Financial Authorities "Intensive Inspection of Compensation Contracts Between Companies and Designated Auditors"

[Asia Economy Reporter Minji Lee] Financial authorities announced that they will focus on inspecting the actual status of audit fee contracts between companies and designated auditors in line with the timing of the official notification of auditor designation.

On the 15th, the Financial Services Commission and the Financial Supervisory Service stated that as the number of companies subject to auditor designation expands and there is a possibility of disputes over excessive audit fee demands during the audit contract process between companies and designated auditors, they will conduct an early and focused inspection of audit contract practices.

Earlier, on the 12th of this month, the Securities and Futures Commission under the Financial Services Commission finalized the list of companies subject to auditor designation for next year and issued notifications of auditor designation. The total number of designated companies this time was 1,241, including 999 listed companies and 242 unlisted companies. Among them, 484 companies received periodic designation, while the remaining 783 were designated ex officio.

These companies must conclude the designated audit contract within two weeks from the date of receiving the designation notification. If the designated auditor applies for an extension of the audit contract deadline, an additional two-week period may be granted, and further extensions are possible depending on individual circumstances.

The Financial Services Commission explained, “We will prevent disputes between companies and designated auditors regarding audit fees and support the conclusion of audit contracts at a smooth and reasonable level.”

Accordingly, the Financial Services Commission plans to provide consultation services related to audit contracts through relevant corporate associations. They will establish an ‘Audit Contract Consultation Center’ at the Korea Listed Companies Association and the KOSDAQ Association, and to improve companies’ accessibility to consultations, audit fee consultations will be available anonymously, without forms, and without procedures.

The Financial Services Commission stated, “Cases suspected of excessive audit fees will be immediately shared with the Financial Services Commission, Financial Supervisory Service, and the Korean Institute of Certified Public Accountants (KICPA), and the Financial Supervisory Service and KICPA will verify the facts of such cases.” If reports of excessive audit fees are received by the Financial Supervisory Service and KICPA, the audit contract deadline will be automatically extended until the investigation is completed.

Furthermore, companies designated with auditors can directly report excessive audit fee demands to the Financial Supervisory Service and KICPA. If a designated auditor is disciplined by KICPA, regardless of the level of discipline, the company will be assigned a new auditor. Disciplined designated auditors will face measures such as cancellation of auditor designation, reduction in the number of companies they can be designated for in the future, and audit quality inspections. Additionally, if a designated auditor fails to conclude an audit contract without special reasons, further measures such as exclusion from auditor designation for one year may be imposed through a resolution by the Securities and Futures Commission.

Finally, the Financial Services Commission stated, “We will closely monitor the process of concluding designated audit contracts and promptly take action if any unfair cases are found,” adding, “If reasons for cancellation of auditor designation arise, we will promptly inform the public through the media.”

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