[Exclusive] Periodic Auditor Appointment System '6+3' Remains Unchanged After Surgery

Difficulty in Deriving Final Improvement Plan, Maintaining Current Status for 3-5 Years
Policy Decision Needed Considering Convenience and Timeliness of Alternatives

After more than four years since its implementation, the 'Periodic Auditor Appointment System,' which was put on the table due to concerns over the heavy audit cost burden on companies, will be maintained as is without any changes. There is a strong voice that it is difficult to determine what alternative would be appropriate under the current circumstances. Moreover, since one full cycle of the system has not yet been completed, conflicts among stakeholders are intense. If the system is significantly relaxed, the original purpose of its introduction could be undermined. For these reasons, the financial authorities are unlikely to present a final plan hastily, and the current system is expected to be maintained for the next 3 to 5 years.

Full-scale Implementation in 2019 Following Daewoo Shipbuilding Accounting Scandal

According to financial authorities and the accounting industry on the 3rd, efforts by the financial authorities to ease the Periodic Auditor Appointment System have effectively come to a halt. A senior industry official familiar with the financial authorities said, "For the next few years, at least until one cycle of the Periodic Auditor Appointment System arrives, the existing system is expected to be maintained without changes," adding, "All stakeholders understand that it is difficult to reach any conclusion in the current situation."

The Periodic Auditor Appointment System, which was fully implemented in 2019, stipulates that if a company autonomously appoints an auditor for six consecutive years, the government appoints the auditor for the next three years. The system was triggered by the Daewoo Shipbuilding & Marine Engineering accounting scandal. It was introduced under the revised External Audit Act (New External Audit Act) enacted in November 2018. Since the introduction of this system, there have been evaluations that accounting transparency has improved, but companies have consistently raised complaints about the significant increase in audit time and costs. There have also been grievances about auditors' excessive demands for documents.

In response, the Financial Services Commission commissioned a research project to the Korean Accounting Association, and the results were disclosed at the 'Symposium on Accounting Reform System Evaluation and Improvement Measures' held on the 10th of last month. The alternatives proposed included extending the free appointment period of auditors from the current six years to nine years or shortening the designated period from the current three years to two years. The Financial Services Commission planned to announce the final improvement plan within the first half of the year based on these results. The Financial Services Commission stated, "No decision has been made regarding easing options such as 9+3 (9 years of free appointment followed by 3 years of designated audit), 6+2 (6 years of free appointment followed by 2 years of designated audit), or maintaining the current system (6+3)." However, industry observers believe it will not be easy to finalize a plan as the Financial Services Commission aims.

The Korean Accounting Association held a symposium on February 10 at the Federation of Korean Industries Building in Yeouido titled "Evaluation and Improvement Plans for the Accounting Reform System," explaining the improvement plans for the periodic auditor designation system. Photo by Lee Jung-yoon

First, the research results are insufficient. Since the Periodic Auditor Appointment System was introduced, one full cycle has not yet passed. Changing the system after just over four years would effectively undermine the original purpose of its introduction. Since the system was introduced with great difficulty to strengthen audit independence following the Daewoo Shipbuilding & Marine Engineering accounting scandal, there is a strong voice advocating for maintaining the current system as is.

The research team leading the project also stated, "It was difficult to determine which alternative is most appropriate based on the current analysis," emphasizing, "A more in-depth analysis is needed 3 to 5 years after the system has been sufficiently implemented, and policy decisions should comprehensively consider the convenience and timeliness of each alternative."

Strong Resistance to Changes After Just Over Four Years and Insufficient Research Results

A senior official from an accounting firm pointed out, "More research data is needed to revise the current system, but no new research projects have been initiated since the symposium," adding, "One full cycle must pass to accumulate data and provide grounds that represent the positions of stakeholders." Lee Jae-hyung, Head of Planning and Coordination at the Korean Institute of Certified Public Accountants, also pointed out, "It is appropriate to verify the effects and discuss improvement measures after one cycle has passed, but at the current point, it is merely a change rather than an improvement." Professor Hwang Moon-ho of Kyung Hee University’s Department of Accounting and Taxation also said, "I understand the conclusion was that it is not possible to say whether maintaining or changing the Periodic Auditor Appointment System is better," adding, "The Financial Services Commission has not conveyed any opinions on which alternative might be better since the symposium." He continued, "Each option such as 6+3, 9+3, and 6+2 has its pros and cons, but since the system has been implemented, policy judgment should be involved," emphasizing, "The current data is insufficient to conclude which direction is better, so it is necessary to continue implementation until one full cycle is completed."

The business community is also opposing. The business sector opposes the proposal to shorten the designated period from the current three years to two years, judging that frequent changes would only increase fatigue. Moreover, audit contracts are conducted on a three-year cycle. Therefore, if abolition is not decided, the business community demands extending the free appointment period from the current six years to nine years. A business official expressed dissatisfaction, saying, "This system was aggressively introduced as a drastic measure, but shortening the designated period by one year despite serious inefficiencies in audits is pushing companies into a corner." Another official lamented, "If the system’s framework must be maintained, inefficiencies should be improved at least somewhat," adding, "Frankly, we do not even expect it to change to 9+3 at this point."

Extending the free appointment period to nine years requires a legal amendment, while shortening the designated period to two years can be done through enforcement ordinances. A senior official in the financial investment industry analyzed, "It is highly unlikely that legal amendments will be made before the general election, so extending the free appointment period to nine years is difficult," adding, "Especially from the financial authorities’ perspective, increasing the free appointment period to nine years carries a heavy burden due to potential unforeseen negative consequences."

The financial authorities find it difficult to ignore the accounting academia’s voice that it is not desirable to conclude on improvement plans at this time. They believe a final plan should be made after an in-depth analysis following one full cycle. The business community even argues that, beyond completing one cycle, the system itself should be abolished. The Korea Chamber of Commerce and Industry submitted a petition to the Financial Services Commission on the 8th of last month requesting the abolition of the Periodic Auditor Appointment System. A senior official in the accounting industry said, "It is not easy for the financial authorities to make a decision, so the easing of the system is effectively at a standstill." A National Assembly Financial Services Committee official said, "There is not even any movement to prepare amendments to ease the Periodic Auditor Appointment System."

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