Reduce the Burden of Auditor's Ex Officio Appointment

Passage of External Audit Act Amendment
Revisions to Standard Audit Hours System and External Audit Criteria

[Asia Economy Reporter Ji-hwan Park] The amendment to the External Audit Act, which reduces the scope of auditor designation by the auditor's authority, has passed the Cabinet meeting.

By deleting the financial criteria for auditor designation by authority stipulated in the Enforcement Decree of the External Audit Act, the aim is to reduce the burden on companies following the implementation of the accounting reform system by reducing the scope of auditor designation by authority. Auditor designation by authority is a system where the Securities and Futures Commission under the Financial Services Commission can appoint or change auditors for companies that meet the designation criteria.

On the 6th, the Financial Services Commission announced that the "Amendment to the Enforcement Decree of the Act on External Audit of Stock Companies, etc." with these key points was approved at the Cabinet meeting.

The amendment reflects the significant overlap between companies designated as auditors by authority under the new External Audit Act financial criteria (such as three consecutive years of operating losses, interest coverage ratio below 1, etc.) and those designated under the existing Enforcement Decree of the External Audit Act. Therefore, it decided to delete the financial criteria for auditor designation by authority in the Enforcement Decree. According to the Financial Services Commission, among the 143 companies designated under the Enforcement Decree this year, 95 companies also met the statutory designation criteria.

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

Regarding the criteria for external audit targets, which auditing companies often confuse, it has been clearly defined that companies meeting two or more of the following four criteria are subject to external audit: assets of 12 billion KRW or more, liabilities of 7 billion KRW or more, sales of 10 billion KRW or more, and 100 or more employees.

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