'Easing Continuous Mandatory Designation Burden'... Financial Services Commission Approves Amendment to External Audit Accounting Regulations

Financial Services Commission

From now on, companies will be guaranteed a minimum contract period for voluntary appointment even if the reasons for mandatory designation based on financial criteria occur consecutively.

On the 13th, the Financial Services Commission announced that at its 16th regular meeting, it approved a partial amendment to the "Regulations on External Audit and Accounting," aimed at rationalizing the audit burden on companies.

According to the 16th regular meeting, the burden of consecutive occurrences of mandatory designation reasons will be eased. Previously, for listed companies and others, if another reason for mandatory designation occurred during the mandatory designation period (3 years), the 3-year designation period would restart. However, companies designated due to financial criteria will be guaranteed at least the minimum contract period for voluntary appointment even if the same reason occurs during the designation period.

Additionally, the target for mandatory designation based on financial criteria, which had been judged on a consolidated basis, will now be judged on a separate basis. The consolidated financial statement basis has been pointed out as problematic for not adequately reflecting the core business performance of the controlling company.

Furthermore, the amendment includes provisions to encourage securing the expertise of designated auditors. The amendment requires that if there is no industry expert within the audit team, a penalty of 40 points will be imposed as a deduction from the designation score, thereby ensuring that the audit team has at least one industry expert.

When appointing auditors voluntarily, the audit team is composed of personnel with relatively abundant experience and expertise regarding the company, but in the case of designated audits, there are instances where this is insufficient compared to voluntary appointments.

In addition, the amendment improves the method of calculating designation scores to prevent excessive advantages for senior accountants and includes measures to align the designated auditors of controlling and subsidiary companies.

The amendment will take effect immediately from the 14th, the day after the Financial Services Commission's approval and announcement, while matters related to securing the industry expertise of designated auditors will be applied from January 1 of next year, considering the preparation time needed by accounting firms.

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