One-Year Postponement of Internal Accounting Control System Implementation... "Considering the Impact of COVID-19"

[Asia Economy Reporter Ji-hwan Park] The application of the consolidated internal accounting control system for listed companies with total assets of 2 trillion won or more, which was scheduled to be implemented from next year, will be postponed by one year in consideration of the impact of COVID-19.

On the 14th, the Financial Services Commission announced that it will give prior notice of the amendment to the 'Enforcement Decree of the External Audit Act' based on this content.

From 2022, listed companies with total assets of 2 trillion won or more must apply the strengthened internal accounting control system on a consolidated basis from the parent company to its subsidiaries. The internal accounting control system replaces the verification of the operational status report prepared based on the company's own inspection results with an external auditor directly auditing all matters related to the company's internal controls. It was introduced to strengthen corporate accounting transparency in accordance with the amendment to the Act on External Audit of Stock Companies, etc., which came into effect in November 2018.

The audit of the consolidated internal accounting control system was originally scheduled to be applied from 2022 for companies with assets of 2 trillion won or more, from 2023 for those with 500 billion won or more, and from 2024 for other corporations. However, these listed companies have many subsidiaries overseas, and due to restrictions on overseas business trips caused by the COVID-19 pandemic, it became difficult to establish the consolidated internal accounting control system within the original deadline. Considering the time required to establish the consolidated internal accounting control system and the management difficulties caused by COVID-19, the Financial Services Commission decided to postpone the implementation by one year.

Criteria for self-assessment of auditors' quality control levels will also be established. Standards for auditors to self-evaluate their quality control levels will be prepared, including the proportion of personnel dedicated to quality control affecting audit quality, pre- and post-audit hours, audit supervision results on the quality control system, and the degree of improvement in quality control levels. Auditors are required to self-assess their quality control levels for each fiscal year and submit the results to the Securities and Futures Commission within four months after the end of the fiscal year.

In addition, the amendment supplements the supervisory procedures such as audit supervision and sanctions for violations of the maintenance obligations of registration requirements related to the registration system for auditors of listed companies, which were implemented last year but lacked specific procedures. Currently, auditors must maintain registration requirements such as having at least 40 registered accountants and establishing an integrated management system to ensure audit quality. However, regardless of the severity of violations, only cancellation of auditor registration for listed companies is possible, making it difficult to impose sanctions proportional to the degree of violation. In the future, registered auditors for listed companies must review compliance with registration requirements every fiscal year and submit the results to the Financial Services Commission. Also, when maintenance obligations are violated, exclusion points will be imposed on auditors considering the importance of the violation. Auditors who receive exclusion points will be restricted from being designated to a certain number of companies according to the points received.

The obligation to post transparency reports on the website, which include information on governance, directors' remuneration, personnel in charge of quality control tasks, and the career status of affiliated certified public accountants, will be limited to auditors of listed companies, exempting general accounting firms.

The Financial Services Commission plans to give prior notice of the amendment to the enforcement decree by August 23 and complete the revision by the end of this year after review by the Ministry of Government Legislation.

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