External Audit for Stock Companies in South Korea

External Audit in South Korea means an accounting audit conducted by an external auditor under the relevant law in Korea. It is conducted pursuant to Article 446-2 of the Commercial Act and K-IFRS. There is a new amendment in 2017 in which stock companies should make their financial reports audited by external auditors and available to the public. The latest amendment included a bigger scope of external audit (the Act on External Audit of Stock Companies existed to be applied to limited companies), reinforcement of responsibility for the financial statements and internal control, introduction of the designation 6+3 auditors, enforcement of sanctions against accounting and auditing fraud, etc. Before the amendments in 2017, stock companies don’t need to.

It is in accordance with The Act on External Audit: any stock company that meets the standard prescribed by Presidential Decree, as stated below, at the end of the immediately preceding business year, shall receive an accounting audit by an external auditor who is independent of the company after preparing financial statements. The Enforcement Decree specifies that companies satisfying one of the following criteria, as of the end of immediately preceding fiscal year, to undergo external audits. Article 5 of the Enforcement Decree:
1. Total assets equal to or greater than KRW 50 Billion
2. Revenue equal to or greater than KRW 50 Billion
3. Those that do not satisfy at least three of the following criteria:
a. Total assets less than KRW 12 Billion
b. Total liabilities less than KRW 7 Billion
c. Revenue less than KRW 10 Billion
d. Less than 100 employees

For limited companies, “less than 50 members” has been added at the fifth criterion under number 3 above, where those limited companies that do not satisfy at least three of the criteria A through E. Once qualified and subject to external audit, the company shall appoint the external auditor, the Korean public accounting firm, and report it to the Korean Financial Supervisory Service at the beginning of the fiscal year. A failure of reporting will be subject to penalties.