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Audit Review and Quality Control Inspection

The chief executive officer of a listed company is responsible for the preparation of the company’s financial statements in accordance with the established accounting standards. The company’s auditor then performs an independent audit of the accuracy and the reliability of the company’s financial statements and delivers an audit opinion. The primary objective of accounting supervision is to review whether financial statements and the auditor’s report are prepared according to the relevant standards. Reviewing the design and operation of auditors’ quality control systems is another important accounting supervision objective.

Companies Subject to Audit Review

Under the authority delegated from or charged by the SFC, the FSS performs a review of audited financial statements from listed companies and unlisted financial services firms. The Korean Institute of Certified Public Accountants (KICPA) contributes to the audit review process by performing reviews of audited financial statements from companies not covered by the FSS.

Audit review broadly falls into either a targeted audit review or a sample audit review. The FSS conducts a targeted audit review when:

  • The FSC requests a review;
  • The FSC or the SFC suspects an accounting or audit violation;
  • The SFC receives a request from a law enforcement authority with specific allegations about an accounting or audit violation; or
  • The SFC receives a request from a corporate insider, an audit participant, or other sources with credible charges of accounting misconduct.

The FSS also conducts a sample audit review employing quantitative analysis methods utilizing financial analysis tools or random sampling methods.

Auditor Supervision

Under authorities delegated from or charged by the SFC, the FSS performs quality control inspection of auditors that:

  • (a) Perform audit of one percent or more of listed companies as of the end of April each year;
  • (b) Perform audit of listed companies with assets of KRW1 trillion or more as of the end of April each year;
  • (c) Employ 30 or more CPAs as of the end of April each year; or
  • (d) Become subject to FSS audit review upon the conclusion of a joint audit inspection with a foreign supervisory authority or other supervisory concerns.

The KICPA performs quality control inspections on auditors that do not fall under the above-mentioned categories.

Accounting and Audit Standards

Financial statements are prepared and presented in accordance with the accounting standards, while audits by external auditors are conducted in accordance with on audit standards. The FSC delegates the authority to set accounting standards to the Korea Accounting Institute (KAI) under the oversight of the SFC. Following the announcement of a roadmap for the full adoption of the International Financial Reporting Standards (IFRS) in March 2007, the IFRS became mandatory for all listed companies, unlisted financial institutions, and companies set to go public beginning in 2011. Auditors are required to perform audit in accordance with the auditing standards set by the Korean Institute of Certified Public Accountants. The standards follow the IFAC's Clarified ISA.