The Financial Supervisory Service provided guidance on matters to note regarding external audits ahead of this year's settlement of account.
On the 22nd, the Financial Supervisory Service (FSS) released materials titled "Guidance on 2025 corporate settlement of account and external audit matters to note," and urged corporations to submit their pre-audit financial statements, prepared directly under their own responsibility, to the Securities and Futures Commission (SFC) within the statutory deadline.
Those obligated to submit are stock-listed companies, unlisted companies with total asset aggregates of 500 billion won or more, and financial companies. For corporations that are part of business groups subject to public disclosure under the Fair Trade Act and corporations required to file business reports under the Financial Investment Services and Capital Markets Act, the submission obligation arises if total asset aggregates are 100 billion won or more.
Corporations may submit the pre-audit financial statements they prepared themselves to the external auditor (accounting firm) and the SFC within the statutory deadline. If they fail to submit within the deadline, stock-listed companies must disclose the reason. They may submit to the Financial Supervisory Service (FSS) electronic disclosure system by the day after the deadline expires.
If they fail to meet the financial statement submission deadline due to not being familiar with the regulations, or if some documents are omitted, measures such as designation of an auditor will be imposed. In the case of stock-listed companies that violated the submission obligation, they must submit the reason for non-submission within the deadline, but most did not. As of 2023, 14 of 17 corporations that failed to submit did not provide a reason.
External auditors, in accordance with audit practice guidelines, must check the company's pre-audit financial statements and, if the company violates the submission obligation, assess whether there are any internal control deficiencies. Beginning with the 2025 fiscal year, the "standards for evaluation and reporting of the internal accounting management system" will be mandatory, and external auditors need to assess whether the operational status report was prepared in accordance with those standards.
In particular, corporations should closely inspect the design and operation status of the "controls against fund misappropriation," and faithfully disclose them in the operational status report in line with the preparation guidelines.
In addition, the Financial Supervisory Service (FSS) said it will strengthen reviews of key inspection accounting issues. Accordingly, corporations should check the "2025 key inspection accounting issues" pre-noticed by the FSS and exercise caution when handling related accounting.
In June, the Financial Supervisory Service (FSS) selected four items as key inspection targets: ▲ accounting for investor agreements ▲ accounting for issuance and investment in convertible bonds (CB) ▲ disclosures on supplier finance arrangements ▲ impairment handling of shares invested in subsidiaries and associates.
If corporations find accounting errors, they should correct them quickly and accurately, and fully describe the nature of the errors. For related matters, the external auditor must notify the audit committee, and the audit committee must investigate the violation.
If there are accounting errors in prior-period financial statements, the prior and current auditors, management, and the governing body must decide how to correct them. Corporations that voluntarily correct accounting errors will have the level of measures mitigated.
The Financial Supervisory Service (FSS) stressed it will respond strictly to refusals, delays, and false submissions of materials related to corporate audits, inspections, and reviews. Since last year, there have been four cases of obstructing reviews and six cases of obstructing external audits, which continue to be uncovered.
An official at the Financial Supervisory Service (FSS) said, "For obstruction of external audits and reviews, we plan to respond through digital review techniques and take strict action when detected," adding, "It would be helpful to refer to major inspection and review cases disclosed on the FSS website."