"Half of KOSPI 200 Companies Fail to Ensure Independence of Internal Audit Departments"

Most Internal Audit Departments Established, but Independence Remains Insufficient

Most companies included in the KOSPI 200 index have established internal audit departments, but less than half have achieved genuine independence, according to a recent survey.

On December 2, the Corporate Governance Center (CCG) of Deloitte Korea announced the publication of the 12th issue of its "Corporate Governance Insights," which analyzes the status of substantive independence in internal audit departments of KOSPI 200 companies for the 2024 fiscal year.

According to the report, 93% (186 companies) of KOSPI 200 companies disclosed that they have established internal audit departments. However, only 41.4% (77 companies) had both a direct reporting line to the auditor or audit committee and the authority to approve the appointment and dismissal of the head of the internal audit department. This marks a 4.8 percentage point increase from the previous year (63 companies), but it is still insufficient to be considered a fully independent environment from management.

Among the 98 companies that disclosed the establishment of an independent internal audit department in the core indicators (item 12) of the corporate governance report, only half (51 companies, 52%) had both a direct reporting line to the auditor or audit committee and the authority to approve the appointment and dismissal of the head of the internal audit department. This is a 1.4 percentage point improvement from the previous year (43 companies, 50.6%), but the analysis indicates a gap between self-assessment and actual independence. Even among companies that claimed to have established independent internal audit departments, only half met the criteria for substantive independence.

The report also presented the status of authority to approve the appointment and dismissal of all members of internal audit departments. Of the 186 companies with internal audit departments, only 36 (19.4%) had internal audit bodies with authority over all department members, which is significantly lower than the 123 companies (66.1%) with authority limited to the head of the department. This suggests that personnel independence is centered on the department head.

Han-Seok Kim, head of the Corporate Governance Center at Deloitte Korea, stated, "Securing substantive independence for internal audit departments is desirable to enhance companies' risk response and resilience," adding, "As the independence of internal audit departments has been selected as a key inspection item for the 2025 corporate governance report, companies should thoroughly review substantive independence requirements such as organizational structure, reporting lines, and personnel authority."

Meanwhile, the report also reviewed the agenda items of audit committees in KOSPI 200 companies for the 2023-2024 fiscal years. As of the 2024 fiscal year, traditional accounting oversight areas such as supervision of external auditors (26.6%), internal accounting management systems (18%), and financial reporting (15%) accounted for 59.6% of all agenda items in Korea. In contrast, overseas audit committees focused on a broader range of priorities, including cybersecurity (93%), enterprise risk management (76%), and finance, internal audit, and talent management (65%). The report suggested that Korean companies also need to diversify agenda items in response to changing risk environments.

Additionally, the report covered topics such as supervision of digital assets, improvements in disclosures to enhance shareholder rights, and improvements in financial risk management, ESG evaluation, and disclosures related to major industrial accidents. The full report is available on the Deloitte Korea website.

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