Amendment to the Act on External Audit of Stock Companies was approved by the National Assembly and proclaimed by the government on Oct. 31, 2017.  We summarized below some of the major amendments to keep you updated.

1. Expanded scope of companies subject to statutory external audit requirements

A. Current

(a) If a company’s total assets, total liabilities and/or the number of employees exceed certain thresholds prescribed by the Presidential Decree, the company is subject to statutory external audit.
(b) Only stock companies (Chusik-Hoesa in Korean) shall be subject to statutory external audit.

B. Amendment

(a) ‘Revenue’ is added as one of criteria to determine if a company is subject to external audit
; if a company’s total assets, total liabilities, the number of employees and/or revenue exceed certain thresholds prescribed by the Presidential Decree, the company is subject to statutory external audit.
(b) Limited liability companies (Yuhan-Hoesa in Korean) as well as stock companies shall be subject to statutory external audit.  Details on the scope of limited companies (Yuhan-Hoesa) subject to external audit will be set forth in the Presidential Decree.

C. Enforcement Date : Nov. 1, 2018

D. Concerned Article : Article 4, Paragraph 1

2. Change of deadline for appointment of external auditor

A. Current

Within 4 months from the date of commencement of each business year

B. Amendment

(a) Stock-listed companies with KRW 2 trillion or more in total assets or financial companies: before the commencement of each business year
(b) Other than the above: within 45 days from the date of commencement of each business year

C. Enforcement Date : Nov. 1, 2018

D. Concerned Article : Article 10, Paragraph 1

3. Change of procedure for selecting company’s external auditor

A. Current

Corporate management board appoints its external auditor after obtaining an approval from the internal auditor or Auditor Appointment Committee in the company.

B. Amendment

Internal auditor or Audit Committee in a company appoints external auditor of the company.

C. Enforcement Date : Nov. 1, 2018

D. Concerned Article : Article 10, Paragraph 4

4. Adoption of periodic nomination of a company’s external auditor by the Securities and Futures Commission

A. Addition

(a) applied to:
① Stock-listed companies
② Companies whose total asset amount is KRW 100 billion or more and in which majority stockholders manage the companies

(b) main content: after appointment of an external auditor by a company for the first six consecutive years, Securities and Futures Commission will have an authority to appoint the company’s external auditor for three subsequent years

(c) Exception:
① any company having no violation of accounting standards found as a result of supervision by the Securities and Futures Commission for the recent six years
② any company whose accounting treatments are trustworthy as prescribed by the Presidential Decree

B. Enforcement Date : effective from the fiscal year starting on or after Nov. 1, 2019

C. Concerned Article : Article 11, Paragraph 2 & 3

5. Strengthening audit independence

A. Addition

Auditee(company) shall not request its external auditor to provide any impermissible non-audit services such as preparation of the company’s financial statements, advice on accounting treatments and performance of any act prescribed by Presidential Decree.

B. Enforcement Date : Nov. 1, 2018

C. Concerned Article : Article 6, Paragraph 6

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