ENFORCEMENT DECREE OF THE ACT ON EXTERNAL AUDIT OF STOCK COMPANIES
Wholly Amended by Presidential Decree No. 29269, Oct. 30, 2018
Amended by Presidential Decree No. 31113, Oct. 13, 2020
Presidential Decree No. 31394, Jan. 12, 2021
Presidential Decree No. 31444, Feb. 17, 2021
| Article 2 (Financial Statements) |
| 1. | Statement of changes in equity; |
| 2. | A statement of cash flows; |
| Article 3 (Consolidated Financial Statements) |
| (1) | “Parent-subsidiary relationship prescribed by Presidential Decree” in subparagraph 3 of Article 2 of the Act, with the exception of its items, means a relationship between a company and another company (including any company without legal personality, such as associations) determined in accordance with accounting standards falling under any subparagraph of Article 5 (1) of the Act (hereinafter referred to as “accounting standards”), under which the company (hereinafter referred to as "parent company") has the power to make decisions on financial policies and business strategies of the other company (hereinafter referred to as "subsidiary") in order to gain utility and profit in economic activities. |
| (2) | “Documents prescribed by Presidential Decree” in subparagraph 3 (c) of Article 2 of the Act means the following documents: |
| 1. | Consolidated statement of changes in equity; |
| 2. | Consolidated statement of cash flow; |
| Article 4 (Large Unlisted Stock Company) |
“Amount prescribed by Presidential Decree” in subparagraph 5 of Article 2 of the Act means 100 billion won.
| Article 5 (Companies subject to External Audit) |
| (1) | “Company that meets the standards prescribed by Presidential Decree in terms of assets, liabilities, number of employees or sales, as at the end of the immediately preceding business year” in the main clause of Article 4 (1) 3 of the Act means any of the following companies: <Amended on Oct. 13, 2020> |
| 1. | A company whose total amount of assets as of the end of the immediately preceding business year is at least 50 billion won; |
| 2. | A company whose sales in the immediately preceding business year (where the immediately preceding business year is less than 12 months, it shall be converted into 12 months, and less than one month shall be deemed one month; hereinafter the same shall apply) are at least 50 billion won; |
| 3. | A company that meets at least two of the following: |
| (a) | Total assets at the end of the immediately preceding business year are 12 billion won or more; |
| (b) | Total debt at the end of the immediately preceding business year is 7 billion won or more; |
| (c) | Sales of 10 billion won or more in the previous business year; |
| (d) | 100 or more employees as at the end of the immediately preceding business year (referring to workers under Article 2 (1) 1 of the Labor Standards Act, excluding any of the following; hereinafter the same shall apply): |
| (ii) | Temporary agency workers defined in subparagraph 5 of Article 2 of the Act on the Protection of Temporary Agency Workers. |
| (2) | "Limited companies meeting the criteria prescribed by Presidential Decree" in the proviso of Article 4 (1) 3 of the Act means any of the following limited companies: Provided, That in cases of a limited company which has converted its organization from a stock company to a limited company pursuant to Article 604 of the Commercial Act after November 1, 2019, it means a company falling under any of the subparagraphs of paragraph (1) for five years from the date of registration pursuant to Article 606 of the same Act: <Amended on Oct. 13, 2020> |
| 1. | A limited company falling under paragraph (1) 1 or 2; |
| 2. | A limited company that falls under three or more of the following items: |
| (a) | Total assets at the end of the immediately preceding business year are 12 billion won or more; |
| (b) | Total debt at the end of the immediately preceding business year is 7 billion won or more; |
| (c) | Sales of 10 billion won or more in the previous business year; |
| (d) | At least 100 employees as at the end of the immediately preceding business year; |
| (e) | Members as at the end of the immediately preceding business year (referring to employees specified in the articles of incorporation in accordance with Article 543 (2) 1 of the Commercial Act; hereinafter the same shall apply) have at least 50 persons. |
| (e) | A company which has received a disposition of transaction suspension from the Korea Financial Telecommunications and Clearings Institute established with the permission of the Financial Services Commission pursuant to Article 32 of the Civil Act, and against which such disposition remains effective: Provided, That a company for which a decision to commence rehabilitation proceedings pursuant to the Debtor Rehabilitation and Bankruptcy Act has been made shall be excluded herefrom; |
| (f) | A company whose dissolution, liquidation or bankruptcy has been registered or whose business operations have been temporarily suspended for at least one year; |
| (h) | Other companies which are not required to receive an external audit on the grounds corresponding to those prescribed in items (a) through (g) and which meet the standards publicly notified by the Financial Services Commission. |
| Article 6 (Accounting Standards) |
| (1) | A company that falls under any of the following shall apply the accounting standards under Article 5 (1) 1 of the Act (hereinafter referred to as “Korean International Financial Reporting Standards”) pursuant to the latter part of Article 5 (3) of the Act: |
