The Financial Services Commission is planning to submit an amendment to the Act on External Audit of Stock Companies to the Ministry of Government Legislation and the Regulatory Reform Committee before the end of this year. According to the revised bill, the penalty imposed for accounting fraud, the amount of which is fixed within 10 percent of the amount of the fraudulent accounting, is to be raised up to 20 billion won (US$16.8 million) per case, from the current amount of 2 billion won (US$1.7 million).
At present, developed countries have no limit or very high limits on the penalties that they apply to accounting fraud. For example, the United States raised the limit to US$18 million per case two years ago. Britain has no limit at all, and Japan applies a minimum amount of 6 million yen (US$50,000), or 0.006 percent of market capitalization.
The commission is also planning to impose penalties on an accumulated basis. In other words, a penalty is to be applied to each case of accounting fraud, whereas it is currently imposed on the largest one of a series of frauds.
Still, a fine on the violation of audit standards attributable to an auditor’s fault is expected to be limited to 500 million won (US$419,975), as this amount can be a significant burden on the auditor who is responsible for the fine on an accounting firm that exercises the right to indemnity.