EY Korea: Domestic Companies See Positive Changes from New External Audit Act, but Accounting Fraud Remains a Challenge

Survey Finds New External Audit Act Has Enhanced Accounting Transparency
Challenges Remain in Preventing Accounting Fraud and Improving Corporate Governance
Companies Prepare for K-IFRS No. 1118 Amid Concerns Over Market Confusion and Readiness Gaps

A recent survey has found that the New External Audit Act (Shin Oegambyeop), introduced in 2018, has had a tangible effect in enhancing accounting transparency among companies. However, the prevention of accounting fraud and improvements in corporate governance remain unresolved challenges.

On August 21, EY Korea, a global accounting and consulting firm, released the results of the "2025 EY Korea AI, New External Audit Act and Audit Survey." A total of 575 employees from the finance, accounting, and tax departments of domestic companies participated in the survey, which focused on analyzing the impact of the New External Audit Act on accounting transparency.

The New External Audit Act, which was enacted at the end of 2018, stipulates periodic auditor designation, standard audit hours, and audits of internal accounting control systems to prevent accounting fraud and enhance transparency. According to the survey, 83% of respondents reported experiencing positive changes in accounting transparency since the implementation of the Act. This figure is up 10 percentage points from the 2023 survey (73%), indicating that as the Act has become more established, awareness of its effectiveness in the field has increased.

Additionally, 83% of respondents stated that the introduction of the Act has improved processes and internal controls related to financial reporting, while 78% said that the internal accounting control system mandated by the Act has been effective in preventing or detecting embezzlement and fraud within companies.

Corporate awareness of accounting transparency was also high. 88% of respondents said that accounting transparency is essential for corporate growth, viewing it as a core foundation that supports not only trust but also competitiveness and sustainable growth.

Regarding South Korea's ranking in accounting transparency, which dropped 19 places to 60th out of 69 countries in the 2025 IMD World Competitiveness Ranking, the main causes cited were: ongoing cases of accounting fraud (31%), deterioration in corporate governance improvements (23%), and declining confidence in the business environment (21%). The report analyzed that "the prevention of accounting fraud and improvements in governance remain urgent issues for enhancing accounting transparency in the Korean market."

The survey also examined how companies are preparing for the new accounting standard K-IFRS No. 1118 (Presentation and Disclosure of Financial Statements), which is scheduled to be introduced in 2027. K-IFRS No. 1118 will introduce new subtotal categories in the income statement, such as operating profit and loss, and require that operating profit and loss be presented as a residual concept, excluding investment and financing categories. According to the survey, 56% of respondents said that modifications to the presentation method, reflecting Korean characteristics, would be necessary upon the adoption of K-IFRS No. 1118, while 50% predicted that changes in financial statement presentation would inevitably cause market confusion.

There were also significant differences in preparation for K-IFRS No. 1118 depending on company size. While 70% of companies with assets of 2 trillion won or more are either planning to prepare this year, are already in progress, or have completed preparations, 69% of companies with assets under 500 billion won plan to prepare next year or have not started at all. Only 2% of all respondents said their companies had completed preparation and impact analysis for the new standard, indicating that overall readiness is lacking.

Lee Kwangyeol, Head of Assurance at EY Korea, emphasized, "Proactive investment and systematic preparation are essential for companies to effectively respond to the introduction of new accounting standards such as K-IFRS No. 1118. In particular, since there are significant differences in the level of preparation depending on company size, any delay in readiness could lead to market confusion and a decline in trust."

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