| 2. | A company that intends to become a stock-listed corporation in the relevant business year or the following business year: Provided, That a corporation which intends to have its stocks listed on KONEX shall be excluded herefrom; |
| (2) | Where a parent company that is in a parent-subsidiary relationship under Article 3 (1) applies the Korean International Financial Reporting Standards to consolidated financial statements, it shall also apply the Korean International Financial Reporting Standards to financial statements that are not consolidated financial statements. |
| Article 7 (Entrustment of Affairs Related to Accounting Standards) |
| (1) | Pursuant to Article 5 (4) of the Act, the Financial Services Commission shall entrust the following affairs to the Korea Accounting Institute (hereinafter referred to as the "Korea Accounting Institute"), an incorporated association established with the permission of the Financial Services Commission pursuant to Article 32 of the Civil Act: |
| 1. | Establishment or amendment of accounting standards; |
| 2. | Interpretation of accounting standards and replies to the relevant inquiries; |
| 3. | Other affairs prescribed by the Financial Services Commission in relation to accounting standards. |
| (2) | An accounting standards committee comprised of not more than nine members shall be established under the Korea Accounting Institute to deliberate and decide on matters regarding accounting standards, as prescribed by Ordinance of the Prime Minister. |
| (3) | The Korea Accounting Institute shall accumulate an amount equivalent to 10/100 of its total expenditure budget each year until such amount reaches the amount of the total expenditure budget for two immediately preceding business years. |
| (4) | Pursuant to Article 5 (6) of the Act, the Financial Supervisory Service (hereinafter referred to as the “Financial Supervisory Service”) established under the Act on the Establishment of Financial Services Commission shall subsidize the Korea Accounting Institute with the amount calculated by subtracting the Korea Accounting Institute’s own revenue in the relevant business year (referring to revenue that remains after excluding the amount subsidized by the Financial Supervisory Service) from the sum of the Korea Accounting Institute’s total expenditure budget for the relevant business year and the amount required to be accumulated in the relevant business year pursuant to paragraph (3), within the limits not exceeding 8/100 of the allotted charge collected by the Financial Supervisory Service pursuant to Article 442 (1) of the Financial Investment Services and Capital Markets Act. |
| (5) | The Korea Accounting Institute may use the amount accumulated under paragraph (3), after obtaining approval from the Financial Services Commission, where it is deemed unable to maintain its business normally due to financial difficulties such as a decrease in subsidies under paragraph (4). |
| (6) | The method of and timing for granting subsidies under paragraph (4) and other necessary matters shall be determined by the Financial Services Commission. |
| (7) | Except as provided for in paragraphs (1) through (6), matters necessary for affairs related to accounting standards shall be determined by the Financial Services Commission. |
| Article 8 (Responsibility for Preparation and Submission of Financial Statements) |
| 1. | Financial statements: Not later than six weeks before an ordinary general meeting is held (within 45 days after the end of each business year in cases of a company under rehabilitation proceedings); |
| 2. | Consolidated financial statements: The corresponding deadline set in the following categories: |
| (a) | A company governed by the Korean International Financial Reporting Standards: Not later than four weeks before an ordinary general meeting is held (within 60 days after the end of each business year in cases of a company under rehabilitation proceedings); |
| (b) | A company not governed by the Korean International Financial Reporting Standards: Within 90 days after the end of each business year [within 70 days after the end of each business year in cases of a corporation whose total amount of assets as of the end of the immediately preceding business year is at least two trillion won from among corporations subject to submitting a business report under Article 159 (1) of the Financial Investment Services and Capital Markets Act (hereinafter referred to as “corporation subject to submitting a business report”)]. |
| (2) | Notwithstanding paragraph (1), where a corporation subject to business reporting holds an ordinary general meeting after the deadline for submission of a business report under Article 159 (1) of the Financial Investment Services and Capital Markets Act (hereinafter referred to as “deadline for business reporting”), the deadline by which the corporation is required to submit financial statements to an auditor shall be classified as follows: |
| 1. | Financial statements: Not later than six weeks before the deadline for business reporting (within 45 days after the end of each business year in cases of a company under rehabilitation proceedings); |
| 2. | Consolidated financial statements: The corresponding deadline set in the following categories: |
| (a) | A company governed by the Korean International Financial Reporting Standards: Not later than four weeks before the deadline for business reporting (within 60 days after the end of each business year in cases of a company under rehabilitation proceedings); |
