Strengthened Obligation

The head of an accounting firm is to be deprived of his or her certified public accountant license when he or she is engaged in poor auditing.
The head of an accounting firm is to be deprived of his or her certified public accountant license when he or she is engaged in poor auditing.

 

The Financial Services Commission announced on June 12 that it would submit to the National Assembly in September a proposal for amending the Act on External Audit of Stock Companies.

According to its proposal, the head of an accounting firm engaged in poor auditing is to be deprived of his or her certified public accountant license or to be blocked from doing his or her business. The idea of the proposal is to deal with improper auditing practices that are surfacing these days with regard to Daewoo Engineering & Construction, Daewoo Shipbuilding & Marine Engineering, etc.

According to the proposal, a corporation has to allow an audit committee or an auditor, not an executive member, to appoint an external auditor, too. In addition, it cannot call for an accounting firm to draw up its financial statements and a non-listed large company has to work with the same external auditor for three years. Furthermore, limited liability companies such as foreign companies’ subsidiaries in South Korea like Louis Vuitton Korea and Apple Korea are to be subject to external audit.

Moreover, the penalty that has been imposed on companies obligated to submit business reports and engaged in fraudulent accounting is to be expanded to cover all the 25,000 or so corporations subject to external audit. Those obligated to submit business reports refer to listed companies, those with at least 500 shareholders and the like and the penalty according to the current law is equivalent to 10% of the amount of creative accounting within a maximum limit of two billion won.

Still, the proposal contains nothing about how to more effectively punish corporate heads and executives involved in accounting frauds.

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