Samil PwC "Strategy Needed to Strengthen Internal Audit Function Through External Agencies"

Samil PwC, 5-Year Analysis Report on the Introduction of Internal Accounting Control System Audit

Domestic companies identified ▲lack of management support ▲insufficient recognition of the importance of financial reporting as the biggest challenges related to the internal accounting control system. While 81% of companies with assets exceeding 500 billion KRW operate specialized internal audit organizations, the operation rate for smaller companies was only 27%.

On the 19th, Samil PwC announced that it had published the report "Future Strategy for Internal Control, Internal Control Value-Up Plan Volume 5.0," which analyzed 295 listed companies subject to internal accounting control audits.

Status of Vulnerable Processes in Internal Control [Data provided by Samil PwC]

According to the report, last year companies ranked 'lack of management support' and 'insufficient recognition of the importance of financial reporting' as the first and second most difficult issues in operating the internal accounting control system. The 'awareness of responsibility and role of control owners' and 'expertise of dedicated personnel for the internal accounting control system,' which were ranked first and second in 2021 and 2022, fell to third and fourth place.

The area most vulnerable to internal control deficiencies was controls related to financial reporting. The ranking of financial reporting rose the most significantly compared to the previous year's survey (5th place). The incidence of deficiencies in investment and funding, ranked second, has been increasing annually, highlighting the growing importance of related control activities. The internal control weaknesses of overseas subsidiaries were highest in controls related to funding.

Among the analyzed companies, 81% of those with assets over 500 billion KRW were found to operate specialized internal audit organizations. In contrast, the operation rate among companies with assets under 500 billion KRW was significantly lower at 27%. The report advised, "To activate the internal audit function, transparency, expertise, and reliability must be enhanced," and added, "If practical internal audits are not conducted due to corporate culture and practices, a strategy to strengthen the internal audit function through independent and specialized external organizations is necessary."

Im Seongjae, a partner at Samil PwC who planned the report, said, "With the paradigm shift brought by generative artificial intelligence (AI), digital transformation, and the explosive increase in data, it is difficult to effectively manage various risks using traditional internal control methods alone," adding, "We must change the paradigm to an internal control system that induces voluntary compliance, prevents fraud, and ultimately promotes sustainable management of companies."

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