|
|
|
|
|
Newsletter | April 2017, Issue 1
|
|
|
|
|
|
|
CORPORATE
|
|
|
|
External Audit Act Amended to Cover Limited Liability Companies
|
|
|
|
On January 12, 2017, the proposed amendment (“Proposed Amendment”) to the Act on External Audit of Stock Companies (“External Audit Act”) covering limited liability companies (“LLCs”) was submitted to the National Assembly. If passed, LLCs – including foreign enterprises in South Korea that have the form of LLCs – will be subject to mandatory external audits.
|
|
|
|
Key Changes:
|
|
|
|
Under the current External Audit Act, the companies subject to a mandatory external audit are only stock companies1. Under to the Proposed Amendment, an LLC having a similar economic substantive form of a stock company will be subject to a mandatory external audit. However the Enforcement Decree of the External Audit (“Enforcement Decree”) provides for an exemption from the external audit requirement if there is little benefit to be gained from an external audit.
|
|
|
|
Also, similar to the current law, although an LLC is subject to mandatory external audit after the passage of the External Audit Act by the National Assembly, an LLC will not be obligated to disclose its auditor report.
|
|
|
|
Currently, the Enforcement Decree provides for determining whether a company is subject to a mandatory external audit by considering several factors, including assets or liabilities and number of employees. Under the Proposed Amendment, an additional factor has been incorporated – the revenue standard. The details of revenue standard will be determined by the revised Enforcement Decree following the passage of the Proposed Amendment by the National Assembly.
|
|
|
|
Taking into account the necessity to strengthen protection of interested parties for the large sized non-listed stock companies, the accounting rule applicable to listed companies with respect to eligibility requirement and designation of an auditor will also apply to an LLC. In addition, the appointment of external auditors is to be conducted by the internal auditors or the internal audit committee of companies, not the “management.” Further, the deadline for the appointment is to be shortened, which will ensure the autonomy of external audits.
|
|
|
|
Potential Impact:
|
|
|
|
If the Proposed Amendment is passed, it will be implemented on the day one year passes after the promulgation of the amendment.
|
|
|
|
Also, the provisions relating to external auditing of LLCs will become applicable at the beginning of the next fiscal year – i.e., when one year has passed since the enforcement date of the External Audit Act.
|
|
|
|
|
|
|
|
|
|
| 1 |
|
Refers to listed companies and non-listed companies with asset worth KRW 12 billion or more, etc.
|
|
|
|
|
|
|
|
Back to Main Page
|
|
|
|
|
|
If you have any questions regarding this article, please contact below:
|
|
|
|
|
|
|
|
For more information, please visit our website:
|
|
|
|
|
|
|
|