Financial Services Commission Reduces Accounting Burden for Large Unlisted Companies... Whistleblower Rewards Increased Fivefold

Current Asset Threshold Raised from 100 Billion to 500 Billion Won
Encouraging Voluntary Improvement of Internal Accounting Control Systems
Promoting Reporting of Accounting Fraudulent Activities

[Asia Economy Reporter Lee Seon-ae] Accounting regulations that imposed excessive burdens on small and medium-sized enterprises (SMEs), such as adjusting the criteria for large unlisted companies subject to accounting regulations at the level of listed companies, will be eased.

The Financial Services Commission announced on the 22nd that it will proceed with the legislative notice of the amendment to the Enforcement Decree of the "Act on External Audit of Stock Companies, etc." (External Audit Act) and subordinate regulations to legislate the major policy tasks included in the rationalization plan for accounting burdens on SMEs.

Currently, large unlisted companies (with assets of 100 billion KRW or more) are subject to accounting regulations equivalent to those of listed companies, considering that they have relatively many stakeholders. Accordingly, the asset threshold will be raised from 100 billion KRW to 500 billion KRW, which is the same level as the Framework Act on Small and Medium Enterprises. Obligations to establish and operate internal accounting management systems and periodic auditor designation for unlisted companies will also be adjusted to match the scope of large unlisted companies subject to change. In addition, to enhance the policy effect of changing the criteria for large unlisted companies and reduce confusion in the field, the revised criteria will be applied from business years starting on or after January 1 of next year.

Voluntary improvement of internal accounting management systems by management will also be encouraged. The level of sanctions following internal accounting management system inspections was not linked to the company's improvement efforts, resulting in low incentives for voluntary identification and correction of weaknesses. Incentives will be provided to exclude companies that voluntarily disclose or improve weaknesses in their internal accounting management systems from aggravating factors in sanctions.

Standards for evaluation and reporting of internal accounting management systems will also be established and managed. The Korea Listed Companies Association's voluntary regulations have operated as the internal accounting management system standards (design, operation, evaluation, reporting), but there was insufficient legal basis for companies' compliance obligations. Legal grounds will be established for supervisory agencies (Financial Supervisory Service) to formulate and manage the evaluation and reporting standards of internal accounting management systems, clarifying companies' compliance obligations.

Activation of accounting fraud reporting will also be promoted. Under current laws and subordinate regulations, sanctions by the Securities and Futures Commission (including fines) can be mitigated and rewards paid to whistleblowers of accounting fraud, but strict conditions and low reward amounts have resulted in insufficient incentives for insiders to take great risks to report accounting fraud. Therefore, comprehensive mitigation of sanctions for whistleblowers and a significant increase in reward amounts (more than five times the current level) will be implemented to activate accounting fraud reporting.

The Financial Services Commission explained, "The amendment will be implemented in the first half of 2023 after legislative notice and review by the Office of Legislation."

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