한국테크랜드 분식회계 및 부실감사 사례

Korea Techland Ltd. (KTL henceforth) was established in 1997 as a software developer. At initial stage, KTL successfully developed network security software and grow rapidly as internet was widely used and homepage became popular in the late 1990’s. As a successful venture enterprise, the firm was listed in KOSDAQ market in 2001. After the listing, the firm expand its business areas to anti-terrorism equipments, related education and consulting, nutritional supplement delivery system, and clothing shopping mall. In addition, KTL started operations in Japan and China. Although KTL pursued aggressive expansion strategy, KTL’s new attempts turned out unsuccessful. The firm’s operating performance was getting deteriorated and the firm actually suffered continuing losses from its operation and new investment. The firm changed its name when the management switched its main business to another. After all, the post-audit review performed by Korean Financial Supervisory Service revealed that KTL committed accounting fraud to inflate firm performance. The management also committed misappropriation and malpractice. As a result, the firm was delisted eventually. KTL was revealed to have overstated short-term loan, sales to the related parties, account receivables and inventory. The firm asserted that the sales of security equipment occurred via the related party located in Japan and considerable inventories were also kept in Japan. However, all the assertions of the management were found to be false. The sales through related parties were fictitious and the inventory did not exist in Japan. Moreover, the firm did not recognize impairment losses from long-term investment asset and intangible asset. Overall, KTL understated net loss amount by 44.4% in 2008, 8.7% in 2009, and 79.4% in 2010. After reflecting all the adjustments, net asset of KTL decreases from 45,550 million won in 2008 to 15,254 million won in 2010. Throughout the 3 years, adjusted sales were all below 3,000 million won which is the amount of criteria for judging delisting. In spite of such a serious problem inherent in financial statement reporting, two audit firms that audited KTL for 2008 and 2009 failed to find out the accounting fraud and did not perform quality audit. Although the two audit firms recognized that KTL experienced consecutive operating losses and was under the pressure of delisting, they did not conduct appropriate audit process. First, they ignored the importance of audit risk assessment which reflects the risk of business, accounting system, and internal control of the client firm. If they have assessed audit risk as high and thus reflect the risk in the audit process, they would expand audit scope and increase substantive tests. Second, they did not evaluate collectibility of loan and did not assess its collateral, which enables KTL to overstate its short-term loan. Third, the auditors did not focus on abnormally large transactions with related parties and thus miss fictitious sales. In addition, they did not confirm the existence of inventory in Japan. Although the inventory was in the foreign country, the auditors should have request cooperation of accounting firms in Japan to confirm the existence of inventory if the amount of inventory was significant. Lastly, the audit firms did not review financial statement of investee to assess the long-term equity investment and intangible asset(sales right). At that time, the operating performance of investee located in U.S. was deteriorated and the operation of main production facilities was already stopped in 2010. But, the auditors did not notice the facts and just accept the amount of equity investment suggested by KTL. Through this case, students can understand the deteriorating process of a venture firm and accounting frauds occurred in the process. More specifically, students are able to learn the ways that the management of KTL used to commit accounting fraud and why audit firms fail to find the fraud. Also, students can find out features of external audit of small and medium-sized firms. Even though the management of small and medium-sized firms are more likely to commit misappropriation and malpractice, and thus exposed to higher audit risk, auditors tend to input relatively smaller audit efforts due to the small audit fees of such clients. From this case, we need to perceive the importance of thorough audit risk assessment for small and medium-sized firms, sufficient audit efforts based on the assessed audit risk, and the realization of audit fees to support the enough audit efforts.