Last Year’s Audit and External Auditor Communication Increased... "Core Audit Discussions Remain Insufficient"

[Asia Economy Reporter Minji Lee] The number of communications between audit committees and external auditors increased last year compared to the previous year. However, the increase in communications related to key audit matters was minimal.

According to the ‘Audit Committee Journal Issue 16’ published by Samjong KPMG on the 26th, the number of communications between audit committees and external auditors increased by 13.8%, from an average of 3.99 times in 2018 to 4.54 times in 2019. The report explained, “Compared to 2018, when the key audit matters system was first introduced for listed companies with assets exceeding 2 trillion KRW, it is judged that periodic communication with external auditors is being conducted.”

In October 2018, the Financial Supervisory Service revised the ‘Detailed Rules on External Audit and Accounting,’ changing the format of the audit report attachments that describe the external audit implementation details, which included the disclosure item ‘Communication with the Audit (Audit Committee).’ This is interpreted as the background for the increase in communication.

On the other hand, the number of times key audit matters were recorded as major discussion topics and disclosed in communications between audit committees and external auditors of listed companies with assets exceeding 2 trillion KRW in 2019 was 2.15 times, only slightly up from 2.10 times in 2018. This was lower than the overall communication frequency growth rate during the same period.

Kim Yoo-kyung, leader of the Samjong KPMG Audit Committee Support Center (ACI), emphasized, “Audit committees must conduct sufficient communication with external auditors to enhance the effectiveness of the key audit matters system and verify that the content regarding communication with external auditors is accurately recorded in the audit report so that it can be properly disclosed to information users.”

The report also suggested that attention should be paid to whether ESG-related discussions within the board of directors are conducted transparently and in a timely manner, and that trends of relevant regulatory bodies should be reflected promptly. Controlling the accuracy of disclosed information is one of the main duties of the audit committee, which must review each stage of ESG strategy and policy implementation and supervise whether it is timely.

Additionally, it explained that the content discussed during the ESG strategy and policy implementation process should be identified as factors influenced by the characteristics of the industry to which the company belongs. To this end, the Sustainability Accounting Standards Board (SASB) in the United States uses ESG issues considering industry-specific characteristics to identify ESG risks from a materiality perspective.

Furthermore, the report presented agendas that audit committees should consider during the COVID-19 situation, including ▲stress tests for financial institutions ▲liquidity and financing ▲fraud risk and credit fraud ▲supply chain management ▲customer experience and customer behavior.

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