80% of Listed Companies Say "External Audits Increase Time and Costs, Causing Burden"

The proportion of companies reporting an increase in external audit costs and time over the past two years. Photo by Korea Chamber of Commerce and Industry

[Asia Economy Reporter Choi Dae-yeol] A survey revealed that 8 out of 10 publicly listed companies in South Korea feel burdened by external audits. The increased audit hours under the new External Audit Act and the periodic designated audit system have reduced companies' bargaining power, leading to greater time and cost burdens.

On the 2nd, the Korea Chamber of Commerce and Industry announced that it recently conducted a survey on difficulties and improvement tasks related to the "Act on External Audit of Stock Companies, etc." targeting 305 listed companies. According to the survey results, 83% of listed companies reported an increase in audit fees last year, up 6 percentage points from the previous year. Those who said audit hours increased accounted for 79%, also about 6 percentage points higher during the same period.

The new External Audit Act, implemented at the end of 2018, primarily aims to enhance accounting transparency by having the government periodically designate audit firms and apply appropriate audit hours based on asset size and industry. A Chamber official said, "While an increase in audit hours and costs was somewhat anticipated in the first year of implementation in 2019, the upward trend continued last year," adding, "This poses a greater burden on small and medium-sized enterprises lacking sufficient personnel or organizational capacity."

The most cited reason for increased audit fees was the periodic designated audit system, accounting for 39%. This system requires listed companies that have autonomously appointed auditors for six years to be assigned auditors by the government for the next three years. From the companies' perspective, they lose the right to choose their auditors, raising concerns about diminished bargaining power. Other reasons included the introduction of standard audit hours (38%) and audits of internal accounting control systems (17%).

Professor Jeong Do-jin of Chung-Ang University pointed out, "The current designated audit system mechanically assigns auditors without giving companies a choice," adding, "Companies bear high costs but question whether capable auditors who can sufficiently improve audit quality are being designated."

According to the Chamber, some companies experienced audit fees rising by more than 80% compared to the previous year due to designated audits. In one case, a company located in Gyeongnam was assigned an auditor based in Seoul. A company in a provincial area with a simple business structure reportedly saw audit hours increase by about 60% after the introduction of standard audit hours.

Financial authorities operate a reporting center to prevent auditors from excessively raising fees, but only 1.3% of surveyed companies have used this service. Many were unaware of it or doubted its effectiveness. Some companies also feared disadvantages if they reported issues.

To address these problems, companies suggested improving the method of calculating standard audit hours to rationalize audit time or applying enhanced audits only to companies with accounting transparency issues. Proposals also included excluding companies from designated audits if no audit opinion qualifications or supervisory issues occur over a certain period. Song Seung-hyuk, head of the Tax Policy Team at the Chamber, said, "While we agree with the purpose of the system, periodic designated audits and standard audit hours are systems not found overseas," adding, "They should be improved to be applied flexibly according to individual company circumstances."

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