FSS Urges Proactive Response to COVID-19 Impact in This Year's Financial Closing

[Asia Economy Reporter Minji Lee] On the 30th, the Financial Supervisory Service (FSS) provided guidance on matters that companies and auditors should pay attention to when preparing and disclosing financial statements and conducting year-end audits ahead of this year's settlement.

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First, the FSS emphasized that proactive measures should be taken regarding the impact of the prolonged COVID-19 pandemic during this year's year-end audit. If it is difficult to apply face-to-face audit procedures due to the prolonged COVID-19 situation, auditors should strive to obtain appropriate audit evidence by performing alternative audit procedures in accordance with the practical guide for non-face-to-face audit procedures.

Furthermore, if there is uncertainty in estimating asset impairment and its impact on financial statements due to COVID-19, companies should measure the value in use of assets by referring to the supervisory guidelines to be announced by the regulatory authorities next month. An FSS official explained, “As market uncertainty has increased due to COVID-19, it has become difficult to predict future cash flows, and there have been many voices expressing difficulties in coordinating opinions between companies and external auditors during the audit process. Many auditors were also concerned that estimates at the current point in time might differ from subsequent outcomes, exposing them to supervisory risks, and thus tended to recognize impairments from a conservative perspective.”

The FSS also urged companies to prepare financial statements directly and submit pre-audit financial statements within the statutory deadline. This applies to listed companies, unlisted companies with assets exceeding 100 billion KRW, and financial companies. If a company fails to submit pre-audit financial statements to the Securities and Exchange Commission and the auditor within the deadline, it must disclose the reasons for the delay.

Regarding violations and measures related to the obligation to submit pre-audit financial statements, since the obligation was enforced on December 30, 2013, the number of companies violating this requirement has steadily decreased. However, some listed companies are still subject to measures such as auditor designation due to lack of knowledge of regulations or carelessness. In the case of listed companies, 167 companies violated the rule in 2015, and in 2018, a total of 49 companies failed to submit or delayed submission of pre-audit financial statements.

Moreover, for this fiscal year, listed companies with assets exceeding 500 billion KRW are subject to external audits of their internal accounting control systems. Both companies and auditors are advised to establish, operate, and audit internal accounting control systems in accordance with model regulations. In particular, auditors are advised to perform strict verification procedures such as document inspection, re-performance, and observation, and to expand their scope to include the company’s internal accounting control system in addition to the ‘Operational Status Report.’

Additionally, the FSS mentioned the need for processes such as △ recording key audit matters expanded to listed companies △ identifying key accounting issues for focused review and careful accounting treatment △ efforts to prevent accounting errors and prompt correction upon discovery △ preventing accounting errors through case studies of accounting standards.

An FSS representative stated, “We will guide companies and auditors on the above precautions through the Listed Companies Association, KOSDAQ Association, and the Korean Institute of Certified Public Accountants, and will closely monitor the faithful implementation thereafter.”

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