Reducing the Burden of Accounting Reform...Amendment to Ease Audit Designation Requirements Passed at Cabinet Meeting

Deletion of Reasons for Auditor Designation under Financial Standards
Establishment of Quorum for Standard Audit Time Deliberation Committee Resolution

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] The amendment to the External Audit Act, which reduces some of the companies subject to auditor designation ex officio, has passed the Cabinet meeting. Ex officio designation is a system where the Securities and Futures Commission under the Financial Services Commission can appoint or change auditors for companies with designated reasons.

On the 6th, the Financial Services Commission announced that the 'Enforcement Decree of the Act on External Audit of Stock Companies, etc. (External Audit Act)' amendment was approved at the Cabinet meeting.

The amendment reflects the significant overlap between companies designated ex officio under the new External Audit Act financial criteria (such as three consecutive years of operating losses, interest coverage ratio below 1) and those designated under the existing Enforcement Decree of the External Audit Act, by deleting the financial criteria for ex officio auditor designation from the Enforcement Decree.

According to the Financial Services Commission, among the 143 companies designated under this year's Enforcement Decree, 95 companies also met the statutory designation criteria. Some companies evaluated as financially sound were also subject to ex officio designation, leading to continuous requests to exclude these companies from the financial criteria for ex officio designation to alleviate corporate burdens.

The standard audit hours system will also be revised. Currently, there is no clear regulation regarding the quorum for resolutions of the Standard Audit Hours Deliberation Committee, causing conflicts among stakeholders. Accordingly, the quorum for resolutions will be defined as attendance of at least two-thirds of members, with a majority approval of those present, to ensure procedural legitimacy in decision-making.

Additionally, regarding the criteria for companies subject to external audits, which often causes confusion among audit target companies, it has been clearly defined that companies meeting two or more of the following four criteria?assets of 12 billion KRW or more, liabilities of 7 billion KRW or more, sales of 10 billion KRW or more, or 100 or more employees?are subject to external audits.

The amended provisions will take effect on the date the law is promulgated. A Financial Services Commission official stated, "This amendment will partially alleviate corporate burdens and help ensure that the opinions of stakeholders related to accounting reform are balanced, thereby aiding the market settlement of accounting reform tasks."

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