[Asia Economy Reporter Ji-hwan Park] The Financial Services Commission announced on the 24th that it will disclose the improvement recommendations following the quality control inspection results of accounting firms. Key improvements include issues such as large accounting firms concluding contracts before completing conflict of interest and risk assessments for audit clients, and using personal emails for work tasks. In particular, the quality control systems of small and medium-sized accounting firms were found to be generally inadequate.
On this day, the Securities and Futures Commission under the Financial Services Commission disclosed the main contents of the improvement recommendations from the inspection results on compliance with quality control standards of accounting firms. These disclosures are based on the improvement recommendations approved by the Securities and Futures Commission in December last year regarding compliance with quality control standards of accounting firms.
The quality control inspection results of accounting firms introduced by the "Act on External Audit of Stock Companies, etc." (New External Audit Act), which came into effect in November 2018, were disclosed for the first time. The disclosure targets are improvement recommendations for 16 accounting firms, including Samil Accounting Corporation, among 40 accounting firms registered as auditors for listed companies.
Among the large accounting firms, including Samil, Samjong, Han Young, and Anjin, none were found to have omitted the design or operation of quality control procedures. They commonly showed improvements needed in the element of 'client relationships and acceptance and continuance of specific engagements.' Specifically, before concluding contracts, the risk level and conflict of interest concerns of the target company must be assessed, but cases were confirmed where contracts were signed before the final approval of the assessment results. Anjin Accounting Corporation, which received the most findings with 8 cases among the Big Four accounting firms, was cited at least once in all six elements of the quality control system.
Small and medium-sized accounting firms were found to have relatively more areas to improve, with 12.9 to 15.0 findings per firm compared to large firms. For example, Daeju Accounting Corporation did not even design procedures for human resource management. Also, although procedures for engagement performance management were designed, they were not operated. Dowon Accounting Corporation and Seowoo Accounting Corporation each had one finding for non-design and non-operation elements. Shinhan Accounting Corporation, Daesung Samgyeong Accounting Corporation, and Dowon Accounting Corporation were also pointed out for auditors using personal emails for work, indicating insufficient control procedures to maintain the confidentiality of audit information.
A common issue among accounting firms, regardless of size, was inadequate management in the human resources element. The number of improvement recommendations for non-design, non-operation, and partial inadequacies was high in Daesung Samgyeong Accounting Corporation (20 cases), Jeongdong Accounting Corporation (16 cases), and Shinhan Accounting Corporation (15 cases). The Big Four accounting firms recorded 6 cases for Samil, 5 for Samjong, 5 for Han Young, and 8 for Anjin.
A Financial Services Commission official stated, "Through the disclosure of improvement recommendations, we actively encourage substantial improvements in the quality control work of accounting firms, and expect that companies and investors will be able to use this information as useful data when making decisions to evaluate and select auditors."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
