Regarding the corporations' complaints about the high cost burden of designating accounting firms as external auditors, the Financial Supervisory Service noted that further data analysis is necessary. Corporations assert that the periodic designation system has had a decisive impact on the rise in audit expenses.
The periodic designation system refers to a system where corporations autonomously appoint an external auditor for six years and then receive external audits from the accounting firm designated by financial authorities for three years. This system was introduced to prevent a cozy relationship that could lead to sloppy audits when a corporation appoints the same accounting firm for an extended period. However, the FSS plans to continuously seek ways to reduce the burden on corporations.
On the 17th, the FSS held a feedback meeting in its Seoul Yeouido headquarters conference room with corporations and accounting firms regarding the meetings held this year. This year’s annual meeting aimed to ensure that it is not a one-time event and that substantive communication takes place.
At a gathering in January titled "Listening to the Difficulties of Designated Audit Firms," corporations expressed that the cost burden of audit fees has increased due to the designation of auditors. They specifically stated that their price negotiation power is low because they have to enter into audit contracts with the accounting firm designated by financial authorities under the periodic designation system. They also claimed that frequent changes in auditors lead to a decline in audit quality.
On the same day, the FSS expressed that there is still insufficient data to analyze the policy effects of the periodic designation system. This indicates that expanding options to enhance corporations' audit fee negotiation power should be reserved until sufficient data is obtained for system analysis. The fact that the periodic designation system was introduced in 2019 and has been in place for a short period influenced this decision.
The FSS stated, "We will reasonably design the target and scope of the exemption plan for the periodic designation of corporations with excellent governance to maximize policy effects." Furthermore, it said, "We will implement reasonable improvement measures such as enhancing the quality of monitoring agreement processes between corporations and designated auditors, extending the deadline for signing designated audit contracts, and strengthening the specialized expertise of designated auditors."
The FSS plans to actively work towards the implementation of a revised external audit law that completely excludes the grounds for designated accounting firms from the designation criteria.
At a meeting in June titled "Gathering of Registered Auditors for Improving Audit Quality," accounting firms pointed out that the requirement for an integrated management system among the auditor registration requirements is abstract. They also requested adjustments to evaluation items that have low relevance to audit quality.
On that day, the FSS emphasized, "It is important to establish an integrated management system in auditors' overall management to improve the quality of audits, rather than being sales-oriented." It also stated that to reduce uncertainty regarding violations of the obligation to maintain registration requirements, it will continuously inform related inadequate cases.
The plan includes seeking reasonable improvement measures for differentiated responses to violations of registration maintenance requirements and for tidying up reporting items.
Participants at the meeting unanimously expressed their intention to ensure that there is no neglect in year-end settlements and external audits to secure investor trust.
An FSS official stated, "The intention of the new external audit law to enhance accounting transparency through the establishment of accounting order and improvement of audit quality will be maintained," adding that "we will continue to communicate with various stakeholders to rationalize regulatory burdens."