Korea Internal and External Audit Opinions 'Different Dreams' vs US Discrepancy Rate 'None'

[Asia Economy Reporter Ji Yeon-jin] While over 90% of cases in South Korea show discrepancies between external auditors' opinions and companies' evaluations of internal control over financial reporting (ICFR), the United States has reported no such discrepancies.

According to the report "Comparison and Implications of ICFR between Korea and the U.S." published on the 24th by Samjong KPMG (Chairman Kim Gyo-tae), among 87 companies with adverse external audit (review) opinions, 83 companies (95.4%) had audit (committee) opinions that were unqualified. The number of companies with management opinions that were unqualified was 84 (96.6%).

In contrast, in the U.S., all 146 companies with adverse external auditor opinions also had management evaluations that were adverse. This is interpreted as a result of substantive supervisory activities by management and audit committees, along with smooth communication with external auditors to resolve differences.

Kim Yoo-kyung, deputy leader of Samjong KPMG’s ICFR specialized team, emphasized, “The reliability of management’s self-assessment of ICFR is not secured, and supervisory activities by the audit (committee) tend to be formalistic, leading to discrepancies between auditors’ and companies’ evaluation opinions. Therefore, substantive supervisory activities must be conducted through an independent audit (committee) support organization and continuous communication with external auditors.”

The report also pointed out that the most common reasons for adverse opinions in internal control areas, shared by both countries, were “financial statement adjustments during the current audit” (Korea 26.8%, U.S. 22.8%) and “lack of accounting personnel and expertise” (Korea 14.4%, U.S. 19.1%).

Additionally, while the U.S. showed higher rates of adverse opinions related to internal control principles such as “insufficient information technology (IT) controls” (16.3%) and “inadequate segregation of duties” (8.6%), Korea was analyzed to have more reasons related to poor establishment and operation of ICFR, such as “scope limitation” (18.3%) and “insufficient cash controls” (12.4%).

Shin Jang-hoon, leader of Samjong KPMG’s ICFR specialized team, advised, “As the proportion of financial statement adjustments during the current audit increased by 7 percentage points compared to the previous year, indicating intensified external audits, attention should be paid to adverse opinions resulting from external auditors’ recommendations to adjust financial statements after submission. Going forward, similar to the U.S., the frequency of adverse opinions due to internal control issues such as ‘insufficient IT controls’ or ‘inadequate segregation of duties,’ which are not directly related to financial statement adjustments, is expected to increase, so preparations to address these should be made.”

Recent large-scale embezzlement cases have highlighted the importance of cash controls. The report identified “inadequate segregation of duties” and “lack of monitoring controls comparing accounting records with bank records” as key vulnerabilities related to cash controls. It suggested checkpoints to prevent cash incidents, including the appropriateness of segregation of duties, review and approval by authorized supervisors with expertise, and the effectiveness of physical access controls over significant assets.

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