71 Listed Companies Received 'Adverse Opinions' on Audit Reports Last Year... 6 More Than Previous Year

[Asia Economy Reporter Park Jihwan] It has been revealed that the number of companies receiving adverse opinions (qualified, adverse, or disclaimer of opinion) has been continuously increasing following the enforcement of the new External Audit Act.

On the 10th, the Financial Supervisory Service (FSS) announced that the number of companies with adverse opinions among listed corporations for the 2020 fiscal year was 71, an increase of 6 companies from 65 in the previous year. Among listed companies, the number of companies with adverse opinions has been on the rise every year: 21 in 2016, 32 in 2017, 43 in 2018, 65 in 2019, and 71 in 2020.

The number of qualified opinions was 6 companies, down by 1 from 7 last year. The number of disclaimers of opinion was 65 companies, an increase of 7 from 58 in the previous year. Notably, the number of companies with disclaimers of opinion last year increased by 55 compared to 2016. This has shown a continuous increase over the past five years. The main reason for adverse opinions was limitation of audit scope, accounting for 63 companies. Uncertainty about the going concern was the second most common reason, with 32 companies.

On the other hand, the rate of unqualified opinions last year was 97.0%, showing a continuous decline from 99.0% in 2016, 98.5% in 2017, 98.1% in 2018, 97.2% in 2019, to 97.0% in 2020.

By market type, the rate of unqualified opinions was 98.7% for the KOSPI, 96.5% for KOSDAQ, and 92.1% for KONEX. The rate of unqualified opinions for auditor-designated companies was 92.8%. This was 6.2 percentage points lower than the 99.0% rate for freely appointed companies. The FSS analyzed, "Among designated companies, many have poor financial conditions and high audit risk, resulting in a significantly lower rate of unqualified opinions compared to freely appointed companies, but this gap decreased last year."

By asset size, the rate of unqualified opinions was lowest at 93.9% for listed companies with assets under 100 billion KRW. For companies with assets between 100 billion and 500 billion KRW, it was 98.8%, and for those with assets over 500 billion KRW, it was 99.2%. It was explained that smaller companies tend to have weaker financial structures or lower levels of internal control, which is presumed to result in more adverse opinions.

The number of companies with emphasis of matter paragraphs increased sharply to 630, compared to 250 in the previous year. Emphasis of matter refers to items noted by auditors in the audit report that do not affect the audit opinion but are important for understanding the financial statements and require users’ attention. The FSS reported that 350 companies added emphasis of matter paragraphs due to uncertainties in the business environment caused by the prolonged COVID-19 pandemic.

Among 2,293 companies with unqualified opinions, 105 companies (4.6%) had going concern uncertainties noted, an increase of 0.8 percentage points from 84 companies (3.8%) in the previous year.

The rate of delisting or receiving adverse opinions within one year for companies with unqualified opinions and going concern uncertainties noted in the 2019 fiscal year was 17.9%, about 11 times higher than the 1.7% rate for companies without going concern uncertainties noted.

Based on the number of listed companies subject to audit, the share of the Big Four accounting firms showed a declining trend, dropping from 47.3% in 2016 to 31.0% last year. The share of mid-sized accounting firms increased by 11.3 percentage points from 24.7% in 2019 to 36.0% last year.

An FSS official stated, "We will continuously monitor compliance with registration requirements to ensure that the audit quality of registered accounting firms is maintained at a certain level or higher, and we plan to expand the reflection of audit quality factors when designating auditors."

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