Daewoo Shipbuilding axes Deloitte Anjin

Daewoo Shipbuilding & Marine Engineering (DSME) will not renew its audit contract with Deloitte Anjin, headed by CEO Ham Jong-ho, this year as the struggling shipbuilder seeks to put last year’s accounting fiasco behind and start again with a new auditor.

The state-run Korea Development Bank (KDB), which holds a controlling stake in DSME, has also reportedly decided not to hire the accounting firm as an auditor for other entities that it owns.

This is widely expected to wreak havoc at Deloitte Anjin, which has been fiercely competing with Samil PricewaterhouseCoopers, EY Hanyoung and Samjung KPMG to secure auditing and corporate consulting deals.

“We will change our auditor after holding our annual shareholders’ meeting on March 30,” a DSME official said. “Since 2010, Deloitte has been auditing our accounting books. We think it has been doing the job for too long. We cannot deny that last year’s accounting disaster also has something to do with our decision. I also heard KDB does not want to work with Deloitte either.”

According to the official, the state-run bank will abandon Deloitte as its auditor and consultant when it acquires or disposes of corporate entities.

In July last year, DSME was accused of orchestrating an alleged accounting fraud to hide billions of dollars in losses, in collusion with Deloitte.

The shipbuilder unexpectedly announced a 3.2 trillion won ($2.67 billion) operating loss in the second quarter of 2015, sending its shares into freefall.

Deloitte also faced intense criticism from regulators, lawmakers and DSME shareholders for its lax accounting supervision of the cash-strapped shipbuilder.

In 2014, DSME was the only major domestic shipbuilder that posted an operating profit, despite the global industry slump. Hyundai Heavy Industries and Samsung Heavy Industries lost 3.2 trillion won and 500 billion won, respectively, in 2014, while Daewoo posted a 471 billion won operating profit.

This raised suspicions that DSME may have cooked its books to conceal the loss by conspiring with Deloitte. But at the time, both companies denied the allegations, saying only that they did not know about the losses.

Following the accounting debacle, a group of DSME minority shareholders filed a lawsuit against the shipbuilder, Deloitte and former DSME CEO Ko Jae-ho, demanding compensation.

“We will soon begin contacting several leading accounting firms and ask them to submit a proposal,” the official said. “The new auditor will prepare our first-quarter audit report.”

In 2015, DSME paid Deloitte 546 million won for its accounting service. The firm received the same amount in 2014 and 470 million won in 2013.

Deloitte Anjin declined to comment to The Korea Times, citing compliance rules.
Source: KoreaTimes