Lee Chan-jin "Zero tolerance for intentional accounting fraud"... Notice of strict sanctions

Lee Chan-jin, head of the Financial Supervisory Service, said on the 10th, "If intentional accounting fraud is discovered, we will apply a 'zero tolerance principle' and strictly sanction it."

On this day, Director Lee held a meeting with CEOs and experts from eight accounting firms in charge of external audits of listed companies and said, "In particular, we will further strengthen supervision of accounting firms that have repeated poor auditing in order to restore order in the accounting industry."

He said, “Increasing accounting transparency is an essential task for the sustainable development of the capital market,” and explained the direction of supervision to strengthen preventive accounting supervision in the future.

The review and supervision cycle of domestic listed companies is approximately 20 years, which is significantly longer than the typical tenure of executives of 3 to 5 years, making it difficult to identify accounting fraud in a timely manner.

Accordingly, Director Lee added that he plans to promote the establishment of a regular review system at the level of major developed countries to resolve the supervision gap.

To this end, we plan to upgrade the supervision infrastructure by expanding the organization and personnel responsible for examination and supervision and strengthening supervision means.

Director Lee pointed out that concerns are growing about the decline in audit quality, as audit fees have recently fallen due to excessive competition among accounting firms, leading to a decrease in manpower and time devoted to audits.

Accordingly, he said, “We will conduct additional selective screening and supervision on companies and auditors that show signs of poor auditing, such as excessive reductions in audit time without reasonable cause,” and emphasized that they will also supervise whether the Audit Quality Supervision Committee, which will be established within large accounting firms, faithfully performs its role.

Director Lee said that the basic system of the income statement will be changed for the first time in 15 years with the introduction of Corporate Financial Reporting Standards (K-IFRS) No. 1118 starting next year.

He also emphasized that the importance of information security has increased with the introduction of digital audit techniques and ordered, "Please thoroughly reexamine the security system to ensure that important corporate information collected during the audit process is not leaked or misused."

Participants on this day expressed their determination to increase accounting transparency and suggested that the authorities continue to improve the system, such as supplementing review and supervision methods and procedures, and supporting a digital audit environment.