Mass Disclaimers of Opinion on Semi-Annual Reports... Investors Urged to Exercise Caution

Over 40 Firms Including Contentree JoongAng and Daeho AL
Must Resolve Issues Before Submitting Annual Reports

As the deadline for listed companies to submit their semiannual reports passed, a large number of companies received unfavorable audit opinions such as a "disclaimer of opinion" from their accounting firms. With more than 40 listed companies on the Korea Exchange and KOSDAQ markets receiving a disclaimer of opinion on their semiannual reports, concerns are mounting over potential delisting, and investors are urged to exercise special caution.

As of 10:15 a.m. on August 18, ContentreeJoongang is trading at 1,464 won, down 10.40% from the previous session. The stock is plummeting following the news of the disclaimer of opinion in its semiannual report. In addition, Syntekabio is currently at its lower price limit, while Syswork is down 23.53%, KS Industry down 15.28%, and Satoshi Holdings is down 14.07%.

All of these companies have disclosed unfavorable semiannual audit opinions. According to the Financial Supervisory Service's DART system and the Korea Exchange, 11 companies listed on the Korea Exchange and 35 on KOSDAQ publicly announced a disclaimer of opinion around the reporting deadline of August 14.

ContentreeJoongang, which received an unqualified opinion last year, received a disclaimer of opinion on both its consolidated and separate financial statements this time due to material uncertainty related to its ability to continue as a going concern. ContentreeJoongang reported an operating loss of 1.102 billion won for the first half and a net loss of 4.838 billion won for the period. As of the end of the reporting period, the company’s current liabilities exceeded its current assets by 279.838 billion won. Furthermore, ContentreeJoongang applied for corporate rehabilitation proceedings with the Seoul Bankruptcy Court in June and received a commencement order in the same month. The auditor determined that these circumstances raised doubts about the company’s ability to continue as a going concern.

Daeho AL also received a disclaimer of opinion on its semiannual report. The auditor explained that the reason for the disclaimer was the failure to conduct sufficient and appropriate audit procedures when reviewing opening balances. Daeho AL posted a net loss of 10.587 billion won in the first half of this year and a capital impairment rate of 27.2%. The company previously received a disclaimer of opinion in last year's annual report, leading to a delisting decision earlier this month. The company has since filed for a provisional injunction to suspend the effect of the delisting decision and is currently awaiting the court's verdict.

Syntekabio, which hit its lower price limit today, shifted from an unqualified opinion in last year's semiannual report to a disclaimer of opinion this year. The basis for the disclaimer was the inadequacy of sufficient and appropriate audit evidence collected to verify the legitimacy and intended use of lending transactions.

Mobile Appliance, which also received an unqualified opinion last year, received a disclaimer of opinion on its semiannual report this year. The auditor cited several reasons for the disclaimer, including uncertainty over allegations of fraud involving former management and the impact on financial statements, questions over the validity and proper accounting treatment of certain fund transactions, potential off-balance sheet liabilities and contingencies due to internal control weaknesses, the scope and completeness of related-party transactions, and material uncertainty regarding the company's ability to continue as a going concern.

Cellumed, which also received a disclaimer of opinion in last year's semiannual report, was subject to the same outcome again this year. The auditor indicated that restrictions on the scope of review of opening financial statements, the appropriateness of evaluating collectibility of loans, and uncertainty over the going concern assumption were the reasons for the disclaimer of opinion.

Companies receiving a disclaimer of opinion on their semiannual reports are designated as administrative issues. Unlike annual reports, this does not immediately lead to delisting. However, if the reason for the unfavorable opinion is not resolved by the submission of the annual business report and a disclaimer of opinion is issued again, delisting procedures will follow.

For companies that receive an unfavorable opinion on their semiannual report, it is difficult to resolve the underlying issues in a short period by year-end, so caution is warranted when investing. An official from the financial investment industry stated, “The flood of disclaimer of opinion announcements across both the Korea Exchange and KOSDAQ is a warning sign of declining corporate financial soundness. Companies that receive a disclaimer of opinion in the semiannual report often fail to restore a normal audit opinion in the annual report as well, leading to delisting. Therefore, indiscriminate trading in these stocks should be avoided, and financial statements and disclosures should be reviewed thoroughly.”

This content was produced with the assistance of AI translation services.