"Strict Measures Against Fraudulent Auditors of Listed Companies"… Financial Supervisory Service Warns Accounting Firms

Audit of 41 Accounting Firms Registered with the Financial Services Commission
Unprecedented Disclosure of Ongoing Audit of Accounting Firms' Fraudulent Activities
False Hiring of Family Members Including Spouses and Children with Salary Payments
Plans to Expand Inspections to Accounting Firms Auditing Listed Companies

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

The Financial Supervisory Service (FSS) has disclosed fraudulent activities committed by an accounting firm qualified to audit listed companies. It is unusual to reveal ongoing auditor inspections. This is interpreted as a warning that strict measures will be taken against fraudulent acts by accounting firms responsible for auditing listed companies.

On the 1st, the FSS announced that the auditor inspection of accounting firm A's personnel, fund management, and compensation system uncovered the hiring of related parties and the payment of fabricated salaries.

It is rare for the FSS to announce inspection results before completing the auditor inspection of an accounting firm. An FSS official explained, "This is the first time we have released 'Preliminary Auditor Inspection Results of Accounting Firms' to ensure that accounting firms qualified to audit listed companies comply with registration requirements."

The accounting firm provisionally concluded to have committed fraudulent acts is registered with the Financial Services Commission (FSC) as an auditor for listed companies. Since the amendment of the new External Audit Act in 2017, accounting firms must register with the FSC to audit domestic listed companies. There are 41 accounting firms registered with the FSC, which is about 20% of all accounting firms (approximately 200).

According to the inspection details, three accountants belonging to accounting firm A hired family members and other related parties as employees of the firm and paid salaries and bonuses. Accountant B hired his spouse directly without following the firm's hiring procedures. The employed accountant's spouse did not come to work and did not perform related duties.

Accountant C paid fees to clients where he or his related parties served as executives, despite no actual work being performed. Accountant D paid service fees to related parties such as parents and children. However, they failed to prove that they performed services for the accounting firm.

The FSS stated, "Accounting firm A will face strict measures according to relevant laws and procedures, and the improper acts will be reported to investigative agencies. We also plan to expand inspections for similar cases among other accounting firms auditing listed companies."