The accounting fraud of Daewoo Electronics was initiated by verbal instructions from the former chairman of Daewoo Business Group, Kim Woo-choong, who directed the CEO of Daewoo Electronics to manipulate account books in order to cover poor performance in the financial statements. The specific methods of the manipulation include overstatement of inventory, understatement of cost of goods sold, recognition of fictitious receivables, omissions of notes payable, understatement of the allowance for doubtful accounts, omissions of losses in equipments scrapped or disused, and understatement of reserves for retirement allowance. Also, the external auditor of Daewoo Electronics omitted or neglected compulsory audit procedures in the process of physical inventory and in the inspection of goods in transit, off-balance-sheet-liabilities, and reserves for retirement allowance, and ignored or did not take appropriate actions when they found some facts that might indicate false representations and fraud in the financial statements. The lawsuit against Kim Woo-choong, the directors of Daewoo Electronics, and the external auditor over the accounting fraud and the audit failure took about six years to the final verdict, which ordered the defendant to pay for 60 percent of the plaintiff’s damages. However, it was the external auditor with a paying ability who actually paid the most of the 10 billion won indemnities. The current law seems to have a somewhat unreasonable aspect in that the external auditor who does not find accounting fraud have the same level of liabilities as the management who in fact conducts accounting fraud, and faces criticism of impartiality in that external auditors who have deep pockets end up paying most of indemnities. As Korea adopted Securities Class Action in 2005 and lawsuits over accounting fraud and audit failures increase, the controversy is expected to erupt over the jointly and severally liability under the current law in security for victim compensation versus proportionate liability as an alternative for impartial compensation among indemnitors.