Last Year, Over 2 Trillion Won Listed Companies' Internal Accounting Audit Unqualified Opinions at 2.5%... 0.6%p Increase Compared to Previous Year

[Asia Economy Reporter Park Jihwan] The number of large listed companies with assets exceeding 2 trillion won that received an adverse opinion on their internal accounting control system from auditors last year slightly increased compared to the previous year.

According to the "Analysis and Implications of Audit Opinions on Internal Accounting Control Systems of Listed Companies for the 2019 Fiscal Year" released by the Financial Supervisory Service (FSS) on the 29th, the rate of adverse opinions on internal accounting for large listed companies with assets over 2 trillion won was 2.5% last year. This represents a 0.6 percentage point increase from the 1.9% rate of adverse opinions in the previous internal accounting review.

Among 160 listed companies with assets exceeding 2 trillion won that received audit opinions on internal accounting, 156 received unqualified opinions, while 4 received adverse opinions due to significant deficiencies. Of the 4 companies that received adverse opinions, 2 had also received adverse opinions in the previous review due to significant deficiencies.

The FSS stated, "Since the certification process was strengthened from 'review' to 'audit,' an increase in the rate of adverse opinions was expected," and added, "It appears that large listed companies with assets over 2 trillion won effectively prepared for internal accounting audits by utilizing abundant physical and human resources."

In the United States, the rate of adverse opinions in the first year of internal accounting audits was as high as 15.7%, and the average rate over the past five years has been around 6%. However, the FSS noted that a simple comparison with the U.S. is inappropriate because the Korean data only covers large listed companies with relatively abundant human and physical infrastructure.

All companies subject to financial statement audits received unqualified opinions. All 160 companies, including the 4 that received adverse opinions on internal accounting, received unqualified opinions on their financial statement audits. If errors found during the financial statement audit are properly corrected in the financial statements, an unqualified opinion can be issued. However, if those errors are classified as significant deficiencies under the internal accounting control standards, the internal accounting audit opinion may be adverse. Disclosure of significant deficiencies in the internal accounting audit opinion, separate from the financial statement audit opinion, indicates that the company's current internal accounting system may cause significant errors in future financial statements.

The internal accounting control system refers to the internal controls over financial reporting that a company must establish and maintain to ensure the reliability of accounting information preparation and disclosure.

Listed companies have undergone external auditors' internal accounting reviews since the 2005 fiscal year under the External Audit Act. Especially with the implementation of the new External Audit Act, the certification process was strengthened from the 2019 fiscal year, transitioning to a phased audit system based on asset size. The first companies subject to the internal accounting audit system last year were those with assets exceeding 2 trillion won. From this fiscal year, listed companies with assets between 500 billion won and less than 2 trillion won are included. Those with assets between 100 billion won and less than 500 billion won will be included from the 2022 fiscal year, and those with less than 100 billion won from the 2023 fiscal year.

The FSS expects that the rate of adverse opinions will increase from the 2020 fiscal year onward, when small and medium-sized listed companies with relatively limited available resources are included in the audit scope due to the phased expansion of the internal accounting audit target.

To ensure the stable establishment of the internal accounting audit system, the FSS plans to maintain close cooperation with the Korean Institute of Certified Public Accountants, the Korea Listed Companies Association, the KOSDAQ Association, accounting firms, and others, and to explore various support measures such as expanding FAQs and educational content related to internal accounting.

An FSS official explained, "Users of accounting information need to fully understand the informational effect of internal accounting audit opinions, which are expressed separately from financial statement audit opinions, and consider them in decision-making," adding, "Disclosure of significant deficiencies means that the company's internal accounting system may cause significant errors in future financial statements."

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