CONTENTS
- 1. The Corporate Client Who Requested an Accounting Audit
- - What Was the Reason for Requesting the Accounting Audit?
- - Establishing Through the Accounting Audit That No Benefit Was Gained From the Window-Dressing Accounting
- 2. Client Clears the Capital Markets Act Violation Charge Through a Thorough Accounting Audit
- - Accounting Audit Establishes That There Was No Causal Link Between the Window-Dressing Accounting and a Benefit
- - Accounting Audit Emphasizes That the Violation Charge Cannot Be Confirmed by the Verified Records Alone
- 3. Disposition of Non-Prosecution After Emphasizing Through the Accounting Audit That the Charge Could Not Be Applied
1. The Corporate Client Who Requested an Accounting Audit
The client who requested an accounting audit was suspected of having gained a benefit through window-dressing accounting and needed a detailed audit.
As a result of the accounting audit, it was confirmed that the financial statements of the client company had been window-dressed, and a more thorough audit was continued in order to defend against the charge.
It was confirmed that the charge of violating the Financial Investment Services and Capital Markets Act had been applied because the client had issued corporate bonds using improper accounting.
To avoid criminal punishment, the client requested an accounting audit and a defense against the examination from us at Daeryun.
What Was the Reason for Requesting the Accounting Audit?
The reason the client, who had been charged with violating the Financial Investment Services and Capital Markets Act, first requested an accounting audit was a desire to clear the charge as much as possible.
Ultimately, the client asked Daeryun to establish that the client had never gained a benefit through accounting fraud.
Looking at the Types of Accounting Fraud
Accounting fraud refers to fraudulent conduct in accounting. The types of accounting fraud can be divided into ▲accounting fraud ▲forgery of accounting documents ▲window-dressing accounting ▲embezzlement and breach of trust ▲insider trading.
Accounting fraud : The act of manipulating or forging accounting information to obtain an economic benefit
Forgery of accounting documents : The act of forging financial statements or a company’s accounting documents to manipulate information
Window-dressing accounting : The act of manipulating accounting information to distort a company’s financial condition (e.g., overstating revenue, understating expenditures, manipulating cash flow information)
Embezzlement and breach of trust : The act of using company funds for improper purposes
Insider trading : The act in which executives or employees within a company use confidential information to carry out stock transactions and the like
Establishing Through the Accounting Audit That No Benefit Was Gained From the Window-Dressing Accounting
Through the accounting audit, Daeryun sought to establish that the client company had not gained a benefit from the window-dressing accounting.
Because the charge of violating the Financial Investment Services and Capital Markets Act could not be applied unless a causal link between the window-dressing accounting and a benefit could be proven, Daeryun sought to emphasize this point.
Daeryun promised to assist the client in clearing the charge through the accounting records.
2. Client Clears the Capital Markets Act Violation Charge Through a Thorough Accounting Audit
Daeryun Law Firm formed a team of attorneys to conduct a thorough accounting audit of the client company.
Through accurate analysis of the records, Daeryun’s attorney team confirmed that there was no causal link between the window-dressed records and any benefit, emphasized this point, and argued that a disposition of non-prosecution should be rendered.
Accounting Audit Establishes That There Was No Causal Link Between the Window-Dressing Accounting and a Benefit
As a result of the accounting audit, Daeryun was able to confirm that the client company’s financial statements had been window-dressed.
However, Daeryun emphasized that the window-dressed financial statements had not been created with the intent of gaining a benefit, and argued that there was no causal link between the window-dressing accounting and a benefit.
Accounting Audit Emphasizes That the Violation Charge Cannot Be Confirmed by the Verified Records Alone
As a result of the accounting audit, Daeryun emphasized that the charge of violating the Financial Investment Services and Capital Markets Act could not be applied based on the verified accounting records alone.
Daeryun stated that there was no causal link between the issuance of corporate bonds and the window-dressing of the records, and that a violation of the Financial Investment Services and Capital Markets Act could not therefore be concluded.
