Corporations with excellent governance related to accounting and auditing can receive a three-year exemption from 'the periodic designation of external auditors.' The periodic designation system allows corporations that autonomously appoint external auditors for six years to receive external audits from accounting firms designated by financial authorities for three years. This means that excellent corporations can autonomously appoint auditors for a total of nine years.
The Financial Services Commission and the Financial Supervisory Service announced on the 31st 'the measures to exempt periodic designation for corporations with excellent accounting and auditing governance.' The structure is such that after corporations apply for the review, the evaluation committee and the Securities and Futures Commission decide on the exemption from periodic designation.
Companies that can apply for the exemption from periodic designation must be listed corporations that have established an audit committee and have been subject to designated audits for at least one year since 2018.
However, there must be no cases of embezzlement or breach of trust by the company or its executives and employees, violations of the External Audit Act, or violations of the Capital Markets Act in the last three years. Corporations that have received adverse audit opinions or have ongoing audit reviews due to concerns about accounting irregularities cannot apply for the exemption.
The evaluation criteria for excellent corporations that can receive exemptions from periodic designation consist of 17 items across five major areas. It includes independence of the audit function, expertise of the audit organization, effectiveness of audit support organizations, transparency of the auditor appointment process, and self-initiatives, totaling a possible score of 1,000 points. Those who obtain a score of 800 or more will be eligible for exemption.
The financial authorities plan to form an evaluation committee consisting of seven private experts by the first quarter of 2025. The evaluation will be overseen by the Financial Supervisory Service, supported by the Environmental, Social, and Governance (ESG) standards organization.
Additionally, after revising relevant laws regarding evaluation criteria and collecting further opinions, the authorities plan to start accepting applications from corporations seeking exemptions as early as June 2025. A final decision on the periodic designation exemption targets will be made after evaluations by the evaluation committee and resolutions by the Securities and Futures Commission during the third quarter of 2025.
The financial authorities also announced a schedule for a comprehensive review of the periodic designation system. Previously, it was decided that all listed corporations would undergo at least one periodic designation by 2028.
The financial authorities will begin the comprehensive review of the periodic designation system in 2027, and based on the results, improvements to laws and systems will be pursued in 2028. This takes into account that corporations designated for the first time in 2020 will be eligible for periodic designation again starting in 2029. The exemption measures for periodic designation will also be in place for three years (2025-2027) until the comprehensive review.