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 submitting semi-annual reports for listed companies has passed, a large number of companies have received “disclaimer of opinion” or other adverse opinions from their auditing firms. With more than 40 listed companies—across both the KOSPI and KOSDAQ markets—receiving a disclaimer of opinion on their semi-annual reports, concerns over potential delistings are growing, and investors are being urged to exercise heightened caution.

As of 10:15 a.m. on August 18, ContentreeJoongAng was trading at 1,464 won, down 10.40% from the previous day’s close. The company is experiencing a sharp decline following news of the disclaimer of opinion on its semi-annual report. Similarly, Syntekabio is currently at its daily lower limit, while Syswork is down 23.53%, KS Industry is down 15.28%, and Satoshi Holdings is down 14.07%, among others, all showing steep declines.

All of these companies have disclosed an adverse opinion from their auditor on the semi-annual report. According to the Financial Supervisory Service’s electronic disclosure system (DART) and the Korea Exchange, as of the recent semi-annual report deadline on August 14, 11 KOSPI-listed and 35 KOSDAQ-listed companies announced that they had received a disclaimer of opinion from their auditors.

ContentreeJoongAng, which received an unqualified opinion last year, received a disclaimer of opinion this time for both its consolidated and separate financial statements due to significant uncertainty regarding its status as a going concern. ContentreeJoongAng recorded an operating loss of 1.102 billion won and a net loss of 4.838 billion won in the first half of the year. As of the end of the reporting period, its current liabilities exceeded current assets by 279.838 billion won. Furthermore, in June, the company filed for corporate rehabilitation with the Seoul Bankruptcy Court and received a commencement decision in the same month. The auditor viewed these circumstances as casting doubt on the company's ability to continue as a going concern.

DaehwaAL also received a disclaimer of opinion on its semi-annual report. The auditor stated that the reason for the disclaimer was the inability to perform sufficient and appropriate review procedures with respect to the opening balances. DaehwaAL posted a net loss of 10.587 billion won in the first half of this year and recorded a capital impairment rate of 27.2%. Previously, DaehwaAL also received a disclaimer of opinion on last year's annual report, leading to a delisting decision earlier this month. The company has since filed for a provisional injunction to stay the effect of the delisting decision and is awaiting the court's ruling.

Syntekabio, which fell to its daily limit-down price today, had received a clean opinion in last year’s semi-annual report but received a disclaimer of opinion for this year’s semi-annual report. The auditor cited insufficient evidence collected to verify the legitimacy and intended use of lending transactions as the reason for the disclaimer.

Mobile Appliance, which received a clean opinion last year, also received a disclaimer of opinion on its semi-annual report this year. The auditor cited several reasons for the disclaimer: uncertainties concerning allegations of wrongdoing against former management and the resulting impact on the overall financial statements; questions regarding the validity of certain financial transactions and the appropriateness of their accounting treatment; the risk of off-balance-sheet liabilities and contingencies due to internal control deficiencies; doubts about the scope and completeness of related-party transactions; and significant uncertainty regarding the company’s status as a going concern.

Cellumed received a disclaimer of opinion on its semi-annual report again this year, as it did last year. The auditor cited as reasons for the disclaimer: limitations in the scope of review of the opening financial statements, insufficient appropriateness of the assessment of collectability for loans, and uncertainty about the going concern assumption.

If a company receives a disclaimer of opinion on its semi-annual report, it is designated as an issue subject to administrative supervision. Unlike with annual reports, this does not result in immediate delisting. However, if the grounds for the adverse opinion are not resolved and the company receives a second consecutive disclaimer of opinion on its annual report, it will proceed toward delisting.

Companies that receive an adverse opinion on their semi-annual report are generally unlikely to resolve the issues before fiscal year-end, so investors should take special care. A representative of the financial investment industry noted, "The widespread wave of disclaimers of opinion across both KOSPI and KOSDAQ is a warning sign for the financial health of these companies. As there are many precedents where companies receiving a disclaimer of opinion on their semi-annual report failed to regain a clean auditor’s opinion in their annual report and ended up delisted, investors should refrain from indiscriminate buying and thoroughly review financial statements and public disclosures."

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