions that it did not control in 2021 and 2022, using financial statements that violated accounting standards in its securities registration statement. Hanchang also failed to disclose in the footnotes the amount of payment guarantees the company had provided for debts that its partner companies owed to its affiliates in 2021.
The Technology, a KOSDAQ-listed firm that was then a subsidiary of Hanchang, falsely recorded revenue and cost of sales in its financial statements by creating the appearance of having sold products normally to partner companies. The Technology also obstructed the normal external audit process by failing to submit payment guarantee agreements to conceal the fictitious product distribution revenue and by faking the collection of trade receivables.
The SFC decided to refer Hanchang, its former CEO, and a former executive in charge to the prosecution. Penalties including fines and a three-year auditor designation were also imposed. The final penalty amount will be determined by the FSC. The Technology was fined 289.8 million won ($201,000), subject to a three-year auditor designation, and imposed an additional 48 million won penalty. The company, its former CEO, and a former executive in charge were reported to prosecutors.
Induk Accounting Corp., which served as Hanchang's auditor, was subject to restrictions on its audit work for the company and required to make additional contributions to the joint compensation fund for damages, on the grounds that it neglected audit procedures related to revenue.
