If someone intentionally orders accounting fraud, they will be expelled from listed companies for up to five years. In addition, a designated audit by authority will be conducted for large unlisted companies where the largest shareholder changes frequently or where embezzlement by executives or employees has occurred.
The Financial Services Commission Securities and Futures Commission held a regular meeting on the 4th and announced a plan to improve the quality of accounting and auditing. This follows the Financial Services Commission (FSC) significantly strengthening penalty surcharges for accounting fraud through its plan to toughen sanctions against accounting fraud in Aug. last year.
The government will first ensure that those who deliberately commit accounting fraud cannot find positions not only at the company involved but also at other listed corporations. If a person exercised substantial influence over the commission of accounting fraud, that person will be subject to punishment even without an official title or a management position.
The Financial Services Commission (FSC) said it will recommend dismissal or removal, suspend duties at the relevant company, and restrict employment as an executive at all listed companies in Korea for up to five years. If the person already serves as an executive at another listed company, immediate dismissal will be required. A listed company that refuses the authority's dismissal request will face fines of up to 100 million won.
The Financial Services Commission (FSC) explained that this measure reflects the view that even if an executive who led accounting fraud is recommended for dismissal, there are many cases of rehiring at other affiliates or listed companies, and that those who led accounting fraud should be completely expelled from the capital market.
In addition, the Financial Services Commission (FSC) decided to intensify audits of large unlisted companies with weak governance. It will conduct designated audits by authority on unlisted companies with assets of at least 500 billion won where the largest shareholder has changed three or more times within the past three years or where embezzlement or breach of trust has occurred.
Authorities said that when governance is weak, the likelihood of accounting fraud is high, but auditor independence is low, raising concerns that the effectiveness of external audits will be undermined, so they are expanding the scope of designated audits by authority for unlisted companies.
Measures were also prepared to prevent excessive competition for engagements among accounting firms and to raise audit quality at accounting firms. If a deficient audit is confirmed, the government will replace the auditor of the company in question, while drastically improving incentive programs so that accounting firms that enhance audit quality can increase their workload. The plan also includes a mandate to establish and operate an independent audit quality oversight committee within large accounting firms.