Accounting Firms' Operating Profit Plummeted Last Year... Big 4 Down 63%

Financial Supervisory Service Analyzes 220 Audit Firms' Business Reports
Profitability Declines Due to Increased Labor Costs and Fees

Operating profits in the accounting industry significantly declined last year due to increased labor costs, payment fees, and bad debt write-offs amid the economic downturn. In particular, the operating profits of the so-called 'Big 4' (Samil, Samjong, Han Young, Anjin) accounting firms plummeted by 62% compared to the previous year.

According to the Financial Supervisory Service on the 9th, the total revenue of 220 accounting firms amounted to 5.7 trillion KRW, an increase of 600 billion KRW (11.9%) from the previous period. This marks a slight slowdown compared to the revenue growth rate of 16.8% recorded the previous year. By sector, revenue was led by management consulting at 2 trillion KRW (35.2%), followed by audit services at 1.9 trillion KRW (33.9%), and tax consulting at 1.5 trillion KRW (27.7%). The increase in audit revenue continued due to the rise in companies subject to external audits following the implementation of the new External Audit Act, but growth in management consulting revenue slowed from 28.8% to 8.4% due to a decline in mergers and acquisitions (M&A).

The revenue growth rate of registered firms excluding the Big 4 was relatively high at 13.7%. The Big 4 firms’ revenue increased by 11.4%, with their share of total revenue slightly decreasing by 0.2 percentage points to 49.5%. Among the Big 4, Samil had the largest revenue (972.2 billion KRW), while Han Young recorded the highest revenue growth rate (15.7%) driven by increases in audit and management consulting revenues. By service, Anjin led in audit revenue growth (17.6%), Samil in tax consulting (16.0%), and Han Young in management consulting (15.8%).

The total operating profit of accounting firms was 161.6 billion KRW, down 40.7 billion KRW (20.1%) from the previous period. Notably, the Big 4’s operating profit was 34.4 billion KRW, a sharp decline of 58.2 billion KRW (62.9%) from the previous period. Meanwhile, operating profits of other registered firms and general firms increased by 11.1 billion KRW (21.3%) and 6.4 billion KRW (11.1%), respectively.

The significant decrease in operating profit is attributed to increased labor costs, payment fees, bad debt write-offs due to the economic downturn, and higher travel expenses. Among total operating expenses, the increase in labor costs (404.3 billion KRW) was the largest factor.

The average audit fee for companies subject to external audits under the External Audit Act was 50 million KRW, up 4.0% from the previous year. This increase is believed to be due to longer audit hours and a rise in audits of companies with large asset sizes compared to the previous period.

The Big 4 firms’ audit fee growth rate was 8.9%, slightly higher than the previous year’s 6.0%. The audit fee growth rates compared to the previous period were 21.6% in the 2019 fiscal year immediately after the introduction of the new External Audit Act, 21.2% in 2020, and 3.1% in 2021. A Financial Supervisory Service official stated, "It is necessary to firmly maintain quality control systems and integrated management frameworks within accounting firms to ensure that the decline in profitability does not lead to a deterioration in audit quality."

Meanwhile, the total number of registered accountants was 25,084, of whom 6,822 belonged to the Big 4 firms. A notable feature of the Big 4 was that accountants with less than five years of experience accounted for the majority (57.8%). In contrast, only 9.7% of accountants in firms outside the Big 4 had less than five years of experience. The Financial Supervisory Service emphasized the need to strengthen management of less experienced accountants, stating, "It is necessary to restrict the assignment of junior accountants to important accounts and to ensure that trainee accountants are not concentrated in specific companies."

A total of 198 directors from 31 accounting firms received fees exceeding 500 million KRW, with 132 (66.6%) belonging to the Big 4 firms. The average fee for directors receiving over 500 million KRW was approximately 820 million KRW, with Samil disclosing the largest number of such directors (52).

Additionally, as lawsuits against accounting firms continue to be filed, there is an increasing need to secure sufficient compensation capacity. Over the past three years, a total of 60 lawsuits related to audit deficiencies and other issues have been filed and concluded against accounting firms. Among these, 19 cases resulted in the firms losing or settling, incurring a total compensation liability of 39.3 billion KRW. Anjin bore 34.4 billion KRW in lawsuits related to Ilseong, TBroad, and Korea Hydro & Nuclear Power, while Samjong paid 3.5 billion KRW related to STX Offshore & Shipbuilding.

According to business reports, there are currently 95 ongoing lawsuits against accounting firms, with the total claim amount reaching 524.3 billion KRW. The total reserve funds for compensation liabilities of accounting firms amounted to 2.7769 trillion KRW, a 4.1% increase from the previous period, continuing an upward trend over the past three years. Under current law, accounting firms must internally reserve compensation funds and contribute to a joint compensation fund to cover damages to clients and third parties. The Financial Supervisory Service urged, "As responsibilities related to audit deficiencies become more tangible, accounting firms need to perform audits more diligently and ensure they have sufficient compensation capacity."

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