FSS Reports 63.4% Audit Deficiency Rate in Listed Companies Last Year, Up 4.4%p from Previous Year

[Asia Economy Reporter Park Jihwan] It was revealed that 63.4% of companies subject to audit among listed corporations violated accounting standards last year.

According to the "2020 Analysis and Implications of Examination and Audit Results for Listed Companies" announced by the Financial Supervisory Service (FSS) on the 21st, among the total 123 listed companies whose financial statement examinations and audits were concluded last year, the rate of companies pointed out for violations was 63.4% (78 companies). This is an increase of 4.4 percentage points compared to 59.0% the previous year.

By type of audit, the rate of findings in sample examinations and audits decreased by 4 percentage points to 44.3% compared to the previous year. On the other hand, the rate of findings in suspicion examinations and audits increased by 19.7 percentage points to 97.7%. The FSS explained that while many cases were previously closed without findings due to relaxed standards related to the scope of consolidated financial statements, most selected companies were subject to measures last year, resulting in an increased rate of findings.

Sample examinations refer to selecting companies judged to have a high likelihood of violating accounting standards through analysis of disclosure materials or by random sampling. Suspicion examinations are conducted on companies that voluntarily correct accounting errors.

By type of violation, the proportion of findings related to core matters affecting corporate value, such as current profit or loss and equity, showed an increasing trend. The proportion of findings on these core matters rose from 75.0% in 2018 to 75.6% in 2019, and 80.8% last year. The FSS explained, "Violations related to important financial information, such as overstatement of sales and cost of sales and errors in classification between current and non-current assets, are on the rise."

By motivation for violation, the proportion of intentional violations increased significantly by 9.4 percentage points from 8.5% the previous year to 17.9%. In particular, the proportion of negligence increased substantially from 67.1% to 71.8%. This is due to the fact that violations are considered quantitatively material only when the amount exceeds four times the threshold, and violations below four times are judged as negligence.

The number of companies subject to fines decreased by six, but the total amount of fines imposed increased by more than 90%, from 4.98 billion KRW the previous year to 9.46 billion KRW last year, due to an increase in intentional violation cases and new imposition of fines under the External Audit Act.

For accounting firms, cases of accounting standard violations sharply decreased by 57.5%, from 87 firms in 2019 to 37 cases. However, measures for negligence in audit procedures against the Big Four accounting firms?Samil, Samjung, Anjin, and Hanyoung?accounted for 37 cases, representing 35.1% of all measures, an increase of nearly 10% compared to 25.3% the previous year. The number of certified public accountants pointed out decreased significantly from 177 in 2019 to 95 last year.

The FSS evaluated that regarding accounting fraud, strengthened measures such as fines under the External Audit Act are being imposed on companies and auditors, and the possibility of detection is increasing due to the activation of accounting fraud reporting.

An FSS official emphasized, "Companies need to strengthen financial statement verification procedures, and auditors need to diligently maintain quality control systems."

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