Major Causes of Internal Accounting Adverse Opinions: "Lack of Accounting Expertise and Affiliate Transactions"

Main Reasons for Adverse Opinions:
"Lack of Accounting Expertise" and
"Transactions and Investments with Affiliates and Subsidiaries"

In the domestic internal accounting control system, the main reasons for adverse opinions were identified as 'lack of accounting expertise' in the internal control area and 'transactions and investments with affiliates and subsidiaries' in the accounting processing area.

Provided by Samjong KPMG

Samjong KPMG revealed this in a report published on the 16th (ACI Issue Report, The Role of the Audit Committee in the Internal Accounting Control System).

According to this report, which presents an analysis focusing on consolidated internal accounting control systems and cash control along with the role of the audit committee, 90 companies received adverse opinions on their domestic internal accounting control systems for the fiscal year 2023. The consolidated internal accounting control system refers to the internal control over financial reporting designed and operated to ensure that consolidated financial statements are prepared and disclosed in accordance with accounting standards.

The main reasons for adverse opinions were identified as 'lack of accounting expertise' in the internal control area and 'transactions and investments with affiliates and subsidiaries' in the accounting processing area, ranking first in each category. Among companies that received adverse opinions from external auditors on their internal accounting control systems, only 12.2% (11 cases) had audit committees and management expressing the same view as the external auditors that internal controls were ineffective.

The report pointed out weak internal controls as a major cause of fraud occurrence and introduced new evaluation and reporting standards for internal accounting control systems to respond to risks related to cash fraud through case analyses of various cash fraud incidents. It also conveyed key considerations for management, who must disclose control activities and evaluation results to counter fraud such as embezzlement.

Kim Min-gyu, leader of the Samjong KPMG Audit Committee Support Center (ACI), stated, “It is important for the audit committee to independently evaluate the effectiveness of management’s design and operation of the consolidated internal accounting control system and cash control.” He added, “According to the new evaluation and reporting standards for internal accounting control systems, the audit committee should maintain close communication with management and external auditors and describe this in the evaluation report to fulfill its supervisory role more faithfully.” The report is available for free on the Samjong KPMG website.

Provided by Samjong KPMG

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