Financial Supervisory Service Activates Reporting of Accounting Fraud... Expands Exemption and Reduction Scope

The scope of exemptions and reductions related to whistleblowing will be expanded to promote the reporting of accounting fraud.

On the 20th, the Financial Supervisory Service (FSS) announced that the detailed enforcement rules concerning external audits and accounting will be revised. In addition to "those who report fraudulent acts to the Securities and Futures Commission (SFC)," "those who notify the company's auditor or audit committee" have been added as subjects eligible for reduction or exemption from supervisory measures.

For whistleblowers or notifiers of fraudulent acts, if all three conditions are met during supervisory measures?▲not playing a leading role, ▲reporting before the SFC or others obtain information or sufficient evidence, and ▲cooperating until evidence is provided and the investigation is completed?a reduction of up to two levels can be applied. Even if all conditions are not met, a one-level reduction is possible. Currently, only those who meet all three conditions receive a one-level reduction.

An FSS official explained, "For whistleblowers who meet all three conditions, prosecution or notification to the prosecution may be withheld during supervisory measures."

The level of measures against companies that voluntarily disclose and improve weaknesses in their internal accounting control systems during supervisory actions will be eased. This aims to encourage autonomous improvement of internal accounting control systems. The FSS official stated, "To promote autonomous improvement by management, if weaknesses in the internal accounting control system are voluntarily disclosed or improved before the supervisory audit is conducted, these cases are excluded from aggravating factors during supervisory measures."

The standards for measures against violations of submission obligations for accounting firms' business reports have also been adjusted. The level of measures for delayed submissions and errors or omissions in accounting firms' business reports has been aligned with the significance of the violation and the amount involved. Additionally, detailed criteria for classifying auditor groups related to auditor designation have been revised. To prevent temporary reinforcement of quality control personnel for assigning higher auditor groups, the criteria for calculating the proportion of quality control personnel have been changed.

Meanwhile, the revised detailed enforcement rules will be effective from today.

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