A limited liability company (LLC) with a certain amount of sales and a considerable number of employees is required to conduct an external audit from the 2020 fiscal year. Accordingly, foreign LLCs operating in South Korea, which haven’t disclosed their accurate sales or profits such as Google, Apple and Chanel, are expected to disclose related information.
The Financial Services Commission (FSC) held an accounting reform task force meeting on January 16 to discuss detailed ordinances, including subject of external audit, periodic auditor designation system and listed firms’ auditor registration system. The FSC will come up with plans on the pre-announcement of legislation by the end of March.
First of all, financial authorities have added the amount of sales to the criteria for subject of external audit and developed an external audit plan for LLCs. Under the current law, the subjects of external audit are corporations that have more than 12 billion won (US$11.27 million) of assets, more than 7 billion won (US$6.57 million) of assets or more than 300 employees and more than 7 billion won (US$6.57 million) of assets and more than 7 billion won (US$6.57 million) of debts, and that are listed or to be listed. The authorities are planning to expand the subjects of external audit by adding the amount of sales.
LLCs, which have been veiled so far, will be categorized into a subject of audit based on the same standards of corporations, like the number of employees and amount of sales, from the 2020 fiscal year. Considering the standards in advanced countries, including 102 billion British pound (US$14.03 million or 14.94 billion won) in the United Kingdom, the amount of sales is expected to be around 15 billion won (US$14.09 million).
The periodic auditor designation system will be also introduced. A listed company or an unlisted company that hasn’t separated ownership from management must be externally audited by auditors designated by the Securities & Futures Commission for three years out of nine years. The unlisted company includes ones that have over 100 billion won (US$93.91 million) in total assets and have CEO as dominant stockholder owning over 50 percent stakes.
In addition, the financial regulator will set up a listed company auditor registration system to improve the audit quality. It is planning to prepare legal grounds to support mergers, such as partition or spin-off, in order to improve the competitiveness of small-sized accounting firms.