EY Hanyoung "Companies Positively Evaluate Improved Accounting Transparency with New External Audit Act Implementation"

EY Han Young announced on the 26th that three out of four accounting, finance, and audit officers at domestic companies believe that the implementation of the new External Audit Act (a complete revision of the External Audit Act, enforced in November 2018) has impacted the improvement of accounting transparency.

EY Han Young released the results of the '2023 EY Han Young Future of Accounting Audit Survey' conducted last month with a total of 708 employees from corporate accounting, finance, and audit departments of domestic companies. The new External Audit Act, which was enforced at the end of 2018, is a law aimed at enhancing accounting transparency by having the government periodically designate auditors and applying appropriate audit hours based on asset size and industry.

Five years after the introduction of the new External Audit Act, which centers on the periodic auditor designation system, standard audit hours system, and internal accounting control system, 73% of respondents in the survey answered that corporate accounting transparency has improved since the Act's implementation. In particular, among respondents from companies with assets exceeding 2 trillion KRW, the proportion who answered that accounting transparency improved was higher than the average response rate, indicating that larger companies tend to evaluate the effects of the new External Audit Act more positively. Additionally, 82% of respondents from corporate audit offices stated that accounting transparency has been enhanced through the new External Audit Act.

When asked which policy under the new External Audit Act contributed most to improving accounting transparency, 34% of respondents selected the external audit of the internal accounting control system as the top priority. This was followed by ▲periodic auditor designation system ▲strengthened penalties for accounting fraud ▲standard audit hours ▲strengthened supervisory methods by regulatory agencies.

While corporate respondents generally evaluated the new External Audit Act positively, opinions on the detailed content or direction of the policy varied depending on the company's asset size, job rank, or department affiliation. In the survey, opinions on the application and future direction of the new External Audit Act were categorized into strengthening, maintaining, or relaxing/abolishing the policies.

Regarding the future direction of the internal accounting control system, 23% of respondents believed it should be strengthened, and 37% believed it should be maintained, indicating that more than half of the respondents recognized the effectiveness of the internal accounting control system. For the periodic auditor designation system, 19% of respondents favored maintaining the current system, while 46% said it should be maintained for the time being and then its effects re-evaluated. Opinions favoring relaxation or abolition accounted for only 35%. Additionally, opinions were expressed that standard audit hours should be strengthened (20%) or maintained as is (45%).

Among those who responded that the internal accounting control system should be further strengthened, the highest response rate (27%) came from companies with assets under 500 billion KRW. Executives showed the most positive evaluation toward the internal accounting control system (68%), while practitioners gave the highest positive ratings to standard audit hours (74%) and the periodic auditor designation system (71%).

Lee Kwang-yeol, Head of Audit at EY Han Young, explained, "Through the results of this survey, we were able to confirm the positive perception among corporate personnel that the new External Audit Act is contributing to the improvement of accounting transparency," adding, "It appears that increased investment and interest from management in accounting audits have led to enhanced accounting transparency."

He continued, "Recently, the external audit timing for the consolidated internal accounting control system of listed companies with assets under 2 trillion KRW has been deferred by five years, but each company should use this deferral period as a time to improve accounting transparency," and added, "We will actively support companies so that they can proactively prepare by supplementing processes and systems to prevent embezzlement and fraud, and strengthening controls over overseas subsidiaries with weak accounting infrastructure."

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