Financial Supervisory Service Provides Key Checkpoints for Audit Contracts of Big 4 Accounting Firms Including Audit Fees and Refund Regulations

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

On the 21st, the Financial Supervisory Service (FSS) announced that it will provide checkpoints that companies entering into audit contracts with the so-called 'Big 4 (Samil, Samjong, Han Young, Anjin)' accounting firms or preparing for year-end audits can utilize.

According to the FSS, the FSS and the Big 4 accounting firms announced the 'Audit Practice Improvement Plan' on October 18 to reduce the burden on companies. In this regard, the FSS provided checkpoints that can be practically applied to the improvements.

First, regarding audit fee information, the Big 4 provide information on audit hours by rank of participating certified public accountants and hourly rates when signing audit contracts. They also have internal standards in place to ensure consistent audit fee determination. Accordingly, the FSS explained that as a checkpoint, companies should request specific calculation grounds during audit fee negotiations with the Big 4 accounting firms and verify whether information on audit hours by rank and hourly rates is included.

Additionally, the Big 4 accounting firms provide detailed explanations of refund regulations when signing audit contracts and actively issue refunds if the actual audit hours decrease compared to the expected input hours after the audit is completed. Companies can check whether refund regulations exist and confirm the actual audit input hours after the audit to discuss refund eligibility with the auditor.

When billing incidental expenses, detailed statements are mandatorily provided, and items with unclear reimbursement nature are not charged as incidental expenses. Companies should separately negotiate and clearly specify incidental expense items to be paid during the audit contract and receive detailed statements when paying incidental expenses to verify consistency with the contract contents.

Furthermore, the Big 4 accounting firms thoroughly explain the necessity of external evaluations when requested and respect the company's opinion in selecting evaluation agencies. They also limit the assignment of junior accountants to important accounts such as sales and cost of sales, strengthen training for trainees and junior accountants, and ensure that trainee accountants are not concentrated in specific companies.

In this regard, the FSS advised that when external evaluations are requested for specific accounts, companies should request reasonable explanations, that the selection of evaluation agencies should be autonomously decided by the company, and that companies should receive and verify the actual personnel deployed to ensure that certified public accountants with lower expertise than the level proposed in the audit contract were not assigned.

An FSS official stated, "We plan to continuously monitor the improvement status of practices by the Big 4 accounting firms and work together with accounting firms to improve external audit practices that impose burdens on companies."

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