Financial Services Commission Kicks Off Accounting and Audit Governance Evaluation Committee... "Hope It Becomes a Model Practice"

Kim So-young, Vice Chairman of the Financial Services Commission, attended the first meeting (Kick-off) and a roundtable with the members of the 'Accounting and Audit Governance Evaluation Committee' held at the Government Seoul Office on the 13th, stating, "We hope this will not simply be about selecting companies to defer periodic designation, but will establish itself as a 'Best Practice' that our companies and auditors should follow to enhance accounting transparency and develop the capital market."

This is a follow-up measure after the financial authorities announced in December last year a plan to defer the periodic designation of auditors for excellent companies for three years through the 'Plan to Defer Periodic Designation of Accounting and Audit Governance Excellent Companies' and disclosed the criteria for selecting excellent companies. The Evaluation Committee, composed of seven external experts including Professor Choi Jong-hak of Seoul National University (Chairman of the Evaluation Committee), will evaluate and select companies' governance based on these criteria. Among those named through recommendations from various sectors are Professor Kwon Jae-yeol of Kyung Hee University, Professor Kim I-bae of Duksung Women’s University, Vice Chairman Seo Won-jung of the Korean Institute of Certified Public Accountants, Professor Song Min-seop of Sogang University, Professor Yoon Seung-young of Hankuk University of Foreign Studies, and Professor Ji Seung-min of Korea University.

At the meeting, the Financial Services Commission gathered opinions on the evaluation criteria and discussed the future evaluation direction. The attending members suggested maintaining the broad framework of the evaluation criteria agreed upon by the corporate and accounting sectors, while proposing supplements such as including internal accounting management operation organizations in addition to the dedicated audit committee organization. They also proposed expanding the penalty for companies involved in social controversies related to accounting, introducing incentives for companies that faithfully disclose governance reports, and increasing the qualitative evaluation scoring for internal accounting management processes, which have many elements difficult to measure quantitatively.

The Financial Services Commission plans to reflect as many of the opinions presented at the meeting as possible this year after discussions with the relevant industries. Additionally, to ensure the fair operation of the Evaluation Committee, if an individual evaluator has a conflict of interest with the company under review, that evaluator will be excluded from the review, and when evaluating qualitative factors, the average score excluding the lowest and highest scores will be applied.

Vice Chairman Kim emphasized, "Since this involves conflicting interests between companies and auditors, the Evaluation Committee was composed in a balanced and neutral manner to avoid bias toward either side," adding, "As this is the first year of implementation and we have gathered top experts as members, I ask for strict and fair evaluations." Professor Choi, who serves as the inaugural chairman of the Evaluation Committee, said, "Through this policy, I believe companies will voluntarily improve their accounting and audit governance, ultimately leading to enhanced accounting transparency of our companies and the advancement of the capital market."

Starting with this first meeting, the Financial Services Commission plans to announce the partial amendments to the 'Enforcement Decree of the External Audit Act' and the 'External Audit Regulations' to formalize the periodic designation deferral system for accounting and audit governance excellent companies within this month, and complete the revision work by May. Following this, corporate briefings will be held in April and May, deferral applications will be accepted in June, and the Evaluation Committee’s review and the Securities and Futures Commission’s deliberation and resolution will take place in July and August, with the selection of companies eligible for periodic designation deferral for this year to be completed accordingly.

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