| (b) | A company not governed by the Korean International Financial Reporting Standards: The deadline set in paragraph (1) 2 (b). |
| (3) | "Company prescribed by Presidential Decree" in the former part of Article 6 (4) of the Act means the following companies: |
| 1. | A large unlisted stock company; |
| 1. | Preparing financial statements of the relevant company on behalf of the representative director and the accounting director (where there is no accounting director, referring to an employee responsible for performing accounting affairs); |
| 2. | Providing advice on accounting management related to the preparation of financial statements of the relevant company; |
| 3. | Acting on behalf of the relevant company in calculating or journalizing (referring to entering transaction details after dividing them into debits and credits, in journalizing or bookkeeping) necessary for the preparation of financial statements of the relevant company; |
| 4. | Involving in the determination of accounting methods related to the preparation of financial statements of the relevant company. |
| Article 9 (Operation of Internal Accounting Control System) |
| (1) | "Companies prescribed by Presidential Decree" in the proviso, with the exception of its subparagraphs, of Article 8 (1) of the Act means any of the following companies: <Amended on Feb. 17, 2021> |
| 3. | Other companies which have difficulty in operating the internal accounting control system under Article 8 (1) of the Act (hereinafter referred to as “internal accounting control system”) when considering their characteristics, and which meet the standards prescribed and publicly notified by the Financial Services Commission. |
| 1. | Procedures for establishing and amending internal accounting control regulations under Article 8 (1) of the Act (hereinafter referred to as “internal accounting control regulations”); |
| 2. | Qualification requirements for, and procedures for appointment and dismissal of, an internal accounting manager under Article 8 (3) of the Act (hereinafter referred to as “internal accounting manager”); |
| 3. | Standards and procedures for reporting the operational status under Article 8 (4) of the Act [including whether the representative of a company and its statutory auditor [where an audit committee under subparagraph 6 of Article 2 of the Act (hereinafter referred to as “audit committee”) has been established under a company, referring to the audit committee; hereafter the same shall apply in this Article], and executive officer or employee in charge of managing and operating internal accounting control regulations or in charge of preparing and publishing accounting information (hereafter referred to as “representative, etc. of a company” in this Article) have complied with Article 8 (2) of the Act]; |
| 5. | Procedures and methods for reflecting the results of evaluation under Article 8 (5) of the Act in personnel management and remuneration for the representative, etc. of a company, a plan for operation of the internal accounting control system for the following business year, etc.; |
| 6. | Matters necessary for preparing and publishing accounting information concerning consolidated financial statements (applicable only to where a parent company is a stock-listed corporation); |
| 7. | The following matters concerning the prevention of violation of internal accounting control regulations and follow-up measures: |
| (a) | Matters concerning a plan to provide education or training for the representative, etc. of a company, the evaluation of education or training results, the use of the results of such evaluation, etc.; |
| (b) | Matters concerning a system for protecting an executive officer or employee of a company who is in charge of managing and operating internal accounting control regulations or preparing and publishing accounting information, from any disadvantage where the relevant executive officer or employee refuses to follow the instructions by the representative, etc. of the company to commit an act in violation of internal accounting control regulations; |
| (c) | Matters concerning the operation of a system for reporting a violation of internal accounting control regulations; |
| (d) | Matters concerning the roles and responsibilities of the statutory auditor that are necessary in relation to a request for investigation, correction, etc., the submission of the findings of investigation, etc. under Article 22 (3) or (4) of the Act; |
| (e) | Matters concerning the roles and responsibilities of the representative of a company in relation to the provision of data, information and expenses under Article 22 (5) of the Act; |
| (f) | Matters concerning disciplinary action, etc. against an executive officer or employee who has violated internal accounting control regulations; |
| 8. | Other matters determined by the Financial Services Commission that shall be included in internal accounting control regulations. |
| (3) | When a company establishes or amends its internal accounting control regulations, such establishment or amendment shall require the approval of the statutory auditor and a resolution by the board of directors. In such case, the statutory auditor and the board of directors shall prepare and manage the reasons for approval or resolution, etc. in writing (including an electronic document; hereinafter the same shall apply). |
