Financial Supervisory Service Establishes Evaluation and Reporting Standards for Internal Accounting Control System... "Will Strengthen System Operation Integrity"

Establishment of Industry Expertise Standards for Designated Auditors

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

On the 14th, the Financial Supervisory Service (FSS) announced that it has established evaluation and reporting standards for the internal accounting management system and criteria for the industrial expertise of designated auditors, reflecting supplementary measures for the external audit system and revisions to the external audit regulations.

To enhance corporate responsibility and strengthen the operation of the system, the FSS introduced new provisions citing the evaluation and reporting standards for the internal accounting management system. Key points include that the company's CEO must evaluate the internal accounting management system, assess deficiencies, take corrective actions, and prepare an operational status report to be submitted to the general shareholders' meeting, the board of directors, and the audit committee. The company’s auditor must independently evaluate the operation of the internal accounting management system from management and report the results to the board of directors. If any deficiencies or vulnerabilities are found, they must be corrected.

The internal accounting management system refers to internal controls designed and operated to prepare and disclose reliable financial statements. Under the new External Audit Act, the certification level has been strengthened from 'review' to 'audit.' A separate internal accounting management system has been in effect since 2019, and from last year, companies with assets exceeding 100 billion KRW are also required to undergo audits.

Additionally, major terms have been newly defined and refined, reflected in the general provisions of the evaluation and reporting standards, and the business units subject to evaluation, which had many practical interpretation disputes, have been clearly defined. Furthermore, the contents to be included in the operational status report have been additionally specified, and the report format has been improved and presented as a concrete form in the guidelines. The new evaluation and reporting standards will apply from fiscal years starting on or after January 1 of next year.

The FSS has also established procedures and classification criteria for industrial expertise requirements to designate audit personnel with expertise in the relevant industry when listed companies request designated auditors with industrial expertise. Eleven industries, including finance and contract-based industries, have been designated as requiring expertise. Considering the period for accounting firms to secure industry experts, implementation will be phased according to industry classification.

Listed companies operating in the relevant industries may request industrial expertise for their designated auditors, and it is stipulated that the necessity of industrial expertise must be indicated in the designated basic data report. The audit team must include at least one industry expert, and classification criteria for industry experts have also been established.

In addition, related forms for applying the revised external audit regulations have been updated, including changes to financial statements used for calculating financial standard figures and changes to certified public accountant scores by career period. The revision of the registration requirements inspection report for auditors of publicly listed companies includes the addition of a CEO signature field and improvements to post-review inspection methods.

The FSS expects that by codifying the evaluation and reporting standards for the internal accounting management system and designating auditors with industrial expertise, the operation of the system will be strengthened, audit quality will improve, and audits will become more efficient.

An FSS official explained, "The amendment to the enforcement rules of the external audit regulations will be announced in advance from the 15th of this month until the 5th of next month, and it is planned to be implemented within this year."

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