FSS: "Non-Audit Service Contracts with Network Accounting Firms to Be Disclosed Starting Next Year"

The Financial Supervisory Service announced on December 16 that, starting next year, companies will be required to disclose not only their auditors but also the status of non-audit service contracts with network accounting firms in their annual business reports.

Network accounting firms refer to consulting firms that share a brand name with auditors but operate independently. Previously, in December last year, the definition of network accounting firms in the "Certified Public Accountant Code of Ethics" was revised to align with international ethical standards. As a result, these consulting firms are now also required to maintain independence from the companies subject to audit.

Accordingly, the Financial Supervisory Service urged both companies and auditors to carefully verify the accounting firms subject to disclosure and to pay special attention to ensuring that auditor independence is not compromised.

Specifically, a company’s internal audit committee must review whether network accounting firms comply with auditor independence requirements before entering into non-audit service contracts. Special attention is also needed when network accounting firms perform services in a subcontracting arrangement. The Financial Supervisory Service added that, aside from the so-called Big Four accounting firms, other firms may also be network accounting firms and should therefore be checked as well.

Furthermore, auditors must operate procedures to fully identify and aggregate the services provided by network accounting firms as part of their independence checks, and must actively exchange opinions with the company’s internal audit committee.

The revised forms related to this matter can be checked and downloaded from the Financial Supervisory Service’s electronic disclosure system website under "Disclosure Work·System - Corporate Disclosure Guide - Disclosure Work Bulletin Board - General Corporate Disclosure System."

The Financial Supervisory Service stated, "By making public the status of non-audit service contracts provided by network accounting firms to companies subject to audit, auditor independence in external audits will be enhanced and accounting transparency will be improved." The agency added, "We plan to strengthen inspections regarding auditor independence and audit quality management through auditor reviews and other measures."