Top accountants held accountableCEOs of accounting firms could be held legally responsible for fraud committed by their clients as a result of improper auditing under a revised law.
The move is a step up from the current law that only penalizes the accountant that oversaw the auditing.
The government has been pushed to increase responsibility of accounting firms in the wake of Daewoo Shipbuilding and Marine Engineering’s alleged cooking of its books, which was disclosed last year.
The Financial Services Commission said Tuesday a revision to the outside auditing bill has passed the cabinet and it will be submitting it to the National Assembly for final approval within this month.
In 2013 and 2014, Daewoo Shipbuilding and Marine Engineering overstated its operating profit by 1.53 trillion won and its net profit by 1.16 trillion won. In fact DSME was suffering massive losses.
Under the revised law, if a major flaw is detected in audits of a company’s profit and loss or balance sheets, the CEO of the accounting firm will either have his license revoked or be forced to lose his job. This will be true whether the mistakes were intentional or not
The government is also widening the scope of companies required to get outside auditing. Under current regulations, corporations are required to do so but the revised bill will include limited liability companies (LLC) as well. LLC are similar to corporations but less restricted by government regulations. Such companies are limited in securing investments including issuance of corporate bonds.
While many Korean companies operate as corporations, there have been a growing number of foreign companies and small IT companies that prefer the LLC structure. The government decided to expand mandatory auditing after a tragic scandal involving Oxy Reckitt Benckiser Korea, which was an LLC. There have been growing demands that foreign LLC transparency has to increase since the London-based company was held responsible for selling toxic humidifier sterilizer that killed at least 95 people and made sick more than 221.
The government has also decided to intensify auditing on non-listed corporations. The same accounting rule for listed corporations will be applied to non-listed corporations with total assets exceeding 500 billion won ($414.94 million).
BY LEE HO-JEONG [firstname.lastname@example.org]