2004年-世界发展银行全球_Republic_of_Korea___Accounting_and_Auditing_19页_543kb

Summary of the Report on the Observance of Standards and Codes (ROSC) in the Republic of Korea

Core Content

This report evaluates the accounting and auditing practices in the Republic of Korea (Korea) as part of the World Bank and IMF joint initiative on Reports on the Observance of Standards and Codes (ROSC). It provides an overview of the legal and institutional framework, the design and practice of accounting and auditing standards, and the effectiveness of compliance mechanisms. The report also includes policy recommendations to enhance the quality and integrity of financial reporting.

Main Points

I. Introduction

• The report is based on a review of accounting and auditing practices in Korea.
• It uses a diagnostic template developed by the World Bank and incorporates findings from due diligence missions and consultant input.
• The Korean government has made significant strides in improving accounting and auditing standards since 1997, including:
  • Strengthening the legislative and regulatory framework.
  • Establishing independent standard-setting bodies.
  • Enhancing auditor independence through legal reforms.

II. Institutional Framework

A. Statutory Framework

• External Audit of Stock Companies Act (EAA):
  • Mandates statutory audits for joint stock companies with assets of at least 7 billion KRW.
  • Requires audited financial statements to be filed with the Securities and Futures Commission (SFC) and Korea Stock Exchange (KSE) within two weeks of the annual general shareholder meeting.
• Securities and Exchange Act:
  • Requires quarterly reports for companies with publicly held securities.
  • Mandates review of quarterly financial statements for listed companies with assets of 1 trillion KRW or more.
• Audit Committee Requirements:
  • Listed companies with assets of 2 trillion KRW or more must have an audit committee.
  • Smaller listed companies must have an auditor appointment committee unless they voluntarily establish an audit committee.
  • Unlisted companies are required to have a statutory internal auditor unless they choose to have an audit committee.

B. The Profession

• Korean Institute of Certified Public Accountants (KICPA):
  • The sole national accounting association in Korea.
  • Regulated by the Ministry of Finance and Economy (MOFE).
  • As of December 2002, had 6,439 registered CPAs, with 4,594 active in public practice.
• CPA Examination and Training:
  • The CPA examination consists of two stages and is conducted annually.
  • Practical experience is required for registration, with a requirement of at least one year of practice at a training organization.
  • KICPA mandates 200 hours of training for candidates and ongoing CPE for practicing accountants.

C. Professional Education and Training

• Continuing professional education (CPE) is required for all practicing accountants.
• KICPA training covers areas such as accounting, auditing, performance evaluation, taxation, and professional ethics.
• Practicing accountants from firms or joint audit teams must complete at least 30 hours of CPE annually, while others must complete at least 15 hours.

D. Setting Accounting and Auditing Standards

• Korea Accounting Standards Board (KASB):
  • An independent body that sets accounting standards aligned with IFRS.
  • The Financial Supervisory Service (FSS) and the Financial Supervisory Commission (FSC) have the authority to set and approve standards.
• Auditing Standards:
  • KICPA issues auditing standards, which are a translation of the International Standards on Auditing (ISA).
  • The EAA requires pre-approval by the FSC for new auditing standards, effective from December 2003.

E. Ensuring Compliance with Standards

• Audit Quality Reviews:
  • The FSS conducts audit quality reviews for listed companies, identifying noncompliance in 5–48% of cases.
  • The KICPA reviews audit engagements for unlisted companies, identifying noncompliance in 10–14% of cases.
• Sanctions:
  • The SFC and MOFE impose sanctions on noncompliant entities, including discharging management, banning securities issuance, and restricting audit services.
  • Sanctions for unlisted companies are generally less severe than for listed companies.

Key Information

• Accounting Standards: Korea's standards are largely consistent with IFRS and are set by KASB.
• Auditing Standards: KICPA issues standards that are translations of ISA.
• Compliance Mechanisms: The FSS and KICPA are responsible for monitoring and enforcing compliance with standards.
• Auditor Independence: Measures such as 6-year rotation (effective 2006) and restrictions on non-audit services have been introduced.
• Legal Reforms: The EAA and Securities and Exchange Act have been amended to enhance corporate governance and investor protection.
• Class Action Lawsuits: A new law allows minority shareholders to file class action lawsuits for accounting irregularities, which may increase litigation against auditors.

Policy Recommendations

• Strengthen Monitoring and Enforcement: Improve the effectiveness of compliance mechanisms to ensure adherence to standards in substance, not just form.
• Enhance Auditor Independence:
  • Mandate audit committees for smaller listed companies.
  • Strengthen the role of audit committees.
  • Increase sanctions against violators of standards.
• Improve Audit Quality: Provide additional practice guidance by KICPA to support the implementation of auditing standards.
• Ensure Full Convergence with IFRS: The KASB should work to eliminate discrepancies between Korean accounting standards and IFRS.
• Address CPA Shortage: Increase the number of CPAs through expanded exam eligibility and training, while ensuring quality is not compromised.

Annexes

• Annex 1: Compares the 2002 Sarbanes-Oxley Act with recent Korean legislation.
• Annex 2: Lists abbreviations and acronyms used in the report.

Conclusion

The report highlights that while Korea has made substantial progress in aligning its accounting and auditing practices with international standards, challenges remain in ensuring full compliance and improving the quality of financial reporting. Continued efforts are needed to strengthen enforcement, enhance auditor independence, and align domestic standards more closely with IFRS.