FSS: "Internal Audit Bodies Must Serve as the 'First Line of Defense' Against Accounting Fraud"

Meeting of Internal Audit Bodies of Listed Companies Held

On November 26, the Financial Supervisory Service held a meeting with internal audit bodies of listed companies, such as audit committee members and auditors, urging them to serve as the "first line of defense" and the "pillar of effective internal control" in order to prevent accounting fraud and embezzlement.

According to the Financial Supervisory Service, the meeting, held that morning at the Listed Companies Association Hall, was organized to discuss the role of internal audit bodies in enhancing the transparency and reliability of the capital market and to listen to their suggestions. The event was attended by Yoon Jeongsuk, Senior Deliberation Commissioner of the Financial Supervisory Service, Kim Eunsuk, Director of the Accounting Supervision Bureau, representatives from related organizations such as the Korea Listed Companies Association, and audit committee members and auditors from nine listed companies.

During the meeting, Commissioner Yoon stated, "Since the implementation of the new External Audit Act, the role of internal audit bodies has been strengthened, establishing them as the actual agents for ensuring accounting transparency." She also called on internal audit bodies to function as the core pillar of "effective internal control" by ▲ focusing on selecting external auditors based on audit quality, ▲ fostering close cooperation with external auditors, ▲ thoroughly supervising internal control systems, ▲ ensuring independence and expertise, and ▲ responding strictly to signs of accounting fraud.

She emphasized, "Selecting an appropriate external auditor is the starting point for ensuring audit quality. Therefore, 'quality assurance' should be prioritized over 'audit costs.' It is also necessary to thoroughly evaluate whether the agreed audit plan, input hours, and personnel are being implemented by checking the actual hours invested during the audit process."

She further stated, "In order to prevent complex and sophisticated accounting fraud, close collaboration between internal and external auditors is crucial throughout all stages, from planning to execution and completion of the audit. Meetings excluding management should be held at least once per quarter, with an emphasis on face-to-face, two-way substantive communication."

Regarding internal control systems, she requested, "Since this year, the disclosure of control activities and inspection results related to embezzlement has become mandatory. Please ensure that these controls and inspections are operated effectively." In addition, she urged the enhancement of independent information systems that bypass management and the expertise to assess the reliability of accounting information. She also called for prompt rectification through internal audits or investigations by external experts upon detecting accounting fraud, and, if necessary, submission of investigation and action results to the Securities and Futures Commission and auditors.

The participants also stated that, given the growing roles and responsibilities of internal audit bodies amid a changing regulatory environment, they would strive to ensure that substantive oversight, rather than mere formal compliance, is achieved. The Financial Supervisory Service emphasized, "We will actively support internal audit bodies at the institutional and practical levels so that they can function as the 'first line of defense' against accounting fraud, and we plan to continue communicating with various stakeholders going forward."

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