| (4) | Pursuant to the main clause of Article 8 (4) of the Act, the representative of a company shall prepare a document containing the following matters (hereinafter referred to as “report on the operational status of the internal accounting control system”) and give a face-to-face report thereon to the board of directors and the statutory auditor: Provided, That, where an internal accounting manager gives a report pursuant to the proviso of Article 8 (4) of the Act, the representative of the relevant company shall submit the reasons therefor to the board of directors and the statutory auditor in writing prior to such report: |
| 1. | The findings of investigation into the operational status of the internal accounting control system, and a plan for corrective measures with respect to the vulnerabilities of the internal accounting control system; |
| 2. | The result of implementing the plan for corrective measures under subparagraph 1 that was reported in the immediately preceding business year; |
| 3. | The fact of having verified the following matters, affixed his or her signature thereto, and then attached them to the details of the report: |
| (a) | The fact that there is no false statement or representation in the details of the report nor omission of any matter required to be stated or represented in such details; |
| (b) | The fact that the details of the report does not include any statement or representation that may cause serious misunderstanding; |
| (c) | The fact of having verified and examined the matters stated in the details of the report in person with due care. |
| (5) | After evaluating the operational status of the internal accounting control system pursuant to the former part of Article 8 (5) of the Act (where an audit committee has been established, such evaluation shall be conducted through a face-to-face meeting), the statutory auditor shall prepare and manage the following matters in writing (hereinafter referred to as “report on the evaluation of the internal accounting control system”): |
| 1. | The result of evaluating whether the internal accounting control system of the relevant company actually contributes to the preparation and disclosure of reliable accounting information, and any corrective opinion thereon; |
| 2. | The result of inspecting whether there is a false statement or representation in the report on the operational status of the internal accounting control system or an omission of any matter required to be stated or represented in such report, and the details of measures taken; |
| 3. | The result of examining whether a plan for corrective measures under the report on the operational status of the internal accounting control system can actually contribute to the improvement of the internal accounting control system of the relevant company, and alternatives thereto. |
| (6) | The statutory auditor or auditor may request the representative of the relevant company to provide data or information necessary for an evaluation, examination, etc. under Article 8 (5) or (6) of the Act. In such case, the representative of the company shall provide such data or information without delay unless there is a compelling reason not to do so. |
| (7) | The statutory auditor shall report to the board of directors face to face on the report on the evaluation of the internal accounting control system by not later than one week before an ordinary general meeting is held. |
| (8) | When conducting an audit pursuant to the proviso of Article 8 (6) of the Act, the auditor of a stock-listed corporation shall comply with the standards for accounting audit under Article 16 of the Act (hereinafter referred to as “standards for accounting audit”). |
| (9) | A corporation subject to submitting a business report shall publish the following matters, as prescribed by the Financial Services Commission: |
| 1. | The report on the operational status of the internal accounting control system; |
| 2. | The report on the evaluation of the internal accounting control system; |
| 3. | Other matters prescribed by the Financial Services Commission. |
| (10) | Except as provided for in paragraphs (1) through (9), matters necessary for the effective operation of the internal accounting control system shall be determined by the Financial Services Commission. |
| Article 10 (Qualification of Auditors) |
| Articles 11 (Registration of Auditors of Stock-Listed Corporations, and Revocation Thereof) |
| (1) | A person who intends to become the auditor of a stock-listed corporation pursuant to Article 9-2 (1) of the Act (hereafter referred to as “applicant” in this Article) shall submit an application for registration to the Financial Services Commission. |
| (2) | Upon receipt of an application for registration under paragraph (1), the Financial Services Commission shall examine whether the applicant fulfills all of the requirements under subparagraphs of Article 9-2 (1) of the Act (hereafter referred to as “registration requirements” in this Article), decide whether to register the applicant within four months from the date of receipt of the application for registration, and notify the applicant of the result of, and reasons for, its decision in writing without delay. In such case, where any defect is found in the application for registration, the Financial Services Commission may request the correction thereof and conduct a field investigation, if necessary, to verify whether the applicant fulfills registration requirements. |
