The Financial Supervisory Service said on the 29th that it would set the direction for this year's accounting reviews and inspections and accelerate the advancement of capital markets.
The Financial Supervisory Service (FSS) highlighted three major plans for operating this year's accounting review and inspection work: support a leap forward in capital markets through zero tolerance for accounting fraud; enhance the credibility of accounting oversight by advancing processes; and strengthen management and supervision of auditors to improve audit quality.
First, it will focus on monitoring companies showing signs of being marginal firms or those with a high risk of accounting fraud due to fewer audit hours. It will shorten the review and inspection cycle for KOSPI 200 companies from 20 years to 10 years and reinforce the inspection infrastructure by securing organization and personnel.
Sanctions will also be toughened against company officials who led or directed accounting misconduct and certified public accountants who conducted negligent audits. Company officials will be restricted from being appointed or serving as executives of listed companies, and the statute of limitations for disciplining auditors will be extended from the current three years to five years.
To bolster trust in accounting oversight, it will expand the inspection scope for internal accounting control systems to strengthen corporate guidance and prepare improvement measures for preventive supervision by reflecting market opinions. A new accounting inspection system will be used throughout the review and inspection process to establish a smart inspection framework, while cases of findings will be opened via an open API.
To raise audit quality compared with before, it will select inspection targets by considering each accounting firm's risk level, such as firm size, quality control level, evaluation results and audit hours. In particular, it plans to mandate the establishment of checks-and-balances bodies within large accounting firms and expand disclosures such as committee operating status to induce improvements in audit quality.
An FSS official said, "We will push to disclose the results of accounting firm quality control evaluations and improve the evaluation indicators so firms can strengthen their own quality control capabilities."
The FSS plans this year to conduct financial statement reviews and inspections of 170 listed and other companies and auditor inspections of 10 accounting firms. Minor violations will be swiftly closed with measures such as cautions and warnings by the FSS governor, while capabilities will be concentrated on cases of high economic and social significance.
In particular, it will select as sample review targets those with reasons such as key review accounting issues, signs of marginal firms, pending listings, or prolonged periods without inspection. Companies reported for matters such as accounting error corrections or accounting fraud will be designated as suspected review targets and examined.
For auditor inspections, to carry out the work efficiently, it plans to focus checks on vulnerable areas of accounting firms identified during previous auditor inspection processes.
An FSS official said, "Even if we conduct joint inspections with the Public Company Accounting Oversight Board (PCAOB) of the United States on domestic accounting firms, we will maintain a close cooperative system."