Among Companies Submitting Last Year's Business Reports, 4 out of 10 Have Inadequate Financial Disclosures

FSS Focused Inspection... 44.5% Incomplete Financial Item Entries
Non-Financial Item Entry Incompleteness Improved to 46.3%

[Asia Economy Reporter Eunmo Koo] More than four out of ten companies that submitted business reports last year were found to have incorrectly prepared financial information.

On the 3rd, the Financial Supervisory Service (FSS) announced that after inspecting 2,500 companies with December fiscal year-end (2,117 listed companies and 383 unlisted companies), the number of companies with deficiencies in the financial information of the 2019 business reports was 1,112 (44.5%), an increase of 16.9 percentage points compared to the previous year (684 companies, 27.6%).

Among the companies inspected, 939 companies, accounting for 37.6%, either did not disclose or inadequately disclosed the newly introduced item, ‘Discussions between the internal audit organization and the auditor,’ resulting in a rise in the deficiency rate.

An FSS official explained, “Many deficiencies were found in new inspection items such as recent disclosure form revisions and items where disclosure officers of KONEX and unlisted companies were not familiar with the preparation guidelines.”

The proportion of deficiencies was recorded in the following order: discussions between the internal audit organization and the auditor (61.7%), inventory status (9.6%), allowance for doubtful accounts setting status (8.7%), disclosures related to restated comparative financial statements (6.9%), and key audit matters disclosures (6.2%).

Meanwhile, in the non-financial information inspection conducted on 2,402 companies (2,046 listed companies and 356 unlisted companies), deficiencies were found in the business reports of 1,114 companies (46.3%), showing a 29.6 percentage point decrease compared to the previous year.

While the disclosure level regarding the appointment of accounting and financial experts to the audit committee and the overview of major shareholders has greatly improved compared to the past, the disclosure levels of post-listing information for special listing companies and research and development expenses of pharmaceutical and bio companies remain insufficient despite repeated inspections.

The FSS plans to provide guidance on precautions for companies found with deficiencies in this inspection to refer to when preparing their next regular reports. Additionally, companies that have inadequately disclosed multiple items will be asked to voluntarily correct their business reports, and the financial information inspection results will be considered when selecting companies for sample audits.

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