Transparency
The Korean financial supervisory authority intends to regulate foreign limited liability companies in Korea starting next year.
Large unlisted local firms with assets of more than 1 trillion won (e.g. Samsung Everland, Samsung Display, GS Caltex, Lotte Hotel, and GM Korea) will also be subject to external audits in the same way as listed companies.
The Financial Services Commission (FSC) announced on October 28 that it plans to submit a revision to the Act on External Audit of Stock Companies to the National Assembly in the first quarter next year.
The revised bill is aimed at totally overhauling the law enacted in 1980. The main point of the bill is to include limited liability companies and non-profit organizations. The name of the law will be changed to Act on Accounting and External Audit of Profit-Making Corporations and Others.
So far, listed firms have been much more transparent in accounting. However, limited liability companies, unlisted corporations, and non-profit organizations have not met international accounting standards on transparency, since they have been exempt from the law. That is the reason behind the FSC bill.
The bill will strengthen oversight of accounting for limited liability companies that are not different from corporations under the Commercial Act that was revised in 2011. External audits will be mandatory for 1,500 limited liability companies with assets exceeding 12 billion won. Currently, those firms are subject to accounting standards for unlisted companies.
Oversight of accounting will be stronger for unlisted corporations with over 1 trillion won in assets. Their accounts will be verified by external auditors just like listed ones. Under the revised bill, corporations with 12 billion won of assets will be obliged to be audited by outside accounting firms. The revision means that external audit standards will be lowered for mid-sized and small enterprises in financial distress caused by the economic recession.
FSC is also seeking to establish accounting standards and external audit standards for non-profit organizations such as universities, hospitals, and social organizations.
Seo Tae-jong, director general of the Capital Markets Bureau at FSC, said, “Stronger oversight of accounting for limited liability companies and non-profit organizations will increase transparency in accounting. In particular, large unlisted firms will no longer avoid going public. They must comply with accounting standards from 2014. In addition, it will be illegal for corporations to be changed into limited liability companies to avoid regulations.”