Home Supervision Capital Markets Accounting Supervision Overview

Overview

The legal framework for accounting supervision comprises the Financial Investment Services and Capital Markets Act (FSCMA), the Act on External Audit of Stock Companies (AEASC), and the Certified Public Accountant Act.

The FSCMA provides disclosure measures such as the periodic filing of business report to ensure the accuracy and reliability of financial reporting. It requires audited financial reporting from listed companies that are subject to business reports. The FSCMA also requires companies to continually operate internal controls, evaluate internal audit and the external auditors, and provide detailed assessment in their business report.

The AEASC provides for independent external audit of listed companies and others subject to independent external audit. Listed companies are required to appoint an auditor for a three-year term but may dismiss the auditor before the three-year term ends with the approval of the company’s audit committee and reporting to the SFC. The Certified Public Accountant Act governs the qualification, registration, services, rights, and duties of certified public accountants (CPAs) and accounting firms. CPAs and accounting firms must register with the FSC/FSS. Under the AEASC, any group of three or CPAs that operates as a non-business entity must register with the Korean Institute of Certified Public Accountants to carry on audit performance.

Companies subject to external audit are required to present financial statements in accordance with the established accounting standards. With accounting oversight authority delegated from the SFC, the FSS examines listed companies’ and unlisted financial services firms’ financial statements and the audit performed while it inspects the auditor’s report. Companies subject to external audit must also operate with an internal accounting management system for the preparation of accounting information. The auditor must also prepare an evaluation of the actual status of the audited company’s internal accounting management system and provide it in the business report.

Legal Framework for Accounting Supervision

Legal Framework for Accounting Supervision
  Financial Investment Services and Capital Markets Act Act on External Audit of Stock Companies
Objective
  • Efficient functioning of primary and secondary securities markets;
  • Protection of investors;
  • Effective accounting supervision through independent external auditors;
  • Protection of market participants;
Regulated entities
  • Listed companies and others subject to business report submission;
  • Companies subject to independent external audit;
  • Auditors;
Regulatory reporting
  • Registration statements;
  • Quarterly, semiannual, and annual business report;
  • Financial statements;
  • Auditor’s report;
Accounting supervision and procedure
  • Mandatory audited financial statements of companies subject to business report;
  • Mandatory audit of financial statements subject to independent external audit;
  • Affirmation of compliance with registration statement and business report requirements;
  • Affirmation of compliance with accounting standards by company management;
  • Internal monitoring and controls;
  • Internal accounting and audit management systems;
  • Review and inspection of companies subject to business report;
  • Review of auditor’s report (company and auditor);
  • Inspection of quality controls for auditing firms;
  • Adverse supervisory actions to companies including monetary fines, restrictions on new securities issuance, and other administrative actions;
  • Adverse supervisor actions to the auditor including monetary fines;
  • Adverse supervisory actions to companies including recommendation for dismissal of officers, restrictions on new securities issuance, appointment of designated auditor, and other administrative actions;
  • Adverse supervisory actions to the auditor including restriction on audit of listed companies, audit suspension, and other administrative actions;