"Auditor Designation Deferral" for Companies with Excellent Accounting and Audit Governance: First Eligible Companies to Be Finalized in September-October

A legal basis has been established to allow a three-year deferral of the "mandatory periodic auditor designation" for companies with excellent accounting and audit governance. The first group of companies eligible for the deferral is expected to be finalized around September to October 2025.

According to the Financial Services Commission on May 14, the Enforcement Decree of the Act on External Audit, which includes the legal basis and selection criteria for this system, was approved at a Cabinet meeting the previous day. The amendment to the External Audit Regulations was also approved at the regular meeting of the Financial Services Commission on the same day. The revised regulations are scheduled to take effect from May 20, 2025.

The amendment introduces a provision allowing the Securities and Futures Commission to grant a three-year deferral of periodic auditor designation to companies with outstanding accounting and audit governance. Under the periodic designation system, listed companies and others can freely appoint external auditors for six consecutive years, after which the financial authorities designate the auditor for the next three years. However, with the implementation of this new system, companies with excellent governance will be able to appoint auditors autonomously for nine years, followed by three years during which the financial authorities will designate the auditor.

Additionally, the amendment clearly establishes the legal basis for the formation of the "Accounting and Audit Governance Evaluation Committee," a body under the Securities and Futures Commission that will professionally assess companies' accounting and audit governance. Institutional measures have also been put in place to ensure fairness, such as excluding individuals who have served as outside directors or have other interests with the company, such as providing legal or accounting advisory services, from the evaluation process.

The financial authorities plan to accept applications from companies for approximately three weeks starting June 2, 2025. Following this, the Evaluation Committee will conduct assessments in August and September, and the Securities and Futures Commission will finalize the list of companies eligible for the deferral between September and October. Outstanding companies will be selected based on 17 evaluation criteria across five key areas: independence of the audit function, expertise of the audit body, effectiveness of the accounting and audit system, transparency of the auditor appointment process, and efforts to enhance accounting transparency.

Furthermore, the amendment includes a provision for accounting supervision and sanction incentives for companies recognized for excellence in "Value-Up" initiatives. Companies awarded a "ministerial commendation" will have the level of measures resulting from audit reviews reduced by one step for the next three years. Fines may also be reduced by up to 10% (limited to once). However, serious accounting violations such as intentional accounting fraud are excluded from these incentives.

Meanwhile, the Financial Services Commission announced that an amendment to the Enforcement Decree of the Certified Public Accountant Act was also approved at the Cabinet meeting the previous day. This amendment, which is scheduled to take effect on January 1, 2026, abolishes the Certified Public Accountant Examination Committee. As a result, major matters previously handled by the committee, such as determining successful candidates, will be transferred to the "Certified Public Accountant Qualification and Disciplinary Committee," while matters related to the administration of the exam, such as verifying candidate eligibility, will be transferred to the Governor of the Financial Supervisory Service.