Exemption from 'Auditor Appointment' for Companies with Excellent Governance... Bonus Points for Value-Up Awarded Firms

Government and Related Agencies Hold Value-Up Accounting and Dividend Sector Meeting
Q2 Confirmation of Designated Exemption Evaluation Criteria
109 Companies Resolve 'Blind Dividend' Issue

The Financial Services Commission held a 'Meeting on Corporate Value-Up Related Accounting and Dividend Sectors' on the 2nd, chaired by Vice Chairman Kim So-young. Photo by Kim So-young. Photo by Financial Services Commission

The Financial Services Commission is promoting a plan to select companies with excellent governance and exempt them from the 'periodic auditor designation' for a certain period. Companies awarded the 'Value-Up Commendation' will receive additional points during the exemption review.

On the 2nd, the Financial Services Commission held a 'Corporate Value-Up Related Accounting and Dividend Sector Meeting' chaired by Vice Chairman Kim So-young to announce these details. The meeting was attended by related organizations such as the Financial Supervisory Service and Korea Exchange, accounting experts, and listed companies including POSCO International.

Vice Chairman Kim stated, "We plan to prepare a periodic auditor designation exemption plan to favor companies with already excellent audit-related governance and to encourage companies' efforts to improve governance. To ensure a positive interaction through the link of governance between the Corporate Value-Up Program and the periodic auditor designation exemption plan, companies awarded the newly established 'Corporate Value-Up Commendation' in May next year will receive additional points during the periodic designation exemption review."

The periodic auditor designation system was introduced under the new External Audit Act implemented in November 2018. If a company freely appoints an auditor for six consecutive years, the financial authorities (Securities and Futures Commission) directly designate the auditor for the next three years. This system was introduced to strengthen auditor independence following the 2017 Daewoo Shipbuilding & Marine Engineering accounting fraud scandal.

The Financial Services Commission held a 'Meeting on Corporate Value-Up Related Accounting and Dividend Sectors' on the 2nd, chaired by Vice Chairman Kim So-young. Photo by Financial Services Commission

However, there are opinions that the periodic designation system imposes an excessive burden on companies with excellent internal audit organizations capable of independently appointing auditors and effectively checking and monitoring management.

Accordingly, the Financial Services Commission decided to form a 'Governance Evaluation Committee' to select companies with excellent governance that have well-established auditor appointment and supervision systems, and to promote a plan to exempt these companies from periodic designation for a certain period.

To link with the corporate value-up support plan, additional points will be given during governance evaluation for designation exemption to companies receiving the 'Corporate Value-Up Commendation.' The commendation, newly established in May next year, will be awarded to about ten outstanding companies that have established and disclosed plans to enhance corporate value.

Specific evaluation criteria and exemption methods for designation exemption will be finalized in the second quarter after further review, and the plan will be applied from next year following amendments to the Enforcement Decree of the External Audit Act, which serves as the legal basis for designation exemption.

The government and related organizations also decided to expand 'Value-Up Incentives.' In addition to awarding points during the periodic designation auditor exemption review, additional measures include considering mitigation reasons during audit inspections, exemption from Korea Exchange annual fees, exemption from additional or change listing fees on the Korea Exchange, and one-time postponement of fines or penalties related to inadequate disclosure by the Korea Exchange. These five new incentives added to the previously announced tax support, joint investor relations (IR) with the Korea Exchange, and preferential inclusion in the Value-Up Index bring the total to eight types.

During the meeting, the current status of dividend procedure improvements by listed companies was also shared. To address the so-called 'blind dividend' issue last January, the government announced a plan to improve dividend procedures so that investors can know the dividend amount in advance, and companies have been working on amending their articles of incorporation to reflect this.

According to the Financial Services Commission, 1,011 companies amended their articles of incorporation last year and this year. This accounts for about 43% of the total 2,381 companies (as of last month’s notice of convocation for the regular general meeting of shareholders for December fiscal year-end companies). The number of companies that actually resolved the 'blind dividend' issue was 109. Since 322 companies conducted dividends after amending their articles of incorporation last year, about 34% of companies that met the conditions implemented the dividend procedure improvements.

The Financial Services Commission plans to amend the Capital Markets Act to enable dividend procedure improvements for quarterly dividends following year-end dividends. Furthermore, to promote wider adoption of dividend procedure improvements, they will continuously strengthen publicity and guidance through briefings and consulting.

Vice Chairman Kim emphasized, "The spread of a corporate value enhancement culture and, furthermore, the advancement of the capital market cannot be achieved by one or two measures alone. The government, related organizations, companies, and investors must all work together with a long-term perspective."