| (3) | In calculating the period of examination under paragraph (2), the period prescribed by the Financial Services Commission, such as the period for correcting a defect in an application for registration, shall not be included in the period of examination. |
| (5) | Except as provided for in paragraphs (1) through (4), detailed matters concerning examination following the submission of an application for registration by an applicant, the registration of the auditor of a stock-listed corporation, and the revocation thereof shall be determined by the Financial Services Commission. |
| Article 12 (Auditor Appointment Committee) |
| (1) | The auditor appointment committee referred to in Article 10 (4) 1 (b) of the Act (hereinafter referred to as the “auditor appointment committee”) shall be comprised of at least five members, including one chairperson. <Amended on Jan. 12, 2021> |
| (2) | The following persons shall be members of the auditor appointment committee (hereafter referred to as “members” in this Article): Provided, That under unavoidable circumstances, such as the absence of a person falling under the following, the auditor appointment committee may be comprised of persons with expertise in management, accounting, law or external audit who can fairly examine an auditor independently from the company that appoints the auditor: <Amended on Jan. 12, 2021> |
| 1. | One statutory auditor; |
| 2. | Not more than two outside directors (referring to directors who are not involved in routine business activities of the relevant company; hereafter referred to as “outside directors” in this Article), where the company has outside directors appointed pursuant to other statutes or regulations; |
| 4. | One stockholder (in cases of an institutional investor, referring to its executive officers or employees) who holds the greatest number of voting stocks (excluding stocks acquired by a securities finance company referred to in Article 9 (17) 3 of the Financial Investment Services and Capital Markets Act for the purpose of security for conducting lending business referred to in Article 326 (1) 2 of the same Act, and on the basis of the stocks held as of the end of the immediately preceding business year) from among stockholders, excluding any of the following stockholders: Provided, That a stockholder whose number of voting stocks (excluding stocks acquired for the purpose of security) has decreased significantly from the commencement of the relevant business year until the day immediately before the date on which holding of a meeting of the auditor appointment committee is notified shall be excluded herefrom: |
| (b) | Stockholders who are the executive officers of the relevant company; |
| (c) | Institutional investors referred to in subparagraph 3; |
| (3) | The chairperson of the auditor appointment committee (hereafter referred to as “chairperson” in this Article) shall be elected by and from among outside directors, and shall be elected by and from among members, as prescribed by the Financial Services Commission, where there are no outside directors. |
| (4) | At least 2/3 of the members of the auditor appointment committee shall constitute a quorum, and any decision thereof shall require the concurring vote of a majority of those present. |
| (5) | Notwithstanding paragraph (4), when all members (excluding a member who is certain to be unable to exercise his or her voting right in person due to a disease, overseas residence, unknown whereabouts or other unavoidable causes similar thereto) give consent, the presence of all of the following members at a meeting of the auditor appointment committee may constitute a quorum, and any decision thereof may require the concurring vote of all of those present: |
| 2. | The member referred to in paragraph (2) 1; |
| 3. | One of the members referred to in paragraph (2) 2: Provided, That where the relevant member does not exist or is unable to exercise his or her voting right due to any unavoidable cause, one of the members referred to in paragraph (2) 3 through 5. |
| (6) | Where a member falling under any of paragraph (2) 3 through 5 is unable to exercise his or her voting right due to any unavoidable cause, he or she may exercise such right by proxy. In such case, the proxy shall submit to the auditor appointment committee the reasons for the relevant member’s failure to exercise the right and a document objectively verifying that he or she is the proxy for the relevant member. |
| (7) | A company shall prepare and manage personal information on the members present at a meeting of the auditor appointment committee, details of major remarks at the meeting, etc. in writing. |
| (8) | Except as provided for in paragraphs (1) through (7), detailed matters necessary for the operation, etc. of the auditor appointment committee shall be determined by the Financial Services Commission. |
| Article 13 (Appointment of Auditors) |
| 1. | Where an auditor is dissolved due to bankruptcy or any other cause (excluding cases of dissolution due to a merger); |
| 3. | Where an audit team that has served as an auditor has its registration revoked or ineffective, as prescribed by Ordinance of the Prime Minister; |
| 7. | Other cases where an auditor is deemed by the Securities and Futures Commission unable to conduct an accounting audit for the relevant business year. |
