"Domestic Accounting Firms Lack Integrated Management Systems Compared to Overseas: 20% vs 6% Discrepancy in Criticism Rates"

Financial Supervisory Service Announces Actions on Auditor Inspections
for 14 Registered Accounting Firms
Deficiencies Found Mainly in Small and Medium-sized Firms

Yeouido Financial Supervisory Service building (right) and securities district buildings in Seoul. Photo by Younghan Heo younghan@

A comparison of the audit oversight results of domestic and international accounting firms revealed that the rate of findings related to integrated management levels in domestic accounting firms was 20%, higher than the 6% observed overseas.

On the 22nd, the Financial Supervisory Service (FSS) announced that, following the confirmation of measures based on the auditor oversight results for 14 registered accounting firms conducted in 2023, it derived these implications by comparing the auditor oversight results of accounting firms performing audit work for listed companies both domestically and internationally.

According to a 2023 survey on auditor oversight conducted by the International Forum of Independent Audit Regulators (IFIAR) targeting accounting oversight bodies in member countries (covering 134 accounting firms in 41 countries), among the six key quality control elements of auditor oversight, overseas findings were most frequently related to Engagement Performance (33%), Ethical Requirements (21%), and Human Resources (16%). In Korea, findings were most frequently related to Engagement Performance (26%), Leadership Responsibilities (20%), Human Resources (19%), and Ethical Requirements (17%).

Among these, the indicator related to integrated management levels, "Leadership Responsibilities," showed a significantly higher rate of findings domestically (20%) compared to overseas (6%). In particular, the number of leadership-related findings per firm in small and medium-sized accounting firms was 2, double that of large firms (1 per firm), indicating that the integrated management level of small and medium-sized firms was generally insufficient.

The FSS explained, "Registered auditors for listed companies should establish a management system covering overall management aspects such as personnel and finance under a 'One-firm' system to ensure the effectiveness of quality control." It added, "The domestic reality reflects that small and medium-sized accounting firms still retain elements of independent accounting units, resulting in insufficient establishment and operation of integrated management systems."

The FSS stated, "We will continue to inspect vulnerable areas such as the establishment and operation of integrated management systems in small and medium-sized accounting firms where the One-firm system is inadequately established."