One in Four Companies Submitting Last Year's Business Reports Shows Financial Deficiencies

[Asia Economy Reporter Park Jihwan] Among the companies that submitted business reports last year, one in four was found to have inadequately recorded financial items. The Financial Supervisory Service (FSS) plans to notify each company of the deficiencies and guide them to voluntarily correct or reflect them in the next report.

On the 1st, the FSS conducted a focused inspection on whether the 2020 business reports were properly prepared. Among the companies subject to inspection, 24.7% inadequately recorded financial items, and 84.5% inadequately recorded non-financial items. Inadequate recording means not fully complying with disclosure preparation standards, though it does not constitute a disclosure violation.

The FSS inspected financial items for 2,602 companies, excluding financial institutions, out of a total of 2,808 companies that submitted 2020 business reports.

Among these, 643 companies (inadequacy rate of 24.7%) were found to have recording deficiencies. This is a 19.8 percentage point decrease compared to one year earlier.

The main areas where deficiencies occurred were inadequate recording of discussions between internal audit organizations and external auditors (36.4%), inadequate disclosure of the operation status of the external audit system (21.1%), inadequate disclosure of the impact of restated financial statements (9.2%), and inadequate recording related to disagreements in auditor opinions between the previous and current terms (1.7%).

The companies subject to non-financial item inspection numbered 2,391, excluding some unlisted companies, out of the total 2,808 companies that submitted 2020 business reports. Among these, 2,021 companies (inadequacy rate of 84.5%) were found to have deficiencies. This is a sharp increase of 38.2 percentage points compared to one year earlier.

The usage of direct financing funds and disclosure levels related to the pharmaceutical and bio sectors, which have been inspected for two consecutive years, were evaluated as improved compared to the previous year. However, the newly inspected item concerning dividends showed a high inadequacy rate of 63.0%, as preparation standards were strengthened to ensure transparency of dividend policies.

Disclosure by specially listed companies saw a rapid increase in inadequacy rate from 44.5% the previous year to 80.0%, due to numerous deficiencies in recently established disclosure items.

The FSS plans to provide guidance on precautions for companies found with deficiencies to refer to when preparing the next regular report. Companies with multiple deficient items will be asked to voluntarily correct their 2020 business reports. The results of the financial item inspections will be referenced when selecting companies for sample audits.

An FSS official stated, "We will continue to promote and educate on proper business report preparation methods, including providing model cases for each inspection item."

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