Samjong KPMG "Listed Companies with Internal Accounting Control System Non-compliance... Majority of Auditors? Audit Opinions Disagree"

[Asia Economy Reporter Park Jihwan] An analysis of audit opinions on internal accounting control systems of all listed companies last year revealed that the majority of opinions between external auditors and audit committees were inconsistent.

According to the ‘Audit Committee Journal No. 19’ published by Samjong KPMG on the 3rd, among 2,198 companies, 87 received an ‘adverse’ opinion from external auditors last year. Among these 87 companies, 73 were given a ‘reasonable’ opinion by the audit (committee), differing from the external auditors. The number of companies whose management opinions were ‘reasonable’ was higher, totaling 78 companies (89.7%).

In the United States, among 146 companies that received an adverse opinion from external auditors on internal accounting control systems in 2020, there were no cases where the company’s evaluation conclusion differed from that of the external auditor. This is attributed to more thorough self-assessments by management and supervisory activities by audit committees, along with active communication with external auditors throughout the process.

Kim Yukyung, leader of the Samjong KPMG Audit Committee Support Center (ACI), stated, "For the audit (committee) to reach a truthful evaluation conclusion on the internal accounting control system, management must derive a reliable evaluation conclusion through an independent evaluation organization and procedures, and an environment must be established where the audit (committee) can receive frequent reports and conduct inspections."

The report noted that while it is common for major domestic companies to codify quarterly regular meetings of the audit committee, GE stipulates six annual meetings and MS eight annual meetings in their regulations. Additionally, in 2020, the audit committee sizes were five members for GE and four for MS, with all members being accounting and finance experts. Notably, 60% of GE’s audit committee members were women, including the female audit committee chair.

In 2020, GE held 13 audit committee meetings and MS held 11, approximately twice the average of 6.3 meetings held by KOSPI 200 companies last year. GE and MS audit committee members received compensation averaging 300 to 400 million KRW, and their director compensation policies favored audit committee members or chairs over other committee members or chairs.

The report also provided guidance on matters audit committees should consider ahead of appointing external auditors in 2022. By analyzing the activities of audit committees related to external auditor appointments?including the basis for appointment, selection criteria, and number of meetings held?it offered practical information to assist upcoming audit (committee) reviews of external auditor appointment agendas.

Among 46 non-financial companies that appointed external auditors and published corporate governance reports this year, Samjong KPMG found that 26 disclosed their audit committee operation regulations. Of these, 96% (25 companies) specified the legal basis for appointing external auditors.

Han Eunseop, head of the audit division at Samjong KPMG, explained, "Compared to 2019, cases where external auditor appointment criteria were formalized and used as standards for appointment activities have significantly increased. This indicates that related regulations are well established in the market."

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