[Deputy Editor's Column] 'Audit Deadline Extension' Lacking Investor Protection Measures

[Asia Economy Reporter Lim Jeong-su] The timing of submitting audit reports is important investment information in itself. Except for exceptional cases, it is common for normal and sound companies to submit audit reports on time or earlier than the deadline.

Companies that delay submitting audit reports and postpone shareholder meetings are generally perceived as companies to avoid investing in. Investors tend to believe that these companies have encountered problems during the audit process or that their continued existence as going concerns is uncertain.

However, this year, the timing of audit report submission is unlikely to be useful investment information. This is because the government and financial authorities have decided to extend the deadlines for submitting audit reports and business reports for companies facing unavoidable circumstances due to the novel coronavirus infection (COVID-19). Since business reports are finalized after shareholder meetings, shareholder meetings can effectively be postponed as well.

This is an inevitable measure in a situation where many companies find it difficult to submit audit reports on time due to the COVID-19 crisis. Companies with subsidiaries in China or those located in major infection areas where commuting is restricted have no other options. However, it is important to keep in mind that some companies may exploit this. Companies with incentives to delay may intentionally postpone submitting audit materials and shareholder meetings by citing unavoidable circumstances.

This is especially true for companies that have recorded operating losses for four consecutive years and are likely to be designated as management companies, or those already designated as such where delisting decisions may vary depending on audit results. Also, companies facing accounting audit issues ahead of initial public offerings (IPO) or large-scale fundraising have strong incentives to delay submitting audit reports.

Last year, 17 companies listed on the Korea Composite Stock Price Index (KOSPI) and 48 companies listed on the KOSDAQ delayed submitting audit reports. Most delays were due to the strengthening of the External Audit Act (New External Audit Act), but 24 listed companies received adverse audit opinions (qualified, adverse, or disclaimer of opinion). This year, these companies’ delisting status will be determined based on audit opinions and other factors.

If actual abuse cases increase, individual investors may suffer losses. This is why there are calls for supplementary measures that minimize investor damage while accommodating companies’ unavoidable circumstances. It is necessary to consider measures that require companies to disclose specific and transparent reasons for delayed audit report submissions, as well as the possibility of significant changes in management conditions based on audit opinions or corporate performance.

This content was produced with the assistance of AI translation services.