We are sharing recent domestic and international cases involving fraud and internal control issues. We encourage you to review the underlying causes, risk factors, and key preventive measures for each case, along with an overview of our company’s existing controls to mitigate similar risks.
Kyndryl (Listed on the NYSE) Cash Flow Report Errors and Internal Control Failures
[Article Summary]
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Period : August 2024 - February 2026 (About 18 months)
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Key Issue : Distorted cash flow reporting and provision of inaccurate information related to internal controls
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Detection : Identified through an SEC investigation and an internal review by the company’s Audit Committee
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Outcome : Disclosure of material internal control weakness, replacement of financial executives, and a 55% decline in stock price
[Background]
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Unestablished IT General Controls (ITGC) during system transitions, such as the implementation of a new ERP system (e.g., access authorizations, data change management, etc.)
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Lack of defined cash flow calculation criteria and insufficient verification, leading to reduced reliability of financial information
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Failure to reflect identified internal control deficiencies in effectiveness assessments and disclosures
[Prevention Points]
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Strengthen control design and operational stabilization procedures during IT system transitions (e.g., establishing and rolling out standardized processes)
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Establish independent verification controls for cash flow calculations
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Ensure internal control deficiencies are reflected in evaluations and linked to Audit Committee reporting
- Related Internal control operation status in HMC
Kyndryl Case Elements
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Inadequate controls over system access and change management
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Absence of defined standards and processes for reviewing financial information
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Failure of reporting and disclosure procedures for internal controls deficiencies
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Insufficient management review and oversight of internal controls
Similar Risks in HMC
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Risk of unauthorized users accessing key financial data and compromising confidentiality and integrity
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Risk of financial statements being prepared inaccurately
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Risk that oversight functions of internal control over financial reporting (ICFR) may not operate effectively
HMC Controls
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[Control] Management of user access restrictions
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[Control] Approval of requests for program development/changes
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[Control] Review of user acceptance testing (UAT) and approval for production deployment
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[Control] Analytical review of financial statements and unusual transactions
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[Control] Classification of key accounts in the statement of cash flows
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[Control] Preparation of a management
operations report by the CEO/ICFR manager -
[Control] Establishment of Audit Committee procedures for the oversight and investigation of accounting fraud
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[Control] Audit Committee oversight of financial statements and ICFR
The Kyndryl case demonstrates that superficial operation of internal accounting controls can compromise the reliability of financial information. Specifically, inadequate verification and proper reflection during cash flow calculations and internal control effectiveness evaluations can escalate into external disclosure risks. Our company is continuously managing internal controls to ensure they operate effectively in practice by strengthening not only control design but also verification and reporting systems.
[Contact Us]
Please contact to the email below if you have any questions. hyeju.kim@hyundai.com (Accounting Policy Team Hyeju Kim Manager)
This newsletter has been sent for executives and employees to comply with K-SOX training obligation under the Korean External Audit Act (Enforcement Decree Article 9)