Financial Supervisory Service Reports 59% Audit Deficiency Rate in Listed Companies Last Year...1%P Decrease from Previous Year

[Asia Economy Reporter Ji-hwan Park] It was revealed that 59% of listed companies last year violated accounting standards during financial statement reviews and audits.

According to the "2019 Review and Audit Results and Implications for Listed Companies" announced by the Financial Supervisory Service (FSS) on the 6th, among the total 139 listed companies whose financial statement reviews and audits were concluded last year, the violation rate was 59%. This is a 1 percentage point decrease compared to 60% in the previous year.

By type of audit, the violation rate for sample reviews and audits was 48.3%, while the violation rate for suspicion-based reviews and audits was 78.0%. Both rates decreased by 2.3 percentage points and 13.3 percentage points respectively compared to 2018. The FSS explained that this was largely due to the relaxation of the scope of consolidated financial statement preparation and related action standards. Sample audits refer to selecting companies judged to have a high possibility of accounting standard violations through analysis of disclosure materials or by random sampling. Suspicion-based audits are conducted on companies discovered through voluntary corrections of disclosed financial statements or receipt of reports.

By type of violation, the proportion of issues related to core matters affecting corporate value, such as current profit or loss or equity, has been steadily increasing. The proportion of these core issues rose from 63.2% in 2016 to 70.6% in 2017, 75.0% in 2018, and 75.6% in 2019. The FSS explained, "Although there is no impact on equity, violations related to important financial information such as overstatement of sales and cost of sales and errors in classification between current and non-current assets are on the rise."

By motivation for violations, the proportion of intentional or gross negligence violations was 32.9%, significantly down from 63.3% the previous year. This decrease is attributed to the revision of action standards that only consider gross negligence when the violation amount exceeds four times the standard amount.

Criticism of accounting firms and certified public accountants (CPAs) showed contrasting trends. The number of accounting firms receiving criticism increased by 11.5%, from 78 in 2018 to 87 last year. On the other hand, the number of CPAs receiving criticism rose sharply from 113 in 2017 to 199 in 2018, then slightly decreased to 177 last year. The FSS explained that since violations below four times the importance threshold are generally judged as negligence, the number of responsible accountants subject to action has decreased.

The FSS plans to focus reviews on core matters and, if the identified violations are deemed not serious, to conclude with mild measures, thereby resolving uncertainties related to accounting standard violations at an early stage.

An FSS official stated, "As the level of action against auditors' negligence in important audit procedures is strengthened, we will continue to foster an environment that emphasizes diligent audit procedures."

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