[Exclusive] Strengthening the Application of External Audit Act to Unlisted 'PG Companies' Including Timf

Financial Authorities Consider Institutional Improvements Including Separate Category for Unlisted Companies
Considering Numerous Stakeholders Such as Consumers and Sellers
Timon, Subject to 'External Audit Obligation,' Has No 2023 Audit Report... No General Meeting This Year
Held General Meetings in March-April Until Last Year and Submitted Audit Reports
Current External Audit Act Only Requires Submission Within 14 Days After Regular General Meeting Ends

Measures are being pursued to apply strengthened external audit law standards and procedures to electronic financial operators such as TMON and WEMAKEPRICE, which caused a large-scale settlement delay incident. TMON, which intermediates transactions between consumers and sellers and handles payments, failed to pay settlement funds worth hundreds of billions of won. This year, as its management situation worsened, it neither held a regular shareholders' meeting nor submitted an audit report. However, the supervisory authorities revealed institutional limitations that prevented them from taking any significant action.

According to financial authorities on the 5th, the Financial Supervisory Service (FSS) is reviewing institutional improvements to strengthen the standards and procedures for submitting audit reports by e-commerce companies such as TMON and WEMAKEPRICE, which are unlisted other corporations and electronic payment gateway operators (PG companies). The plan is to enhance supervisory functions by improving related laws such as the "Act on External Audit of Stock Companies, etc." (External Audit Act), which governs a series of processes including holding shareholders' meetings, submitting business reports, and submitting audit reports, so that multiple stakeholders can refer to them in a timely manner.

Since the 2nd, the FSS has operated a task force (TF) team centered on 34 internal personnel to prepare additional response measures and institutional improvement plans in cooperation with related ministries such as the Ministry of Economy and Finance and the Fair Trade Commission. A senior official from the financial authorities said, "The current law regulates unlisted other corporations, including TMON, relatively weakly compared to listed companies because many small businesses exist among them. Even if (shareholders' meetings, business reports, audit reports, etc.) are significantly delayed compared to the past, the FSS had no regulations to enforce them, but we plan to review institutional improvements due to this incident."

Among unlisted other corporations, TMON was a large company required to comply with external audit obligations. The current External Audit Act requires companies to appoint an accounting firm and undergo an external audit if they meet two of the quantitative conditions: assets of 12 billion won or more, liabilities of 7 billion won or more, sales of 10 billion won or more, and 100 or more employees. From 2011 to last year, TMON appointed Anjin, Samjong, Hanul, and Samjong Accounting Firms as external auditors and submitted audit reports and consolidated audit reports every April.

However, TMON did not hold a regular shareholders' meeting this year, and accordingly, it neither submitted nor disclosed an audit report. The current External Audit Act requires unlisted other corporations subject to external audit obligations to submit audit reports to the Securities and Futures Commission within 14 days after the end of the regular shareholders' meeting. If a regular shareholders' meeting is not held, the deadline for submitting audit reports under the External Audit Act does not apply. For listed companies, this is a very serious procedure that, in the worst case without special circumstances, could lead to delisting.

On the 29th, as the 'unsettled sales payment issue' of Wemakeprice and Tmon continues, the Tmon building in Gangnam-gu, Seoul, is closed with its doors firmly locked. Photo by Jo Yongjun jun21@

Some analysts have suggested that given TMON's worsening financial soundness and extremely low likelihood of continuing as a going concern, sufficient information provision may not have been possible, making a typical external audit difficult. They pointed out that it might have been an attempt to avoid the burden of early disclosure of the company's financial and business status externally through the audit report announcement in April.

The financial authorities are expected to consider creating a separate classification system reflecting the characteristics of PG companies linked to many consumers and sellers to manage these companies. This is interpreted as a judgment to consider that large PG companies have a significant market impact if problems arise, and that there are many stakeholders due to the structure of online commerce.

Another financial authority official said, "It would be difficult to apply strengthened standards uniformly to small unlisted corporations," but added, "We will review and supplement various measures such as reclassifying categories for unlisted companies with a large market impact."

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