South Korean financial authorities will review the Celltrion Group’s questionable accounting practices next week before its distribution unit is made public.

The Financial Services Commission’s (FSC) Accounting Oversight Deliberation Committee has completed its investigation into biosimilar giant Celltrion and its subsidiaries Celltrion Healthcare and Celltrion Pharm and delivered its findings to the Securities and Contracts Commission at term.

The Financial Surveillance Service (FSS) dismissed the case after discovering Celltrion Healthcare’s intentional staging in its 2016 financial statements before it went public. By law, irregularities must be sanctioned within five years of a problematic annual financial statement, which sets Celltrion’s sanction deadline at March.

Celltrion Healthcare is accused of underreporting losses by inflating inventory ahead of its listing on the Kosdaq market. Based on its accounting inspection from 2018 to 2021, Celltrion Healthcare has not expensed raw materials that have expired as losses in reporting inventory.

The company says the expiration period of certain medical raw materials could be extended with the approval of the U.S. Food and Drug Administration and need not be written off.

Whether Celltrion Healthcare’s sale of domestic copyrights to parent company Celltrion should be recognized as revenue also requires deliberation.

In June 2018, Celltrion Healthcare resold the right to market Celltrion’s biomedicines to Celltrion and recorded 21.8 billion won ($18.1 million) in sales.

Celltrion Healthcare reported an operating profit of 15.2 billion won during the April-June period of that year. Without the revenue from the sale of domestic marketing rights to Celltrion, it could have declared a loss.

In theory, a one-time gain should be recognized as non-operating revenue, since the sale should come from regular business activity.

The timing of financial settlement with overseas sales partners was also suspect.

Settlements were accounted for on a semi-annual or annual basis instead of the usual quarterly basis.

Celltrion says its accounting practice is in line with the current global Good Manufacturing Practices (cGMP) guideline and plans to explain the issues of misunderstanding at the hearing.

Shares of Celltrion Healthcare were trading up 2.88% at 64,300 won and Celltrion Pharm up 2.91% at 85,000 won Thursday morning on Kosdaq while Celltrion up 2.98% at 155,500 won on Kospi.

By Kim Myung-hwan and Lee Eun-joo

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]