Financial regulators in Korea are mulling over an accounting reform bill that would require listed companies to change auditors periodically.
If the bill passes through the National Assembly, it will mark an epoch in South Korea’s accounting market, showing a contrast to the U.S., which failed to implement the same scheme last year.
And, if adopted, it will lay groundwork for the enhancement of corporate transparency among Korean companies. Due to a number of recent events, people have had doubts about corporate transparency despite the aggressive restructuring efforts since the financial crisis of 1997.
The Financial Supervisory Service (FSS) will present the bill to the National Assembly in the first half of the year.
The FSS alleged that local companies can easily cook their financial statements in connivance with their long-standing auditors, as an accounting firm conducts audits on a listed company for a number of years.
Young Wha Corp., a local member accounting firm of Ernst & Young, has been auditing SK Global, which engaged in falsified accounting totaling 2.02 trillion won ($1.68 billion), for over a decade.
According to the FSS yesterday, accounting regulators and government officials are studying potential impacts of ordering a company to replace all of their auditors periodically.
Currently, companies listed on the Korea Stock Exchange are required to rotate only a chief accountant, the so-called audit partner, among 5-10 auditors every six years.
“U.S. regulators are also ordering companies listed on the New York Stock Exchange to change one out of their auditors every five years, modeling after the case in South Korea,’’ Jung Yong-sun, director of the FSS accounting supervision department, told The Korea Times.
Jung said the local accounting monitoring system is, in this aspect, better developed than those of the U.S. and Japan.
FSS chief accounting regulator Hwang In-tae said the reform bill is aimed at severing dubious relations between conglomerates and the big five accounting firms, mainly Samil, Samjong, Young Wha, Ahn Kwon & Co. and Anjin & Co.
“The implementation of the accounting reform plan will be a great shock to the accounting profession and conglomerates,’’ Hwang said. “In addition, regulators are pushing for another bill that requires chief executive officers and chief financial officers to attest to the accuracy of their company’s earnings by signing off on financial statements.’’
In the wake of the SK Global accounting scandal, officials at the FSS and the Ministry of Finance & Economy have been busy preparing a variety of accounting reform bills to present to lawmakers.
In a related development, financial experts pointed out it is necessary for the government to set up an independent accounting watchdog to enforce tighter accounting regulations and effectively prevent corporate accounting frauds.