Samil Accounting Corporation Publishes 'Future Strategy for Internal Accounting Management System' Report

[Asia Economy Reporter Park Jihwan] The Internal Accounting Advisory Center of Samil PwC announced on the 14th that it has published the report "Future Strategy for Internal Accounting Control System" analyzing 102 listed companies subject to internal accounting control system audits.

The report includes an analysis of the current major operations of the internal accounting control system, tasks for the stable establishment and operational efficiency of the system in the future, and implementation plans for the establishment and operation of consolidated internal accounting control systems for listed companies.

In the first year when internal accounting control system audits were conducted for listed companies with total assets of 2 trillion KRW or more, four companies received an "adverse" audit opinion on the internal accounting control system. Last year, when the scope was expanded to listed companies with total assets of 500 billion KRW or more, five companies (based on the December 2020 fiscal year-end) received an "adverse" audit opinion on the internal accounting control system.

In both 2019 and last year, the main reasons for the "adverse" audit opinions were related to distortions or errors in financial statements. The key analysis results included △ the need to secure the ability to prepare financial statements △ the need to increase operational efficiency of the internal accounting control system △ the need to perform continuous change management △ increased use of external consultants for audit committee evaluations.

To enhance the operational efficiency of the internal accounting control system, about 47% of the analyzed companies changed their control activities to system-based automated control activities. Regarding audit (committee) evaluation activities, all analyzed companies have audit (committee) evaluation support organizations or dedicated personnel for the internal accounting control system.

In terms of functional division within organizations, "internal control organizations" accounted for 51%, followed by "internal audit organizations" at 39%. To support audit (committee) evaluation activities, 20% of the analyzed companies utilized external consultants for audit (committee) evaluation support tasks.

The main items discussed between the analyzed companies and auditors included, at the enterprise-level control aspect, "management's competence and integrity" at 26%, "competence of internal accounting personnel" at 21%, and "adequate functioning of the audit (committee)" at 16%.

At the operational-level control aspect, "control activities over accounting estimates" accounted for 18%, "appropriateness of key control activity design" 15%, "management review controls" 13%, and "appropriateness of design evaluation and documentation" 13%. Regarding information technology controls, "security and access controls" were cited at 44%, "segregation of duties" 22%, "identification of systems subject to evaluation" 15%, and "verification of control evaluation populations" 10%.

The report stated, "Since the introduction of internal accounting control system audits, restatements of financial statements have decreased, and major internal control items consider risks of financial reporting misstatements due to fraud and errors, including key audit matters involving management judgment." It added, "Internal accounting control system audits have successfully led to enhanced accounting transparency in terms of the qualitative aspects of corporate financial reporting and audit quality, such as accounting errors and disclosure errors."

Im Seongjae, partner leading the Internal Accounting Advisory Center at Samil PwC, said, "Since the internal accounting control system audit was implemented in 2019, our companies have been considering optimal plans that take into account operational efficiency of the internal accounting control system along with effective responses to the audit." He added, "They are facing many uncertainties and difficulties in preparing for the operation of consolidated internal accounting control systems."

He emphasized, "From next year, internal accounting control system audits will be expanded to listed companies with total assets of 100 billion KRW or more, and from 2023, consolidated internal accounting control systems will be implemented starting with listed companies with total assets of 2 trillion KRW or more. Therefore, efforts from companies, auditors, and regulatory authorities are all necessary to secure accounting transparency and ensure the stable establishment of internal accounting control system operations and audit practices."

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