What Is the Punishment for a Capital Markets Act Violation?
🔗Violation of the Financial Investment Services and Capital Markets Act is an offense that may carry criminal punishment. Fortunately, the client was able to find a way to clear the charge with Daeryun’s accounting audit assistance. Had the client been unable to clear the charge, the client could have faced imprisonment for one year or more.
Financial Investment Services and Capital Markets Act Article 178 (Prohibition of Unfair Trading, etc.) (1) No person shall, in connection with the trading of financial investment instruments (in the case of securities, including public offerings, private placements, and secondary offerings; the same shall apply hereinafter in this Article and Article 179) or other transactions, engage in any of the following acts. 1. Using any improper means, scheme, or device 2. Seeking to obtain money or other property benefit by using a document that contains a false description or indication of a material matter, or that omits a description or indication of a material matter necessary to avoid misleading others, or any other description or indication 3. Using a false market price for the purpose of inducing the trading of financial investment instruments or other transactions (2) No person shall spread rumors, use deceptive schemes (僞計), or commit assault or intimidation for the purpose of trading financial investment instruments or other transactions, or of influencing their market price.
Article 443 (Penalty Provisions) (1) A person who falls under any of the following subparagraphs shall be punished by imprisonment for a definite term of one year or more, or a fine of not less than three times but not more than five times the profit gained or the loss avoided through the violation. However, where there is no profit gained or loss avoided through the violation, where it is difficult to calculate such amount, or where the amount equivalent to five times the profit gained or the loss avoided through the violation is 500 million won or less, the upper limit of the fine shall be 500 million won.
(omitted)
8. A person who, in connection with the trading of financial investment instruments (in the case of securities, including public offerings, private placements, and secondary offerings) or other transactions, commits any act falling under any subparagraph of Article 178 (1) 9. A person who, in violation of Article 178 (2), spreads rumors, uses deceptive schemes, or commits assault or intimidation for the purpose of trading financial investment instruments (in the case of securities, including public offerings, private placements, and secondary offerings) or other transactions, or of influencing their market price 10. A person who, in violation of Article 180, conducts short selling of listed securities by a method that is not permitted, or who entrusts or accepts the entrustment of such short selling (2) Where the profit gained or the loss avoided through a violation under any subparagraph of paragraph (1) (excluding subparagraph 10) is 500 million won or more, the imprisonment under paragraph (1) shall be aggravated according to the following classifications. 1. Where the profit or the loss avoided is 5 billion won or more, life imprisonment or imprisonment for five years or more 2. Where the profit or the loss avoided is 500 million won or more but less than 5 billion won, imprisonment for a definite term of three years or more (3) Where imprisonment is imposed under paragraph (1) or (2), suspension of qualifications for not more than 10 years may be imposed concurrently (竝科). |
3. Disposition of Non-Prosecution After Emphasizing Through the Accounting Audit That the Charge Could Not Be Applied
The prosecution accepted Daeryun Law Firm’s argument and rendered a non-prosecution decision, stating that “there is insufficient evidence against the suspect, and there is no suspicion.”
Daeryun Law Firm’s Accounting Audit Group resolves all matters related to corporate accounting audits through a task force composed of experts in each field.
In particular, for demanding matters such as corporate accounting and finance, a number of experts, including accounting audit attorneys and accountants, work together to analyze and diagnose the situation of the client company accurately.
The client in the case above likewise underwent a thorough accounting audit by this firm and, after emphasizing that there was no causal link between the accounting fraud and a benefit, was able to clear the charge at the prosecution stage.
If you are under examination by the Financial Supervisory Service for accounting fraud or anticipate criminal punishment, you may request assistance from Daeryun’s Accounting Audit Group at any time.
For the convenience of corporate clients, in-person consultations are also available, so if you need help, you may contact Daeryun at any time.
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