Jeong Eun-bo "Enhancing Audit Quality is Priority... No Consideration for Revising the New External Audit Act Backward" (Comprehensive)

Jeong Eun-bo, Governor of the Financial Supervisory Service, is delivering opening remarks at the 'Accounting Firm CEO Meeting' held on the 14th at the Kensington Hotel in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Park Ji-hwan] On the 14th, Jeong Eun-bo, Governor of the Financial Supervisory Service (FSS), emphasized that concerns that the FSS's ongoing institutional improvements to reduce corporate burdens, such as granting the right to request auditor reappointment within the same group, could be a regression of the new External Audit Act (Shin-oegam Act) are unfounded, stating, "Enhancing audit quality is the priority, and we are not considering any institutional revisions that could lead to a regression of the new External Audit Act." Regarding the cancellation of fines imposed on market makers by securities firms, he said, "After the results of the Korea Exchange's inspection of the overall market maker system are released, we will decide on necessary institutional improvements or the fine-related matters."

Governor Jeong made these remarks at a meeting with CEOs of accounting firms held at the Kensington Hotel in Yeouido, Seoul. After the meeting, he spoke to reporters about concerns that the FSS's institutional improvement plans, such as granting the right to request auditor reappointment within the same group to ease corporate burdens, might appear as a regression of the new External Audit Act. He drew a clear line, stating that while the right to request auditor reappointment within the same group may be granted to audited companies to alleviate corporate burdens, there will be no institutional revisions that would compromise audit quality.

Governor Jeong said, "The new External Audit Act was introduced and is being operated to enhance the independence of external auditors and improve audit quality," adding, "As we pass the third year of its operation, naturally, there may be areas that require institutional supplementation." He continued, "The basic principle is that there should be a system of checks and balances between accounting firms and the companies undergoing external audits," emphasizing, "Discussions are being held from this perspective, and there will be no fine-tuning of the system that compromises audit quality." He added, "Currently, upward or downward adjustments of periodic auditor designation are possible, and we are also considering additional adjustments within the same group." The periodic auditor designation system, introduced in November 2018 as a key provision of the new External Audit Act, requires listed companies that have voluntarily appointed the same external auditor for six consecutive business years to appoint an auditor designated by the Securities and Futures Commission for the following three years.

When asked about the possibility of canceling a fine of approximately 48 billion KRW imposed on market makers, he pointed out, "Since the introduction of the market maker system, there has been insufficient review and evaluation regarding its operation." Governor Jeong said, "The Korea Exchange is currently reviewing the operation status of market makers during its inspection process, and once the results are out, if necessary, institutional improvements will be made, and the issue of fine cancellation will be concluded at that time." Regarding the extension of the Korea Exchange's comprehensive inspection period, he said, "It has been extended by two weeks until this week, and whether to extend further or conclude the comprehensive inspection and proceed with additional document verification will be decided by the working team."

Regarding the audit of Celltrion, he said, "Discussions are currently underway at the Financial Services Commission's Audit Committee, but it is difficult to comment on what aspects are being discussed."

In his opening remarks at the meeting, Governor Jeong expressed his intention to pursue accounting supervision for listed companies and accounting firms based on laws and principles, aiming for harmony and balance between proactive and reactive supervision. He emphasized, "To enable proactive accounting supervision for risk-vulnerable sectors, we will flexibly operate the audit cycle and scope considering the quality management level of registered accounting firms." Along with this, he mentioned plans to improve the designation system by providing incentives so that accounting firms with high audit quality can be designated for more companies.

Institutional supplements to reduce corporate burdens arising during the implementation of the new External Audit Act will also be pursued. The FSS plans to review measures to alleviate corporate burdens due to the expansion of designated audits, such as granting the right to request auditor reappointment within the same group. Additionally, the introduction of accounting audit standards for small-sized companies, which has recently been discussed internationally to reduce external audit burdens, was also mentioned.

Governor Jeong stated, "We plan to proactively respond to discussions and certifications regarding corporate social responsibility related to ESG (Environmental, Social, and Governance)," emphasizing, "We will prepare disclosure standards without delay according to future international discussion trends, such as the sustainability financial disclosure standards being developed by the International Sustainability Standards Board (ISSB)."

He urged, "As gatekeepers of the capital market, please strive to further enhance the social and public value of accounting and foster an accounting culture that can coexist (win-win) with the growth of audited companies."

Attending the meeting were Kim Young-sik, Chairman of the Korean Institute of Certified Public Accountants, along with Yoon Hoon-soo, CEO of Samil Accounting Corporation; Kim Gyo-tae, CEO of Samjong Accounting Corporation; Park Yong-geun, CEO of Han Young Accounting Corporation; Hong Jong-sung, CEO of Anjin Accounting Corporation; Kim Myung-chul, CEO of Samduck Accounting Corporation; Cho Seung-ho, CEO of Daeju Accounting Corporation; Nam Ki-bong, CEO of Hanul Accounting Corporation; and Kim Byung-ik, CEO of Woori Accounting Corporation.

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