Auditing to be improved after major debaclesTo prevent another Asiana Airlines fiasco or Samsung BioLogics disaster, the financial regulators are demanding better auditing.
The Financial Services Commission and the Financial Supervisory Service on Thursday released plans that would increase the independence and accountability of the firms doing the books. Included in the reforms is a requirement that discussions with clients about major issues be disclosed.
These measures are seen providing immediate line of sight to potential problems and allowing for the market, and the authorities, to get ahead of any irregularities before they cause significant damage.
“They acknowledging the limits of the previous oversight system that spots problems afterwards and regulates them afterwards,” said the FSC Chairman Choi Jong-ku. “This means that the authorities will play a role where the market participates on their own produce accounting information with high credibility.”
Choi stressed the importance of the credibility of auditing.
“The low independence of external auditors, the lack of accountability on accounting and the weak penalties for accounting fraud have been noted in the past as chronic problems,” Choi said. “The goal of the accounting reform is to raise internal and external credibility on the way Korean companies conduct accounting, and in order to do so we have to raise the capacity and the ethical consciousness of the companies that have to use accounting standards and the outside auditors that have to closely oversee these companies.”
He said only when accounting information can be trusted will investors be able to properly evaluate value and investment risks.
Transparent and trustworthy accounting reports will be the foundation for growth and innovation by allowing larger investments to flow in.
He said in order for this “reform” to succeed, courage is needed.
Starting next year, material communications that take place between auditors and clients will be included in the quarterly and semiannual reports, such as whether the company is facing a liquidity crunch. This is to achieve “no surprise audits,” lowering the possibility of unexpected reports.
Quarterly and semiannual balance sheets have not included these issues. The auditors deliver one of four types of opinions - unqualified, qualified, adverse and disclaimer.
Earlier this year, the local financial market was hit after Samil PwC issued a qualified opinion on the 2018 financials of Asiana Airlines on grounds that it could not determine the value of the carrier due to lack of information.
This led to the company’s stock being suspended on the market.
The financial authorities added that while lowering the audit burden on companies seeking IPOs, accountability will be increased.
They said they will only look at whether the company’s balance sheet has any errors and only require the fixing of these problems ahead of an IPO.
The review of the balance sheets will be done within three months.
The company managing the IPO will be held accountable for any false entries or intentional omissions on the balance sheets of its clients.
BY LEE HO-JEONG [email@example.com]
with the Korea JoongAng Daily
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