During the busiest audit season for accountants (January to March), they put off their own work and went all in on reversing the review of settlement of account statements for Seoul's privately commissioned project expenses—previously allowed for tax agents—back to an audit by certified public accountants. Staff were so worried about losing business that they openly voiced complaints. Right up until Mar. 7, when the related local government ordinance amendment passed, they chased lawmakers and sent texts to persuade them. When they heard it had passed, they hugged each other and cried in front of the Seoul Metropolitan Council building. I think everyone realized then that it is time for accountants to actively consider ways to contribute to the health of the public and society.
At the end of last year, accountants, including The Korean Institute of Certified Public Accountants (KICPA), took the unusual step of collective action. That happened after a Supreme Court ruling opened the way for tax agents to conduct the "review of settlement of account statements for expenses of privately commissioned institutions," which had until then been allowed only for accountants in Seoul. Accountants and tax agents clashed, and the area in front of the Seoul Metropolitan Council turned into a battlefield.
Three months later, on Mar. 7 this year, the Seoul Metropolitan Council passed an amendment to the local government ordinance to again have certified public accountants exclusively handle audits of privately commissioned projects. The core is to require the same strict audits as before to strengthen the post-verification procedures for how privately commissioned project funds are used.
The "butterfly effect" of this incident did not stop there. As local governments, including Seoul, moved one after another to similarly amend their local government ordinances, a movement emerged, led by KICPA, to actively engage in social contribution activities for local communities. Realizing the need to spread the importance of accounting transparency through "third-party certification with expertise," KICPA launched the Regional Transparency Committee in September 4th.
On the afternoon of 13th, we met Eom Eun-suk, the Seoul regional Chairperson of the Regional Transparency Committee, at the KICPA office in Seodaemun District, Seoul, who has been driving these changes since last year. Eom took the lead in meeting lawmakers to explain the need for an audit rather than a review, and traveled nationwide to prevent local government ordinances like Seoul's from passing elsewhere. A graduate of Sangmyung University's business administration department, Eom also completed studies at Korea National Open University's law department and Seoul National University's Graduate School of Business. After working at Angun and EY Hanyoung, Eom now serves as a KICPA director and the head of headquarters at Jeongdong Accounting Corporation. The following is a Q&A with Chairperson Eom.
- What does the Regional Transparency Committee do?
In short, it is an organization formed with the aim of fulfilling our social responsibility as certified public accountants. It is built on regions tied to each accountant's residence, hometown, or business sites. Under the slogan "A transparent region we build together, a future of trust we share together," we work to enhance accounting transparency related to local autonomy and support accounting tasks for small business owners and nonprofit organizations.
Until now, accountants thought quietly working hard in their respective fields was how they contributed to society. But the situation changed when, in October last year, a Seoul local government ordinance to switch from audits to simplified reviews for privately commissioned projects was finalized by Supreme Court precedent. The Big 4 accounting firms, the Youth and Women Certified Public Accountants Association, and the Council of Small and Mid-sized Accounting Firms voluntarily gathered to provisionally form the Regional Transparency Committee in January 4th. Thanks to efforts centered on the committee, Seoul's ordinance was restored to its original form, and the provisional Regional Transparency Committee was launched as a national body on Sep. 17.
- How is it organized by region?
Seoul 342, Gyeonggi 172, Daejeon/Sejong/Chungcheong 92, Daegu/Gyeongbuk 62, Gwangju/Jeonnam 53, and so on. Because there are many accountants residing in Seoul and Gyeonggi, the capital area has more members. However, in terms of participation rates, most non-capital regions are in the double digits and higher than the capital area. And even if headcount is short in the provinces, information is shared in real time, so support is dispatched from the capital area right away. We have experience responding together when there were moves in the provinces to amend local government ordinances similar to Seoul's.
- What problems arise if the settlement of account for privately commissioned tasks is simplified into a review rather than an audit?
Attempts to simplify verification of privately commissioned project expenses run counter to the trend toward a transparent society. Reviewing settlement of account statements is not verification by an independent third party. This certification can only be performed by accountants under the Certified Public Accountant Act. The public would not understand choosing not to conduct an audit for the same expense.
- Those supporting amendments to local government ordinances to allow tax agents to conduct settlement of account reviews cite high expense burdens.
Audit expenses are not as expensive as one might think. It depends on the project budget, but this is not about preparing financial statements under double-entry bookkeeping; it is verification of whether inflows and outflows of project funds were properly used, so the price is low compared to audit fees. Those who support simplified reviews argue that this greatly reduces expenses, but as far as I know, even with the change, the reduction is only about 10%.
- I understand that a bill to amend the Local Autonomy Act related to audits of privately commissioned projects has been introduced in the National Assembly.
Currently, only 40 out of 243 local governments (16%) conduct audits of privately commissioned project expenses. Of the total 13 trillion won privately commissioned budget, Seoul accounts for 1 trillion won, with certain regions having large shares while most other local governments are small, so public officials themselves handle it in most places. Only 12 of 17 metropolitan governments and 28 of 226 basic local governments have mandated audits.
Accordingly, lawmaker Park Su-min of the People Power Party and Shin Jeong-hun of the Democratic Party of Korea, who chairs the Public Administration and Security Committee, introduced amendments to the Local Autonomy Act mandating audits of privately commissioned projects. To prevent further leakage of local government finance, it is important to expand and supplement the scope of audits as broadly as possible and implement the change as quickly as possible.
- There are also voices opposing audits from consigned institutions such as daycare centers, citing massive expenses.
With the introduction of a bill mandating audits of privately commissioned projects by local governments, we are aware of concerns that the burden of settlement of account for project funds will increase at small daycare centers and welfare centers. But that is distorted information. All public or private daycare centers do not receive privately commissioned funds and thus are not subject to audit under the Local Autonomy Act amendment. Self-consignment means a local government's tasks (facilities) are entrusted (operated) by the private sector; daycare centers operate on national (local) subsidies and those already subject to audits are being audited. The change under the Local Autonomy Act is not significant.
- What tasks lie ahead for the Regional Transparency Committee?
We plan to actively provide consulting on accounting and tax matters so that local governments can operate in a sound manner. We will also create a channel through our website where anyone can seek help at any time, and plan to donate our teaching expertise for training targeting small business owners and nonprofit organizations. We also aim to play a watchdog role by proposing legislation toward a transparent society.