Financial Authorities to Allow Anonymous Reporting of Accounting Fraud

[Asia Economy Reporter Park Ji-hwan] Financial authorities have decided to allow anonymous reporting to promote whistleblowing on accounting fraud. Additionally, local accounting firms with fewer than 40 employees will be excluded from the auditor designation system.

The Financial Services Commission announced on the 23rd that it had approved an amendment to the regulations concerning external audits and accounting, which includes these changes.

Currently, whistleblowers must disclose their 'real names' when reporting accounting fraud by companies subject to external audits or their auditors to financial authorities. However, due to the burden of real-name reporting, there have been continuous calls in the market to allow anonymous reporting to encourage more whistleblowing on accounting fraud.

The FSC plans to permit anonymous reporting but will only initiate inspections if specific evidence supporting the accounting fraud is attached and the case clearly constitutes accounting fraud, to prevent damage caused by false reports.

Furthermore, a basis has been established for the Securities and Futures Commission to sanction auditors if they repeatedly violate important improvement recommendations related to quality control standards. Currently, the SFC's measures against auditors violating quality control standards are limited to improvement recommendations and public disclosure if not complied with, which reduces the effectiveness of sanctions.

Going forward, if an auditor re-violates important improvement recommendations such as insufficient independence checks, they will face measures such as 'corrective orders' and restrictions on audit work for designated companies.

Local accounting firms with fewer than 40 certified public accountants registered as auditors for listed companies will be excluded from the auditor designation by financial authorities. The FSC explained, "This follows last January's relaxation of the registration requirement for listed company auditors from 40 to 20 or more employees for local accounting firms, and the decision to exclude them from the auditor designation system." The auditor designation system allows listed companies to freely appoint auditors for six years, after which the Securities and Futures Commission forcibly designates auditors for three years.

The obligation for external audits related to organizational changes has also been clarified. Newly established companies are exempt from external audits for their first business year, considering the burden of external audits. However, if an existing company subject to external audits splits or merges to establish a new company, and the new company meets the external audit criteria, the exemption will not apply.

The FSC plans to implement the amended regulations concerning external audits and accounting immediately upon their announcement on the 24th.

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