Audit Reviews in Credit Record

As a safeguard measure against accounting fraud, the government will require creditor banks to consider the Korean financial regulator's opinion on audited corporate financial statements in making loan decisions.

The Securities and Futures Commission's findings after reviewing financial statements will be provided to companies' creditor banks.

The commission performs audit reviews on companies which have more than 7 billion won ($5.3 million) in total assets. The findings of the reviews are used to regulate the companies but are not now provided to creditors.

The Securities and Futures Commission is affiliated with the nation's main financial regulator, the Financial Supervisory Commission.

Under the new regulations, creditor firms will be required to adjust their relationships with the company based on the audit results, by reducing loan exposure or by increasing their provisions for loan defaults.

A ministry official said, "Companies will find that the procedure will make it more difficult for them to get financing when they have been cited for accounting fraud."

The ministry wants the regulations to be put into effect in late August.

The regulations will also establish a creditors' committee to resolve disputes over the findings. The committee will include seven officials, including nominees of the Korea Investment Trust Companies Association, the Korea Federation of Banks and the Korea Institute of Certified Public Accountants.

The qualifications of corporate reorganization trustees will be strengthened, but their role will be limited to the immediate task of reorganizing a troubled company and to managing creditors' claims.

The Korea Deposit Insurance Co. and credit guarantee companies will be included in the new procedures.

by Hong Byeong-gee