FSS Warns "Continued Violations of Corporate Internal Accounting Controls... Advises Caution"

For Listed Companies and Unlisted Companies with Assets Over 500 Billion Won

Financial Supervisory Service building in Yeouido, Seoul. Photo by Heo Younghan younghan@

The Financial Supervisory Service (FSS) urged caution during financial closing on the 25th, stating that violations of the internal accounting control system continue to occur in some companies.

Listed companies and unlisted companies with total assets of 500 billion KRW or more are required under the External Audit Act to establish an internal accounting control system, including internal accounting regulations and organization, to prepare and disclose reliable financial statements.

The FSS pointed out that when a company's total assets increase or there are changes such as listing, it is necessary to carefully verify whether the company is subject to the establishment of an internal accounting control system and to allocate sufficient resources and personnel to ensure its sound operation. It also added that the omission of mandatory disclosure documents related to the internal accounting control system must be thoroughly checked.

The FSS emphasized that external auditors must express a separate opinion on internal accounting for companies that have not established internal accounting or have received an adverse audit opinion.

If a company violates the establishment of internal accounting, the CEO's operational status reporting, the auditor's operational status evaluation and reporting, or the external auditor's certification obligations, not only the company but also the CEO, auditor, and external auditor may be subject to fines of up to 40 million KRW.

The FSS plans to inspect compliance with laws and regulations after the disclosure of the 2023 financial statements and to ensure the effective operation of the internal accounting control system through audits of the system.

The FSS stated that although the number of companies subject to the internal accounting control system has decreased due to related regulatory changes, resulting in a reduction of internal accounting violations to 10 cases in 2021 and 14 cases in 2022 compared to the average annual violations of about 43 cases over the past five years, the importance of the internal accounting control system is being highlighted as large-scale embezzlement incidents have been occurring frequently recently.