| (3) | A person who appoints an auditor pursuant to Article 10 (4) of the Act (including approval; hereafter the same shall apply in this Article) shall establish standards and procedures necessary for the appointment in advance. In such case, when falling under Article 10 (4) 1 (b) of the Act or 2 (b) or (c) of the same paragraph, he or she shall obtain approval of such standards and procedures from the auditor appointment committee or the general meeting of members. |
| (4) | The standards under the former part of paragraph (3) shall include the following matters: |
| 1. | The appropriateness of audit hours, audit personnel, audit fees, and audit plans; |
| 2. | An auditor’s independence (referring to avoiding interests that are likely to cause a prejudice against or make other unfair impacts on an auditor’s opinion) and professionalism (referring to being fully equipped with education, training and experience necessary for conducting an audit, expertise in the affairs, etc. of the company subject to an audit, etc.); |
| 3. | Details of the opinion stated by an auditor who audited the relevant company in the immediately preceding business year (hereinafter referred to as "former auditor"), and the following matters: Provided, That the same shall not apply to where a company did not undergo an audit in the immediately preceding business year: |
| (a) | The result of evaluating whether the former auditor faithfully fulfilled the agreement made at the time of his or her appointment, including audit hours, audit personnel, audit fees, and audit plans; |
| (b) | Where the former auditor requested the relevant company to seek advice from an external institution on the interpretation of accounting standards, the valuation of assets, etc. in relation to the audit of the company, detailed consultation between the statutory auditor or audit committee and the former auditor on the details of such request, the outcome of advice, and details of the use thereof; |
| (c) | The number of face-to-face meetings held between the statutory auditor or audit committee and the former auditor in the relevant business year, personal information on attendees, details of major remarks, etc.; |
| (d) | Other matters determined by the Financial Services Commission as standards necessary for ensuring objectivity and reliability in the appointment of an auditor. |
| (5) | The audit committee, the auditor appointment committee, and the general meeting of members shall hold a face-to-face meeting to appoint an auditor. In such case, the following matters shall be prepared and managed in writing: |
| 1. | The result of examining the matters referred to in subparagraphs of paragraph (4); |
| 2. | The number of face-to-face meetings held, personal information on attendees, details of major remarks, etc. |
| (6) | Except as provided for in paragraphs (1) through (5), detailed matters necessary for the appointment, management, etc. of an auditor by the statutory auditor, the audit committee, the auditor appointment committee or the general meeting of members shall be determined by the Financial Services Commission. |
| Article 14 (Companies Subject to Designation of Auditors by Securities and Futures Commission) |
| (1) | Deleted. <Oct. 13, 2020> |
| (2) | Deleted. <Oct. 13, 2020> |
| (3) | Pursuant to Article 11 (1) 7 of the Act, the Securities and Futures Commission shall designate a company that is deemed to require a fair audit from among companies falling under any of the following: |
| 1. | A company whose issues of stock have been designated as issues for administration under the listing regulations prescribed in Article 390 of the Financial Investment Services and Capital Markets Act (hereinafter referred to as “listing regulations”): Provided, That a company whose issues of stock have been designated as issues for administration due to any of the following reasons shall be excluded herefrom: |
| (a) | Where a company fails to meet stock diversification standards, such as the number of shareholders or the number of listed stocks; |
| (b) | Where a company fails to meet minimum volume requirements for stock trading; |
| (c) | Where a company fails to meet market capitalization requirements; |
| 2. | A corporation whose issues of stock have been designated as investment alert issues under the listing regulations separately prescribed for the KOSDAQ market (hereinafter referred to as “KOSDAQ") specified in Article 8 of the Addenda to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (Presidential Decree No. 24697): Provided, That a company whose issues of stock have been designated as investment alert issues by falling under any of the following cases after its auditor examined or audited whether the company complied with the matters prescribed in Article 8 of the Act and the details of the report on the operational status of the internal accounting control system referred to in Article 8 (4) of the Act pursuant to Article 8 (6) of the Act shall be excluded herefrom: |
| (a) | Where any significant vulnerability has been found; |
| (b) | Where the scope of examination or audit by the auditor has been restricted; |
| (c) | Where the examination or audit opinion of the auditor has not been stated. |
| (4) | “Shareholder prescribed by Presidential Decree” in Article 11 (1) 8 of the Act means a person recognized by the Securities and Futures Commission as a stockholder that is an institutional investor to effectively perform the duty of promoting the long-term interests of customers and beneficiaries by pursuing the long-term value enhancement and sustainable growth of a company subject to investment (hereinafter referred to as “fiduciary duty”). In such case, the Securities and Futures Commission shall take into consideration the following matters, as prescribed by the Financial Services Commission: |
