FSS "Increase in Violations of Auditor Appointment System"... Advisory on Precautions

[Asia Economy Reporter Lee Jung-yoon] The Financial Supervisory Service (FSS) has provided guidance on the system and precautions as the deadline for appointing external auditors for corporations with December fiscal year-end approaches.

According to the FSS on the 25th, although it has been five years since the new External Audit Act was implemented, cases of violating the appointment deadline and selection procedures have been on the rise due to a lack of understanding of the auditor appointment system. Up to November this year, 189 entities were designated for violations such as missing the auditor appointment deadline and procedural breaches, which is a 47.7% increase compared to the previous year.

In response, the FSS explained that since the auditor appointment deadlines, applicable fiscal years, auditor qualification requirements, and selection procedures differ by company type, it is essential to verify the relevant type and strictly comply with the auditor appointment regulations.

First, for listed companies, only registered accounting firms, currently numbering 40, can be appointed as auditors, and the same auditor must be contracted and maintained for three consecutive fiscal years.

Large unlisted companies and financial companies must appoint only accounting firms as auditors and similarly must contract and maintain the same auditor for three consecutive fiscal years. According to the amendment to the Enforcement Decree of the External Audit Act, which was announced for legislative notice on the 22nd, the criteria for large unlisted companies have changed from total assets of 100 billion KRW at the end of the previous fiscal year to 500 billion KRW, which will be applied immediately from the 2023 fiscal year.

Unlisted stock companies that underwent external audits in the previous year (continuous audit companies) must appoint auditors within 45 days after the start of the current fiscal year, and companies undergoing their first audit must appoint auditors within four months after the start of the fiscal year. The company selects the auditor, but if there is no auditor under the law, the company itself appoints the auditor. The grace period for the auditor appointment deadline for continuous audit companies has ended, so from next year, if the audit contract is not concluded by the statutory appointment deadline, auditors will be designated without exception, so caution is required.

Finally, limited companies are practically the same as unlisted stock companies, but there are differences in the auditor appointment procedures depending on whether the company has an auditor. If the company has an auditor, the auditor selects the auditor; if there is no auditor, the company appoints the auditor. If there is no auditor and the capital is 1 billion KRW or more, approval from the general meeting of members is required.

An FSS official stated, "We plan to provide guidance on precautions to each member company through related organizations such as the Korea Listed Companies Association, KOSDAQ Association, KONEX Association, Korea Federation of SMEs, and the Korean Institute of Certified Public Accountants."

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