Financial Services Commission: "17 Accounting Firms Lack Quality Control"

A Total of 172 Issues Identified... Discrepancies in Number of Issues According to Integrated Management System Operation

The overall quality control of domestic accounting firms was found to be generally inadequate. The "Group A," consisting of the "Big 4," had significantly fewer issues compared to other firms, but some deficiencies related to human resources were discovered. In the other groups, numerous shortcomings such as lack of awareness among members and insufficient integrated management systems were identified.

On the 3rd, the Financial Services Commission announced that the quality control inspection of 17 accounting firms resulted in 172 issues, averaging 10.1 issues per firm.

Quality control inspection refers to a system under Article 26, Paragraph 1, Subparagraph 3 of the External Audit Act, which checks whether auditors properly design and operate quality control systems to improve and maintain the quality level of audit work. Unlike the review and inspection of financial statements and audit reports, it comprehensively examines the establishment and operation status of auditors' quality control policies and procedures related to audit work.

According to the "2022 Quality Control Inspection Results and Improvement Recommendations," the quality control inspection conducted last year on 17 accounting firms (2 in Group A, 3 in Group B, 6 in Group C, and 6 in Group D) showed that the average number of issues for Group A was 2.0. This is significantly lower compared to Group B (10.7), Group C (11.0), and Group D (11.7). Even compared to the overall average (10.1), it is about one-fifth.

Group A included Samjong KPMG and Deloitte Anjin Accounting Firm. The reason for the fewer issues was attributed to efforts to improve quality control systems through partnerships with large overseas firms and the establishment of integrated management systems to achieve a quality-oriented organizational culture.

By component, "performance of work" accounted for the largest share at 27.9%. This was followed by human resources (20.3%), ethical requirements (18.6%), leadership responsibility (15.7%), and monitoring, acceptance, and maintenance of work (each 8.7%). However, there was a significant difference between Group A and Groups B to D. Regarding "performance of work" alone, the number of issues for Groups A to D were 1.0, 3.0, 3.0, and 3.2 respectively.

However, even Group A firms received some partial deficiency recommendations. Samjong KPMG had no issues in design or operation but received partial deficiency recommendations in the "human resources" and "performance of work" categories.

A Financial Services Commission official pointed out, "The quality control office did not monitor the causes of discrepancies between audit hours entered into the system and those reported in the external audit report," and added, "There were cases where audit reports were issued without prior review."

Deloitte Anjin Accounting Firm also had no issues in design or operation but received partial deficiency recommendations in "human resources" and "performance of work." A Financial Services Commission official noted, "Procedures for reviewing the appropriateness of reasons for work hour modifications and verifying the accuracy of input hours are insufficient," and pointed out, "There is a possibility that sufficient time for work quality control review is not secured."

This inspection was conducted as of the end of March last year on 40 registered firms that had been registered for more than one year, as a check on whether they maintained the requirements. The focus was on whether auditors effectively established and properly operated independence policies related to non-audit services during audit work.

A Financial Services Commission official explained, "We examined management systems to prevent audit quality degradation due to excessive work acceptance and to ensure appropriate time input corresponding to rising audit fees," and added, "We also checked the status of related procedure establishment to support the stable settlement of internal accounting management system audit and inspection systems and to promote effective audits."

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