The FSS has published the preliminary findings of an investigation into accounting practices used by Samsung BioLogics and its auditors, Samjong KPMG and Deloitte Anjin.

The regulator has tentatively concluded that Samsung BioLogics had committed fraud when it assessed the value of Samsung Bioepis in late 2015, shortly before the company went public in 2016.

Samsung BioLogics turned Samsung Bioepis, in which it holds a 90% stake, into a related company from a subsidiary three years ago when a new drug of Samsung Bioepis, based on ‘biosimilars’, was approved in Europe. The other shareholder is a US company, Biogen.

Prior to going public, Samsung BioLogics had operated at a loss since its inception in 2011. However, just before going public, it reported a net profit of $1.8bn, after using market value instead of book value in assessing the value of Samsung Bioepis.

In a statement put out in the wake of the FSS announcement, Samsung BioLogics said it changed Samsung Bioepis from consolidated to equity-method subsidiary in its 2015 financial records based on IFRS corporate accounting standards 1110 B23(3).

The company said: ‘The reason for removing Samsung Bioepis as a consolidated subsidiary was as follows. For Biogen, a joint shareholder of Samsung Bioepis, the value of the holding shares subject to the call option became greater than the price of exercising the call option (in-the-money) as development results of biosimilars became more visible and substantial.

‘In fact, Biogen officially disclosed its willingness of exercising the call option to the public, announcing “In the coming months, we plan to exercise our option to increase our equity stake in the Samsung Bioepis JV" last April during an earnings conference call.’

Samsung BioLogics contended that it had received approval from the FSS along with three major accounting firms on the changes to its accounting method.

The firms involved were KPMG Samjung, the company’s  designated accounting firm from 2012 to 2015 and Deloitte Anjin, the external auditor designated by the Financial Supervisory Service before the IPO in 2016. PwC Samil, as a designated accounting firm for Samsung C & T, a parent company of Samsung BioLogics, also presented an appropriate opinion on the accounting treatment.

In addition, Samsung BioLogics said it received review from the Korean Institute of Certified Public Accountants (KICPA) in 2016.

The FSS is to take the accounting issues to the Accounting Oversight Deliberation Committee on 10 May and the Securities and Futures Commission (SFC) will make a final decision.

The company said: ‘Samsung BioLogics will fully cooperate with every process including the review of board of supervisors and the decision of SFC in the future.’

Report by Pat Sweet