The defense company clinched a deal to supply 24 of the aircraft to the Middle East nation in 2013. The prosecution believes that KAI cooked the books as if it had collected the payment from the Iraqi buyers, when the money was in fact not received due to the geographical tension in the Gulf at that time.

The prosecution suspects that it was an organized scheme, led by top officials including former KAI chief executive Ha Seong-yong, who just quit his job two weeks ago amid mounting suspicions.

They said the probe will center on the alleged accounting fraud from now on, with the country's financial watchdog also joining in by conducting its own audit on KAI's accounting.

According to KAI's financial reports, the company saw its revenue soar 53 percent to 3.1 trillion won from 2013 to 2016. Its operating profit also doubled to 314.9 billion won during the same years.

KAI was formed in the wake of the Asian financial crisis in the late 1990s by combining ailing private defense companies into one entity. The government injected about 8 trillion won worth of taxpayer money to salvage the firm. (Yonhap)