Financial Supervisory Service Publishes Case Studies Supporting Internal Accounting Control System Implementation... Including COVID-19 Issues

[Asia Economy Reporter Ji-hwan Park] The Financial Supervisory Service (FSS) announced on the 28th that it will disclose application cases to support the establishment of external audits for the internal accounting management system.

The purpose is to resolve unnecessary conflicts between companies and external auditors that may arise during the external audit process of the internal accounting management system and to enhance consistency in practical work. The internal accounting management system refers to the internal controls over financial reporting that a company must establish and maintain to prepare and disclose reliable accounting information.

The external audit of the internal accounting management system for listed companies has been implemented gradually since 2019 according to asset size. Listed companies with assets exceeding 500 billion KRW must undergo an external audit of their internal accounting management system starting from the 2020 fiscal year.

First, the FSS guided that companies and external auditors should pay attention to the strengthened certification process from 'review' to 'audit' by referring to these application cases. A 'review' mainly verifies the operational status report, which is a self-inspection and reporting of the internal accounting management system by the company. In contrast, an audit significantly expands the scope of verification by examining not only the operational status report but also the company's key internal controls themselves (design and operation) related to main activities such as sales, purchasing, and production.

Additionally, a review involves auditors conducting verification procedures focused on questioning personnel responsible for the company's internal controls. However, an audit includes direct verification procedures such as inspecting documents prepared by the company related to internal controls, re-performing important control activities, or observing the company's control activities on-site.

This case particularly includes issues related to the evaluation of companies' internal accounting management systems concerning asset impairment in the context of increased uncertainty due to COVID-19.

Previously, the FSS and the Korean Institute of Certified Public Accountants (KICPA) prepared and disclosed 36 application cases in 2019 regarding company documentation, evaluation, and control testing. The FSS added 21 new cases with topics such as IT-related issues and audit report issuance, supplementing cases that require modification during practical application.

The FSS plans to disclose these application cases for the external audit of the internal accounting management system on the KICPA website. An FSS official stated, "We plan to continuously add and supplement application cases to eliminate unnecessary confusion and enhance consistency in the practical work of external audits for the internal accounting management system."

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