| 1. | Whether the institutional investor has performed shareholder activities according to core principles necessary for effectively fulfilling the fiduciary duty; |
| 2. | The period of holding shares in the company subject to investment; |
| 3. | The ratio of shareholding in the company subject to investment; |
| 4. | Other matters prescribed by the Financial Services Commission. |
| (5) | If a principal creditor bank defined in subparagraph 5 of Article 2 of the Corporate Restructuring Promotion Act or a stockholder that is an institutional investor under paragraph (4) intends to request the Securities and Futures Commission to designate an auditor pursuant to Article 11 (1) 8 of the Act, it shall prepare and submit documents for application for such designation, as prescribed by the Financial Services Commission. In such case, a stockholder that is an institutional investor under paragraph (4) shall attach data verifying the matters referred to in subparagraphs of the same paragraph. |
| 1. | A company that intends to become a stock-listed corporation during the relevant business year or the following business year: Provided, That the following companies shall be excluded herefrom: |
| (b) | A corporation listed on KOSDAQ that intends to become a corporation listed on the securities market; |
| (c) | A corporation that intends to have its stocks listed on KONEX; |
| (d) | A special-purpose acquisition company that intends to become a stock-listed corporation; |
| 2. | A company whose audit contract has been terminated by its auditor since it falls under Article 21 (1) 3 through 5 or (3) 1; |
| 3. | A company that has violated any of the following: Provided, That a company found to have committed a negligible violation determined by the Securities and Futures Commission shall be excluded herefrom: |
| (e) | Reporting on, and notification and public announcement of the appointment, etc. of an auditor under Article 12 of the Act; |
| 4. | A company for which the Securities and Futures Commission has been requested to designate an auditor, as prescribed by other statutes; |
| 5. | A stock-listed corporation that has instituted an accusation against any of its executive officers or employees (including executive officers or employees retired or resigned; hereafter the same shall apply in this subparagraph) on the grounds of embezzlement or misappropriation of at least the amount determined by the Financial Services Commission, or a company that has any executive officer or employee against whom a public prosecution has been filed; |
| 6. | Where a company has violated Article 17 (1) (including where there is a false statement or representation in the data required to be submitted to the Securities and Futures Commission pursuant to Article 17 (1) or an omission of any matter required to be stated or represented in such data). |
| Article 15 (Designation of Auditors for Stock-Listed Corporations) |
| (1) | The Securities and Futures Commission may request a company, which has appointed an auditor for six consecutive business years pursuant to Article 11 (2) of the Act, to appoint an auditor designated by the Securities and Futures Commission or substitute its auditor for three consecutive business years from the following business year. |
| (2) | “Stock-listed corporation prescribed by Presidential Decree” in the proviso of Article 11 (2) 1 of the Act means a corporation listed on KONEX. |
| (3) | “Amount prescribed by Presidential Decree” in Article 11 (2) 2 of the Act means 100 billion won as of the end of the immediately preceding business year. |
| (5) | “Company prescribed by Presidential Decree” in Article 11 (3) 2 of the Act means a company which satisfies all of the following requirements and which has not been found to violate any accounting standards as a result of supervision conducted by the Securities and Futures Commission at its request: |
| 1. | The company has never undergone supervision under Article 26 (1) 2 of the Act (excluding supervision requested pursuant to subparagraph 2 of this paragraph) within the past six years from the date on which the Securities and Futures Commission requests the appointment or substitution of an auditor (hereafter referred to as “base date of designation” in this Article and Article 17); |
| 2. | The audit opinion on the company (including an examination opinion on the internal accounting control system; hereafter the same shall apply in this paragraph) for the business year to which the date the company requested supervision from the Securities and Futures Commission belongs and for the two immediately preceding business years does not state that any significant vulnerability has been found in the company’s internal accounting control system; |
| 3. | The company shall submit to the Securities and Futures Commission a written confirmation that it shall not appoint the auditor who prepared the audit opinion under subparagraph 2, as its auditor for three business years following the base date of designation. |
| (6) | Detailed standards and procedures for the supervision, etc. under paragraph (5) shall be determined by the Financial Services Commission. |
| Article 16 (Standards for Designation of Auditors) |
