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Revision to the Scope of Companies subject to Statutory External Audit Requirements

October 31, 2017  |  Audit

The proposed amendment to the Presidential Decree of the Act on External Audit of Joint Stock Companies, etc. has been approved in the cabinet meeting on October 23, 2018 and will become effective from November 1, 2018 unless indicated otherwise.  Under the amended Presidential Decree, the scope of companies subject to statutory external audit will be extended.  Provided below is a brief summary of the revised external audit requirements, which shall be effective from the fiscal year starting on or after November 1, 2019.

1. Chusik-Hoesa (i.e., Joint Stock Company)

In principle, an external audit shall be mandatory for all Chusik-Hoesa.   An exception shall be given to companies that satisfy at least three of the following four criteria as of the end of immediately preceding fiscal year.  Sales threshold is newly adopted as one of the criteria in the amended Presidential Decree.

(1) less than KRW 12 billion in total assets
(2) less than KRW 7 billion in total liabilities
(3) less than KRW 10 billion in Sales
(4) less than 100 employees

2. Yuhan-Hoesa (i.e., Limited Company)

Previously, Yuhan-Hoesa was not subject to statutory external audit in Korea.  However, under the amended Presidential Decree, Yuhan-Hoesa shall also be subject to statutory external audit requirement.  An exception shall be given to companies that meet at least three of the following five criteria as of the end of immediately preceding fiscal year.  (four criteria applying to Chusik-Hoesa and one additional criterion of less than 50 members)

(1) less than KRW 12 billion in total assets
(2) less than KRW 7 billion in total liabilities
(3) less than KRW 10 billion in Sales
(4) less than 100 employees
(5) less than 50 members

For Chusik-Hoesa converting into Yuhan-Hoesa after the enforcement date of the amended Presidential Decree (November 1, 2019), the criteria for Chusik-Hoesa will be applicable for the next five years from the court registration date of the conversion.

3. Large corporation

An external audit shall be mandatory for large corporations with KRW 50 billion or more in total assets or sales as of the previous fiscal year end.

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