If an accounting fraud issue arises during the preparation of financial statements, will management also be punished?

Accounting fraud refers to cases where, in violation of accounting standards, false financial statements are prepared and disclosed, or false content is entered in or omitted from an audit report.

Such conduct is subject to strict sanctions under the Act on External Audit of Stock Companies, Etc.

Under Article 39 of the External Audit Act, preparing financial statements in violation of accounting standards or preparing a false audit report is subject to criminal punishment.

Specifically, imprisonment for up to 10 years, or a fine equal to not less than two times and not more than five times the profit gained or the loss avoided through the violation, may be imposed concurrently.

However, where there is no profit gained or loss avoided through the violation, or where its calculation is difficult, or where the amount equal to five times that figure is 1 billion won or less, the upper limit of the fine is capped at 1 billion won.

In particular, a person who qualifies as a 'person who instructs the execution of business' under the Commercial Act may bear liability even if he or she is not formally a director.

If a person substantively directed or decided the accounting treatment, the same legal liability as that of a director is recognized.

Therefore, whether conduct constitutes accounting fraud must be judged by comprehensively considering factors such as intent, the internal instruction structure, and the degree of violation of accounting standards.

It is important to review the legal risks and prepare a response strategy from the early stage through the advice of an attorney specializing in accounting.