This article was published on March 4, 2025, at 2:37 p.m. on the ChosunBiz RM Report site.
The Financial Supervisory Service (FSS) is pushing to change the regular inspection cycle for accounting firms. As a result, some accounting firms are expected to see a slight increase in their inspection cycles starting this year. To enhance the audit quality of accounting firms, the FSS has been conducting regular inspections, known as audits.
In particular, the four major accounting firms (Samil, Samjeong, HanYoung, AhnJin) had an inspection cycle of two years, but this change is likely to extend that cycle. While large securities firms and asset management companies have a cycle of five years, large accounting firms have historically undergone audits more frequently.
According to financial authorities on the 4th, the FSS conducted audits of 14 accounting firms last year, but plans to reduce this scale this year. Since the introduction of the auditor registration system in 2020, the four major accounting firms have been undergoing inspections by the FSS every other year. The auditor registration system was introduced as a measure following the accounting manipulation scandal at Daewoo Shipbuilding & Marine Engineering, allowing only accounting firms that meet certain criteria to audit listed companies.
Last year, audits were conducted for Samjeong Accounting Firm and AhnJin Accounting Firm, and following that order, audits for Samil Accounting Firm and HanYoung Accounting Firm are expected to occur this year. However, since the major accounting firms have undergone multiple audits since 2020, there have been calls within financial authorities to moderate the pace.
Consequently, some accounting firms are expected to see a slight increase in their inspection cycles starting this year. To enhance the audit quality of accounting firms, the FSS has been conducting regular inspections, or audits.
The FSS's final audit work plan is set to be confirmed this month after discussions with the Securities and Futures Commission, an organization under the Financial Services Commission.
Auditor audits are processes in which the FSS focuses on inspecting the vulnerabilities within accounting firms. This involves assessing whether effective integrated management systems for personnel, finances, and accounting are being operated and checking if appropriate compensation systems in response to audit quality have been established. Audits typically take 3 to 7 weeks and, if serious violations are discovered, could lead to administrative penalties by financial authorities.
In the audit conducted by the FSS two years ago, Samil Accounting Firm and HanYoung Accounting Firm were criticized for shortcomings concerning quality leadership and ethical auditing requirements, execution of tasks, and monitoring aspects. Specifically, issues arose with Samil Accounting Firm as the risk manager was managing information asset and customer information leak risks without a unified inspection standard across the company. HanYoung Accounting Firm received criticism from the FSS for using email instead of a system during internal verification procedures.
Regarding ethical concerns related to auditing, Samil Accounting Firm concluded issues reported as 'not transacted' without conducting separate verification procedures, relying solely on data from Korea Securities Depository. Accountants can acquire information about specific corporations' operating results through audits, and trading stocks of the audited company is a violation of the Capital Markets Act. HanYoung Accounting Firm did not cross-reference the list of related parties with reputable external data.
In addition, the two firms received recommendations for improvements regarding ▲ failure to conduct re-risk assessment despite significant incidents occurring at the audited company (Samil) ▲ failure to conduct separate follow-up actions related to audit information leaks (Samil) ▲ deployment of non-public accountants with less than five years of experience in audit work (HanYoung) ▲ designation of a small number of sample checks to prevent audit information leaks (HanYoung).
Meanwhile, at the end of this month, the FSS will announce its operational plans for review and audit work, disclosing the basic direction and the number of listed companies subject to financial statement reviews and audits. The basic direction for the operational plan last year included ▲ enhancing transparency of audit work to improve external trust ▲ concentrating on major incident capabilities to establish accounting order ▲ improving audit quality through the establishment of regulations in the accounting industry. There were 160 listed companies subject to review and audit. The results of the audits conducted last year on Samjeong Accounting Firm and AhnJin Accounting Firm are expected to be made public in July.