The Financial Supervisory Service held full-fledged talks with National Assembly, industry, and academic officials on a plan to sharply shorten the current accounting review and inspection cycle, which averages 20 years, and to enable the swift delisting of corporations where accounting fraud is detected.
The Financial Supervisory Service (FSS) held a research seminar on the direction of improving the accounting review and inspection system at its Yeouido headquarters in Seoul on the morning of the 24th, chaired by Governor Lee Chan-jin. The seminar was attended by Kim Nam-geum, a Democratic Party of Korea lawmaker on the National Policy Committee, Kim Ki-young, president of the Korean Accounting Association, and Ryu Sung-jae, head of the accounting system team at the Financial Services Commission.
Experts attending the seminar said Korea's review and inspection cycle is long, undermining the timeliness of detection and deterrence. The average inspection cycle for domestic listed companies is currently about 20 years. Accordingly, there was consensus that the inspection cycle should be shortened to about 10 years for Korea Exchange main board listings and about 5 years for KOSDAQ listings.
Experts also said that to enhance the effectiveness of shortening the inspection cycle, the dedicated inspection organization should be expanded from the current two departments to four, and the currently discretionary, sample-focused inspection authority should be strengthened.
In particular, they emphasized that system improvements are needed so that, for corporations where intentional and serious accounting fraud is detected, inspection results can be swiftly linked to delisting procedures.
Earlier, the FSS said it is reviewing a plan to grant the Korea Exchange (KRX) "broad discretion" to immediately expel a listed company if it commits accounting fraud with major social repercussions, such as window dressing.
However, some noted that a phased implementation is needed, as drastically shortening the inspection cycle in a short period could increase the burden on corporations to respond.
The FSS plans to prepare a roadmap to improve the accounting review and inspection system in consultation with the Financial Services Commission, based on the research results and industry opinions discussed at this seminar.
Lee said, "Since the 2017 accounting reform, there has been meaningful progress in audit quality, but recurring accounting fraud cases are becoming a structural threat that undermines market trust," and emphasized, "There is a need to shift to a preventive supervisory system that identifies accounting fraud early and responds preemptively."