The Enforcement Decree of the Act on External Audit of Stock Companies, Etc. (the "Enforcement Decree”) and the Regulations on External Audit and Accounting, Etc. (the “Regulations”) have been amended to strengthen the supervision of accounting auditors and supplement the auditor designation system. In a Press Release dated May 2, 2022, the Financial Services Commission (the "FSC") announced that it would begin enforcement of the amended Enforcement Decree and the Regulations on May 3, 2022. Below are key points from the recent amendments: 

1.   Reduce the corporate burdens associated with the auditor designation system

• Annex 4 of the amended Regulations seeks to reduce the corporate burden from frequent changes to designated auditors. 
  -  Previously, if a company subject to an external audit was notified of re-designation of the external auditor for other reasons, the need to replace the designated external auditor would be impose a burden on both the company and the external auditor. 
  -  Pursuant to the amendments, even if a valid reason for a re-designation occurs during the audit period, the initial external auditor designated at the start of the audit period may be re-designated for the remaining period of designation for this initial external auditor.   

• Article 14(8) of the amended Regulations simplifies the revocation process for any designated auditor who makes an improper request to a company subject to external audit.
  -  Previously, revocation of a designated external auditor who made an improper request was only possible after the auditor was disciplined; therefore a company had to continue to be audited by the disputed external auditor pending a disciplinary proceeding.
  -  Pursuant to the recent amendments, if the designated auditor fails to comply with mediation without justifiable grounds, the company may be audited by another designated external auditor by first revoking the designation of the disputed auditor and then proceeding with the disciplinary process. 
   

2.   Strengthen supervision of external auditors registered with listed companies 

• Article 16(2) of the amended Enforcement Decree, and Article 14(9) of the amended Regulations diversify potential sanctions against external auditors for failing to meet the requisite registration requirements.  
  -  Previously, the "revocation of registration" was the only potential sanction against an accounting firm that failed to meet the external auditor registration requirements. 
  -  Pursuant to the amendments, accounting firms that fail to meet the registration requirements may be imposed with corrective recommendations or points for exclusion of auditor depending on the degree of violation, and potential revocation of registration in case of continued non-compliance with such corrective recommendations.  

• Article 29 of the Enforcement Decree, and Article 23(7) of the amended Regulations expand the grounds for commencement of inspection on maintenance of registration requirements.
  -  Previously, inspection auditors registered with listed companies to check their compliance with registration requirements was limited to cases where reports were received or where the SFC requested inspection. 
  -  Pursuant to the amendments, if the FSS determines that an accounting firm fails to meet the registration requirements, the FSS will be able to conduct its own inspection.
   

3.   Supplement operational deficiencies in the external audit system

• The amendments provide additional details on the scope of accounting firms subject to evaluation for quality control standards, as well as the evaluation process and procedure.  

• In addition, the amendments have also addressed a number of deficiencies identified in the operation of corporate accounting system, such as the reorganization of the grounds for entrustment by the FSS, and reorganization of categories for ad-hoc reports by accounting firms.

[Korean version]