Accounting Firms Neglecting Audits of Listed Companies Face Penalties Such as Reduction in Designated Audit Clients

[Asia Economy Reporter Ji Yeon-jin] If an accounting firm auditing a listed company neglects audit quality management, penalties such as deducting the number of companies eligible for auditor designation will be imposed.

On the 2nd, the Financial Services Commission announced that the amended 'Enforcement Decree of the Act on External Audit' and 'External Audit Regulations,' which include the basis for penalties against registered auditors of listed companies for poor quality management, will take effect from the 3rd.

As part of accounting reform, the government introduced the registered auditor system for listed companies in November 2019, established a quality management system that restricts the qualifications of accounting firms eligible to audit listed companies, and requires registration with the Financial Services Commission. Currently, 40 accounting firms are registered.

However, as a result of quality management inspections, it was found that many registered auditors of listed companies have not made efforts to improve quality management that meet market expectations.

Accordingly, the amendment imposes corrective recommendations and auditor designation exclusion points on accounting firms that fail to maintain the registration requirements for auditors of listed companies, and cancels registration if corrective recommendations are not implemented. Since only extreme measures such as cancellation of registration were previously possible for accounting firms that failed to maintain registration requirements, the intention is to establish effective sanctions proportional to the degree of violation to encourage accounting firms' voluntary corrective efforts.

In addition, regulations have been established to allow the Financial Supervisory Service to initiate inspections if it is judged during supervisory tasks such as evaluating the quality management level of accounting firms and receiving periodic reports that registration requirements are not being maintained.

Accounting firms whose registration as auditors of listed companies is canceled are also required to include procedures to protect stakeholders, such as guiding listed companies currently under external audit contracts through the auditor change process.

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