Scope of Accounting Regulations for Large Unlisted Companies Raised from 100 Billion to 500 Billion Won... Effective from the 2nd of Next Month

The Financial Services Commission announced on the 24th that the partial amendment to the Enforcement Decree of the Act on External Audit of Stock Companies, etc. (External Audit Act) was approved at the Cabinet meeting and will be enforced from the 2nd of next month. Two subordinate regulations (Regulations on External Audit and Accounting, and Regulations on Reporting and Rewarding Accounting Fraud) that were legislatively notified in December last year will also be promulgated and enforced on the same day.

This amendment to the enforcement decree and subordinate regulations is to legislate the policy tasks following the 'Measures to Rationalize Accounting Burden for Small and Medium Enterprises' announced by the Financial Services Commission in October last year, as well as to reorganize related systems to activate accounting fraud reporting.

Specifically, the criteria for large unlisted companies subject to accounting regulations similar in strength to listed companies will be raised from assets of 100 billion KRW to assets of 500 billion KRW or more. However, the current standard (assets of 100 billion KRW) will still apply to corporations required to submit business reports with many investors and other stakeholders, and companies belonging to disclosure target business groups.

The obligations for unlisted companies to establish and operate internal accounting management systems and the periodic designation of auditors will also be adjusted to match the scope of large unlisted companies being changed this time. To enhance the policy effect of the change in the large unlisted company criteria and reduce possible confusion in the field, the revised criteria will apply from business years starting on or after January 1 of this year.

Additionally, incentives will be provided to strengthen management's accounting management responsibility and to encourage voluntary internal controls.

This is intended to address the fact that 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. Companies that voluntarily disclose or improve weaknesses in their internal accounting management systems will be excluded from aggravating factors in sanctions as an incentive.

Also, considering that internal accounting management system standards (design, operation, evaluation, reporting) are operated as voluntary regulations by the Korea Listed Companies Association and that there was insufficient legal basis for companies' compliance obligations, the evaluation and reporting standards for internal accounting management systems will be legislatively revised so that the accounting supervisory agency (Financial Supervisory Service) establishes and manages them.

Furthermore, compensation and protection measures for whistleblowers reporting accounting fraud will be strengthened.

Previously, sanctions by the Securities and Futures Commission could be mitigated only if the voluntary reporter met all conditions, such as not playing a leading role in the violation subject to the report and not coercing other related parties. Going forward, if one or more mitigation conditions are met, measures against the violation can be reduced.

In addition, to activate accounting fraud reporting, the legal basis for anonymous reporting will be clarified, and the standard amounts for reward payments by grade will be significantly increased (more than five times the current amount), while minimizing deduction factors of lower importance.

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