Korea’s major accounting firms are in the hot seat over their tainted code of ethics and auditing incompetency.

Public distrust toward local accounting firms increased when the news broke Friday that the head of the nation’s top accounting firm is to face prosecutors’ investigation on charges he leaked insider information to help ex-chief of Hanjin Shipping Choi Eun-yeong engage in illegal stock trading.


Ahn Kyung-tae, chairman and CEO of Samil PricewaterhouseCoopers, will be probed for allegedly leaking undisclosed information to Choi about the shipping line’s self-rescue plan to help her dump her entire shares of Hanjin Shipping, prior to the official announcement of the plan.

Choi and her two daughters are suspected of unfairly avoiding 1 billion won ($848,000) losses by intentionally selling off 97,000 shares for 2.7 billion won over several transactions between April 8 and 20.

The prosecutors have reportedly found out Choi ordered her subordinate to sell her shares immediately after a phone conversation with Ahn.

Samil PwC flatly denied the accusations, saying Ahn’s phone call had nothing to do with leaking undisclosed information.

“There is no undisclosed information that has been delivered through his personal phone call,” an official at Samil PwC told The Korea Herald, requesting to be unnamed.

“Ahn will be under investigation as a witness, not as a suspect,” the official said.

Some industry sources said Ahn should have avoided a phone call with Choi in the first place, at a sensitive time when the accounting firm was delivering due diligence on the financially troubled company.

The whole setback at Samil PwC occurred in just three months after 22 certified public accountants at 12 accounting firms were punished by the financial regulator in March for earning profits by investing in stocks of the client company they were auditing. Some of them were stripped of their jobs and others faced 1-3 years of ban from auditing a listed firm.

Another industry leader Deloitte Anjin was recently criticized for failing to spot erroneous financial statements of shipbuilder Daewoo Shipbuilding & Marine Engineering for the fiscal year 2013 and 2014.

While the Financial Supervisory Service was still investigating whether Deloitte Anjin had played a role in helping the ailing shipbuilder dress up its financial records, the accounting firm lost big clients such as state-run Korea Development Bank.

As a fallout, some workforce with expertise in corporate restructuring could leave Deloitte Anjin for other accounting firms such as Samjong KPMG or EY Han Young, industry sources said.

“Even if some staff leave, the impact will not be large, given the total volume of financial advisory service at the firm,” Deloitte Anjin spokesperson Hannah Chang said.

“We will take this situation as an opportunity to realign ourselves, one step further,” she said.

Prior to the probe into DSME’s alleged window dressing, the government had pushed for revision of the law to enhance transparency of accounting firms. The bill had aimed at expanding the scope of punishment to an accounting firm’s head, if the auditor is found to have colluded with a client firm in cooking the books.

However, the deregulation committee under President Park Geun-hye nixed the plan calling it “excessive regulation” in March, following the accounting industry’s strong opposition to the revision bill.

The Korea Institute of Certified Public Accountants, an 18,000-member group, has been seeking since January to enhance education on ethics for accountants and auditors in the wake of the fraudulent stock trading incidents last year, said the association’s spokesman Lee Seung-hwan.

By Kim Yoon-mi (yoonmi@heraldcorp.com)