FSS: "More Listed Companies Revising Financial Statements Due to Advance Notice System for Accounting Issues"

22% of 549 Accounting Error Corrections Since 2016 Are Related to Accounting Issues

[Asia Economy Reporter Minji Lee] The Financial Supervisory Service (FSS) announced that the proportion of listed companies revising their financial statements for the relevant year in response to pre-announced accounting issues under thematic audits is gradually increasing. The thematic audit was introduced by the FSS in 2013 to enhance preventive accounting supervision and the efficiency of audit tasks, encouraging companies to carefully handle financial statement preparation in areas vulnerable to accounting errors.

According to the FSS on the 4th, over seven years since the end of 2013, 32 issues were selected and announced, and it was analyzed that revisions to financial statements related to pre-announced accounting issues have significantly increased. By period, reviewing corrections to past reports from the submission date of the regular report for the fiscal year containing the accounting issue pre-announcement date (usually the end of March) until the submission date of the following fiscal year, among 549 companies that corrected accounting errors with a scale multiplier of 1 or more (changes of 1% or more in profit/loss, equity, etc.) since December 2016, 124 companies (21.9%) reflected corrections related to accounting issues by the regular report submission date or the following year’s submission date. Of these, 58 cases (46%) were reflected in the relevant year, and 68 cases (54%) were reflected the following year. The rate of reflecting corrections in the relevant year also increased. Until March 2018, the rate of corrections reflected in the relevant year was only 32%, but after April, it rose to 49.5%.

By issue, from the end of 2016, there were four rounds of pre-announcements of accounting issues, with many corrections related to intangible assets such as development costs (50 cases), non-marketable asset valuations (17 cases), and long-term construction contracts in order-receiving industries (14 cases). The FSS stated, “These issues were frequently selected for repeated audits, resulting in a high frequency of corrections,” and added, “For intangible assets such as development costs, voluntary corrections were actively encouraged through supervisory guidelines following thematic audits.”

As of the end of last month, among 143 companies whose audits and inspections were concluded, 48 companies were subject to corrective actions for accounting violations, while the rest were closed with no charges. The average violation rate was 33.6%, which was lower than the 43% violation rate found in general sample audits that examine financial statements comprehensively. However, in 2018, a comprehensive inspection of development costs was conducted, resulting in a high violation rate of 50%.

Among the 48 companies with completed accounting violation actions, a total of 108 violations were identified. Of these, 36 companies, accounting for 75% of the total, were directly cited for violations related to the relevant accounting issues. These companies showed high related violation cases concerning intangible assets (52.4%), long-term construction contracts (33.3%), and non-marketable asset valuations (35.7%). Regarding the motives for violations among the 48 companies, negligence accounted for the largest share at 54.2% (26 companies), followed by gross negligence (41.6%), and intentional violations (4.2%).

The FSS stated, “With the introduction of the financial statement review system in April last year, simple accounting errors are recommended for correction and closed with minor measures, so companies should promptly review and voluntarily correct errors related to accounting issues announced as thematic audit targets,” adding, “If correction recommendations are not implemented or if violations are intentional or repetitive, stronger measures through audits are possible.”

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