The Daewoo Company was founded in 1967 by Kim Woo Choong in South Korea. The company operated its business in several different industries, such as shipbuilding, aerospace, electronics and motor car manufacture. Daewoo Motors has been popular since its foundation, and it kept the record as the second best selling car behind Hyundai. During the 1980s, in order to expand its car business, Daewoo sold half of the company to American giant General Motors, however, this deal led to little success. Later in 1992, Daewoo regained sole control and became profitable by 1995.
To continue expanding its business, Kim Woo Choong took out an aggressive plan of expansion called Vision 2000, which aimed to capture many car manufactures in India and Eastern Europe and to make Daewoo enter into the list of the top ten car manufactures of the 21st century. (Cartmell, n. d. ) However, by 1999, Daewoo, the second largest conglomerate in South Korea, holding interests in approximately 100 countries, went bankrupt and officially declared bankrupt after defaulting on $155m of debt.
(BBC news) In this paper, we will discuss details of the financial malfeasance, laws and rules, result of the malfeasance and what rules might have applied to prevented the collapse of Daewoo Company. Details of the Malfeasance Since its foundation, Kim Woo Choong spent 30 years building Daewoo into a multinational company with annual sales around $60 billion and some 200,000 employees. However, because of the 1997-1998 Asian Financial Crisis, the Daewoo group begun to collapse under enormous debts, around $80 billion. As a result, some parts were broken up, and some parts were sold.
As the group’s flagship, Daewoo Motor, was forced into bankruptcy. Its asset had shrunk to $17. 8 trillion won, but it debts had grown to $18. 2 trillion won. (The economist, 2000) For Kim himself, he firstly announced that he would relinquish $1. 08 of his personal holdings. However, since the government began its closer supervision of the group, Kim propose to leave Daewoo as an automobile company with all of its other major companies being sold off. In return, Kim received over $8. 3 billion in terms of stock, real estate and so on.
On November 1, all of the company’s CEOs submitted their resignations and Kim officially left the company. (PDF) For the accounting side, while expanding trough excessive borrowing, Daewoo chose to commit unprecedented fraud, especially by manipulating its foreign accounts. The company inflated its assets by a total $19. 1 billion. To perpetrate the fraud, Daewoo Corp, which was responsible for $12. 2 billion, used its trading and management departments and its account in London. For instance, in 1997, the company deflated assets by $6. 7 billion and liabilities by $15.
3 billion, and inflated equity by $8. 53 billion to conceal $6. 73 in impaired capital. This happened when the losses for the company had climbed from $7. 87 to $8. 64 billion. Chong-Un, as an auditing firm, it was not subject to any sanctions through 1998. San Tong Accounting, as another leading accountant for Daewoo, generated income from Daewoo for over $12. 5 million. On the domestic side of the company’s malfeasance, most of them were sourced from reduction of debts, manipulation of export returns and utilization of affiliates. (word) Law and Rules
As with most financial scandals, external auditors did not fulfill their jobs, which was providing effective accounting oversight. Weak self-regulation, ineffective regulatory supervision, a lack of accountability and other conflicts of interest were the main problems. Under the External Audit Act, which the auditors did not follow, for example, accounting firms and auditors could be subject to up to three years imprisonment for making omissions or false statements. 1. http://www. ehow. com/facts_5790502_history-daewoo-motors. html 2. http://news. bbc. co. uk/1/hi/business/1012473. stm 3. http://www. economist. com/node/417299