FSS Notifies Designated Auditors to 1,469 Companies... 55% Decrease in Re-designation Requests

Survey Results on Auditor-Designated Companies: "Excessive Audit Costs, High-Intensity Audit Burden" Complaints
Investor Briefing: "Improved Accounting Transparency... Frequent System Changes Negatively Affect Market Stability"

[Asia Economy Reporter Ji Yeon-jin] Among the companies designated with auditors next year, the number of re-designation requests has decreased by more than half.

The Financial Supervisory Service (FSS) announced on the 15th that it conducted official notifications to 1,469 companies designated with auditors for next year.

Previously, on the 14th of last month, the FSS gave prior notice to these companies regarding periodic designation and received re-designation requests from the companies and external auditors. As a result, the number of companies that changed their designated auditors through re-designation requests totaled 167, a 55% decrease from 371 last year.

The auditor designation system divides accounting firms eligible to audit based on company size. The FSS explained that since September 29, the classification of designation groups for companies and auditors was significantly changed, and restrictions were placed on downward re-designation for companies with high audit risk designated ex officio.

Meanwhile, the FSS reported that in a survey conducted on 156 companies newly designated with auditors this time, the responding companies pointed out excessive audit fees and high audit intensity as major burdens when auditors are designated.

These companies expressed that audit quality improvement was minimal, but inefficiencies arose due to disagreements between previous and current auditors and unreasonable demands for audit materials. They also suggested that the reasons for designation are excessively numerous and that the three-year designation period regardless of the reason needs improvement.

However, the FSS conveyed that in meetings held with foreign investment banks (IBs), domestic pension funds, and credit rating agencies, the periodic auditor designation system, although an unusual system not found overseas, was evaluated positively for supplementing the weak governance issues of Korean companies and improving accounting transparency.

They added that overseas investors highly value predictability in the market, and frequent changes in the system could send negative signals to the stability of the domestic capital market, emphasizing the need for consistent policies.

In this regard, the Financial Services Commission has formed the ‘Accounting Reform Evaluation and Improvement Task Force’ to evaluate the operational performance of key provisions of the new external audit law and prepare improvements, keeping open discussions including a full overhaul of the system, such as the periodic designation system.

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