An external audit of large apartment complexes in Korea found that nearly 100 complexes received a "disclaimer of opinion" over the past five years. A disclaimer of opinion means the external auditor deemed the financial statements unreliable and effectively abandoned the audit itself. For a listed company, it would be serious enough to trigger delisting, but under current law, apartment complexes face no particular sanctions.
According to the Ministry of Land, Infrastructure and Transport and the Korea Real Estate Board (REB) on the 28th, among the multifamily housing subject to mandatory management by the government, a total of 95 apartment complexes received a disclaimer of opinion in external audits from 2020 to 2024.
Under the current Multifamily Housing Management Act, external audits are mandatory for multifamily housing with 300 or more households, or with 150 or more households that have elevators or central heating. Audit items include whether the settlement of account report complies with preparation standards, whether financial statements match detailed schedules, the appropriateness of maintenance fee assessment, and the status of managing expenditure documentation.
By year, the numbers of complexes that received a disclaimer of opinion were 20 in 2020, 14 in 2021, 14 in 2022, 28 in 2023, and 19 in 2024. Each year, roughly 10 to 20 complexes failed to gain recognition for accounting reliability.
External audit results are generally divided into four levels: ▲unqualified ▲qualified ▲adverse ▲disclaimer of opinion. Among these, a disclaimer is the most serious, issued when the auditor cannot obtain the necessary accounting records and concludes the financial statements themselves cannot be trusted.
Industry officials believe a large share of apartment audit disclaimers are linked to misappropriation or embezzlement of maintenance fees and refusals to submit records. They say cases keep recurring in which members of resident representative councils or management office staff fail to properly disclose accounting data or handle maintenance fee disbursements opaquely.
Not a few have led to actual embezzlement cases. The Gwangju District Court in September last year gave suspended prison sentences to the chair of a resident representative council and a management office director at an apartment complex in Gwangsan District, Gwangju, for siphoning off 70.7 million won in common defect repair funds. During the trial, it was also revealed that the chair committed the crime to cover stock investment losses.
The Chuncheon District Court also sentenced an accounting manager at an apartment complex in Wonju, Gangwon, to four years in prison last year for embezzling about 1.4 billion won in maintenance fees. The accounting manager was found to have siphoned off maintenance fees over a long period from 2017 to 2024.
The problem is that there are virtually no sanctions until such corruption leads to an investigation or trial. Under current law, there are no clear provisions for imposing administrative dispositions or penalties even if an external audit is not properly conducted or a disclaimer of opinion is issued. However, cases of not undergoing an external audit at all or undergoing one fraudulently can be subject to imprisonment or fines.
An official at the Ministry of Land, Infrastructure and Transport said, "A complex that receives a disclaimer of opinion means the audit did not proceed normally, and we consider it a place with a high likelihood of corruption," adding, "We notify local governments of the relevant complex information so they can prioritize it as a target for special audits." The official added, "Under current law, there is insufficient basis to impose sanctions solely for a disclaimer."
Attorney Kim Ye-rim, managing partner at the law firm Simmok, said, "When an external accounting firm issues a disclaimer, additional audits by local governments or the central government often follow," adding, "But there needs to be stronger administrative and criminal sanctions for improper execution of maintenance fees and failure to submit accounting data."