April 24, 2024

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[THE INVESTOR] Samsung BioLogics on April 3 denied allegations that it used accounting fraud to boost its valuation ahead of its public listing last year, as South Korea’s finance regulator prepares to carry out a special audit on the company.

The Financial Supervisory Service announced on March 30 that it planned to conduct a detailed audit on the Samsung-owned contract drug manufacturer to examine alleged discrepancies in the firm’s audit reports that were brought to attention by local political parties and civic groups.

 

Samsung BioLogics’ headquarters in Songdo, Incheon. Park Hyun-koo/The Korea Herald.

The groups have questioned how Samsung BioLogics, which had been unprofitable since its foundation in 2011, suddenly reported a net profit of 1.9 trillion won ($1.77 billion) based on a revaluation of its stake in its subsidiary Samsung Bioepis in 2015.

Samsung BioLogics had yet to receive an official notification of an audit from the FSS as of April 3, a company spokesperson told The Korea Herald.

As it waits for the FSS’ official notice, Samsung BioLogics reiterated its stance that there were no problems with its accounting methods and that its audit reports were carefully prepared by multiple accounting and securities companies in line with regulations.

Samsung BioLogics says its stake ownership was calculated into its net profit as a one-time event after Bioepis’ status changed from a subsidiary to an affiliate under the International Financial Reporting Standards adopted by Korea.

Samsung Bioepis is a joint venture between Samsung BioLogics and US-based Biogen, with the former holding a 91.2 percent stake. Under their joint venture agreement, Biogen can exercise a call option effective until the end of 2018 to expand its stake in Bioepis to 49.9 percent.

Bioepis took on affiliate status after it underwent an audit to determine its market value and the costs that BioLogics would have to shoulder in case Biogen exercised its call option. 

According to BioLogics, the rise in Bioepis’ market value raised the likelihood of Biogen exercising its call option, which would weaken BioLogics’ ownership of Bioepis. It was under such circumstances that Bioepis took on affiliate status.

Samsung BioLogics’ net profit reported in 2015 was therefore calculated based on the change in its relationship to Samsung Bioepis, the company said. From 2016, Bioepis’ performance was no longer included in BioLogics’ accounting records.

“If the FSS decides to carry out the special audit, we will fully cooperate with the authorities in accordance with law. We hope that this investigation will clear up all misunderstandings about our accounting practices,” Samsung BioLogics said.

By Sohn Ji-young/The Korea Herald (jys@heraldcorp.com)