The Financial Services Commission announced a plan to make improvements to a set of key accounting rules on June 12, taking into account a comprehensive set of factors discussed and recommended by academic and industry experts.
Since the accounting reform of 2017 (regarding the Act on External Audit of Stock Companies), there have been both positive and negative opinions in the past five years about the newly introduced accounting rules such as the periodic designation of an external auditor. Compared to the pre-reform period, experts generally see that the reform measures have helped to improve accounting transparency. However, businesses have called for making improvements to the system as they have been questioning whether the benefit outweighs the cost in introducing the reform measures. Against this backdrop, the FSC has prepared the following measures to improve the accounting rules introduced five years ago.
Lowering burden of external audit on internal accounting control system
The cost of stock companies for setting up and maintaining an internal accounting control system is estimated to be about 90 percent of the cost paid out for audit fees. This sharp rise in their accounting costs has presented difficulties for many businesses. Meanwhile, a study by Korea Accounting Association finds that for stock companies with less than KRW2 trillion in assets, the relationship between the effectiveness of having a separate internal accounting control system and boosting their accounting transparency remains not so clear.
Thus, authorities will postpone the requirement of external audit on the consolidated internal accounting control system for small- and medium-sized stock companies (those with assets less than KRW2 trillion) for five years (from 2024 to 2029). For those with assets worth KRW2 trillion or more, the external audit requirement will be implemented as scheduled starting from this year, but those asking for a postponement on their consolidated internal accounting control system can get a maximum two-year postponement.
In addition, those disclosing their consolidated internal control audit reports will be exempted from the duty to disclose a separate internal accounting audit report. This will help reduce redundancy and lower reporting burden for stock companies with KRW2 trillion or more in assets.
Also, the external audit requirement on internal accounting control system is postponed for three years for newly listed small- and medium-sized companies (those with assets worth KRW100 billion to KRW500 billion).
Along with the postponing of the external audit requirement, the FSC also plans to seek a more reasonable operation of the designated auditor system, introduce guidelines to encourage more flexible application of standard audit hours and make improvements to the periodic designation of auditor scheme.
The FSC plans to finish making revisions to the relevant rules within this year to ensure swift implementation of the improvement measures.
* Please refer to the attached file for details.