290 Companies Violated Auditor Appointment Rules This Year... FSS Urges Strict Compliance with Procedures

As of October this year, the number of companies that have been assigned auditors due to violations related to the appointment of external auditors reached 290. This figure is already approaching last year's total of 310 companies that were found in violation.

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On November 27, the Financial Supervisory Service stated that the procedures for appointing external auditors differ depending on a company's listing status, asset size, and other factors, and emphasized that companies must confirm and comply with the appointment procedures appropriate to their type. If a company violates statutory requirements such as the appointment deadline or the procedures for selecting the auditor appointment committee, an auditor may be designated for them.

Under the Act on External Audit, companies subject to external audit are those with total assets of at least 50 billion won or sales of at least 50 billion won. In addition, joint-stock companies that meet at least two of the following criteria are also subject to external audit: ▲ assets of at least 12 billion won ▲ liabilities of at least 7 billion won ▲ sales of at least 10 billion won ▲ at least 100 employees.

Furthermore, in some cases, companies have been assigned auditors due to a lack of understanding of the external auditor appointment system, resulting in violations of the appointment deadline or selection procedures. To prevent this, companies must appoint an external auditor within 45 days from the start of the fiscal year.

However, listed companies with assets of at least 2 trillion won under the Commercial Act, or financial companies required to establish an audit committee under the Act on Corporate Governance of Financial Companies, must appoint an auditor before the start of the fiscal year. Companies not required to establish an audit committee may also appoint an auditor before the start of the fiscal year.

Additionally, companies may appoint an auditor for each fiscal year. However, listed companies, large unlisted companies, and financial companies must appoint the same auditor for three consecutive fiscal years.

It is also necessary to verify the qualifications of the auditor. Companies may appoint either an accounting firm or an audit team as their auditor. However, large unlisted companies and financial companies may only appoint accounting firms. In particular, listed companies may only appoint accounting firms that are registered with the Financial Services Commission as auditors for listed companies.

For the authority to select auditors, in companies with an audit committee, the audit committee selects the auditor. In listed companies, large unlisted companies, and financial companies without an audit committee, the auditor must be selected with the approval of the auditor appointment committee. For other unlisted companies, the auditor selects the external auditor, but if the law does not require an auditor, the company itself may select the auditor.

The auditor appointment committee may be composed of five or six members, including one chairperson, all of whom must meet statutory qualifications. If it is unavoidable, such as when there are no qualified candidates, external experts may be appointed. The committee convenes with the attendance of at least two-thirds of its members and resolutions are passed with the approval of a majority of those present.

Companies must report the appointment of their auditor to the Financial Supervisory Service within two weeks of signing the audit contract. However, this may be omitted if the auditor has not been changed. Additionally, listed companies, large unlisted companies, and financial companies that appoint auditors with the approval of the audit committee or the auditor appointment committee must report each appointment regardless of whether the auditor has changed.

The Financial Supervisory Service stated, "We will communicate key points to each member company through relevant organizations such as the Korea Listed Companies Association, KOSDAQ Association, KONEX Association, Korea Federation of SMEs, and the Korean Institute of Certified Public Accountants," adding, "For companies located in regional areas that have relatively fewer educational opportunities, we will hold on-site briefing sessions and provide active guidance through the FSS website Q&A and telephone consultations."

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