Samjong KPMG "Utilizing External Experts for Internal Accounting Control System Evaluation... 30%P Increase Compared to Previous Year"

[Asia Economy Reporter Park Jihwan] It has been found that the proportion of companies utilizing external experts due to the impact of the Internal Control over Financial Reporting (ICFR) audit reaches a total of 63%. This is about a 30 percentage point increase compared to last year.

According to the '2021 Internal Control over Financial Reporting Responsible Organization Survey Report' published by Samjong KPMG on the 21st, in the United States, the proportion of external expert utilization exceeded 70% in the early stages of ICFR adoption, and since then, the proportion of internal organization has shown an increasing trend. The report is based on a survey of 136 companies with assets exceeding 500 billion KRW.

Among the 136 companies, 128 companies (94%) have an organization responsible for evaluating the effectiveness of the internal control over financial reporting by management (ICFR evaluation organization), which is a 10 percentage point increase compared to the previous year (84%). Among companies with assets over 2 trillion KRW, 63 out of 64 companies (98%) have an ICFR evaluation organization, and among companies with assets between 500 billion KRW and 2 trillion KRW, 65 out of 72 companies (90%) have such an organization. Among the 128 companies with an ICFR evaluation organization, 58 companies (45%) newly established an internal control organization, and the average total number of personnel remained the same as the previous year at 3.4 members.

Among the 128 companies with an ICFR evaluation organization, 84 companies (66%) have a CFO as the chief officer of the organization, and among them, the CFO of 83 companies also serves as the internal control officer. Shin Janghoon, leader of the Internal Control over Financial Reporting specialized organization at Samjong KPMG, stated, "When the chief officer of the ICFR evaluation organization and the internal control officer are the same person, independence safeguards must be established to ensure the reliability of the evaluation results."

Regarding IT systems, an important consideration in establishing consolidated internal control over financial reporting, only 20% of companies showed an IT integration level of 70% or higher between parent and subsidiary companies. However, 58% of companies had an integration level below 30%, representing the majority. The report stated, "If the IT system integration level with the parent company is high, there are many advantages during establishment, but if the integration level is low, sufficient time and personnel must be secured for establishment and operation."

Among the 136 respondent companies, 131 companies (96.3%) had an ICFR oversight support organization for the audit (committee). Among these, 51 companies (37.5%) were analyzed to be separate organizations from the management evaluation organization. Kim Yukyung, leader of the Internal Control over Financial Reporting specialized organization at Samjong KPMG, explained, "If the ICFR evaluation organization under the audit (committee) conducts the management’s ICFR operational evaluation and the audit (committee) sufficiently manages and supervises the process and results, it can be regarded as a unified evaluation procedure by a single organization where management evaluation and audit (committee) evaluation and supervision are performed simultaneously." She added, "Through such a unified evaluation system, not only the evaluation burden and costs but also independence issues can be resolved."

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