| (1) | The Securities and Futures Commission shall designate an auditor from among the following accounting corporations pursuant to Article 11 (2) of the Act: |
| (a) | The Financial Services Commission; |
| (b) | The Securities and Futures Commission; |
| (2) | Notwithstanding paragraph (1), where an accounting corporation falls under any of the following cases, the Securities and Futures Commission need not designate such corporation as an auditor: |
| 1. | Where a public prosecution has been filed against the relevant accounting corporation on charges of failing to enter the matters required to be stated in an audit report under Article 23 (1) of the Act or entering such matters falsely; |
| 2. | Where there is a false statement or representation in the business report referred to in Article 25 (1) of the Act or the occasional report referred to in paragraph (5) of the same Article or an omission of any matter required to be reported; |
| 3. | Where an audit contract with the relevant company is not concluded, without any extenuating circumstances, within two weeks from the date the designation of the relevant auditor is notified by the Securities and Futures Commission; |
| 4. | Other cases where any ground prescribed by the Financial Services Commission exists, such as where an auditor requests a company to bear an unfair cost burden, using his or her status. |
| (3) | Where the Securities and Futures Commission intends to designate an auditor pursuant to Article 11 (2) of the Act, it shall take into consideration the following matters: |
| 1. | The scale or type of business of the relevant company; |
| 2. | The number of registered certified public accountants belonging to the relevant accounting corporation, and the level of audit quality control of the relevant accounting corporation; |
| 4. | Other matters prescribed by the Financial Services Commission. |
| (4) | Except as provided for in paragraphs (1) through (3), detailed matters concerning the standards for designating an auditor shall be determined by the Financial Services Commission. |
| Article 17 (Procedures for Designating Auditors) |
| (1) | A company falling under any subparagraph of Article 11 (2) of the Act shall submit to the Securities and Futures Commission data necessary for deciding whether to appoint or substitute an auditor under the same paragraph, in the form of electronic documents, as prescribed by the Financial Services Commission. |
| (2) | Where the Securities and Futures Commission intends to request the appointment or substitution of an auditor pursuant to Article 11 (2) of the Act, it shall notify the relevant company and the accounting corporation, which it intends to designate as the auditor of the relevant company, of the details of the planned designation in writing by not later than four weeks before the base date of designation: Provided, That such period may be shortened or notified orally where the details of the planned designation shall be notified promptly, as prescribed by the Financial Services Commission. |
| (3) | The company and the accounting corporation that have received a notice under paragraph (2) may submit their opinions to the Securities and Futures Commission within two weeks from the date of receipt of such notice. |
| (4) | The Securities and Futures Commission may reflect the opinions under paragraph (3) if it judges that they satisfy the standards prescribed by the Financial Services Commission. |
| (5) | Where the Securities and Futures Commission intends to request the appointment or substitution of an auditor pursuant to Article 11 (2) of the Act, it shall notify the relevant company and the accounting corporation designated as the auditor of the relevant company (hereinafter referred to as “designated auditor”) of the details of designation by the base date of designation. In such case, the Securities and Futures Commission may determine and recommend appropriate audit hours or audit fees, etc. to ensure the smooth conclusion of a contract on audit (hereinafter referred to as “audit contract”) between the company and the designated auditor, the quality of audit, etc. |
| (6) | A company shall conclude an audit contract within two weeks from the base date of designation unless there is a compelling reason not to do so. |
| 1. | Where the relevant company is a company in which a foreign investor defined in Article 2 (1) 5 of the Foreign Investment Promotion Act (excluding an individual; hereinafter referred to as “foreign investor”) has invested and has specified an auditor in the investment conditions; |
| 2. | Where the designated auditor falls under Article 16 (2) 2 through 4; |
| 4. | Other cases prescribed by the Financial Services Commission on the basis of subparagraphs 1 through 3, such as where it is impossible to appoint the designated auditor as an auditor due to the restrictions prescribed by other statutes, etc. |
| (8) | A person who intends to request the re-designation of an auditor pursuant to the proviso of Article 11 (4) of the Act shall submit such request to the Securities and Futures Commission, together with documents verifying the reasons therefor, within one week from the date of receipt of a notice under the former part of paragraph (5). |
| (9) | Except as provided for in paragraphs (1) through (8), detailed matters concerning the procedures for designating an auditor shall be determined by the Financial Services Commission. |
| Article 18 (Reporting on Appointment of Auditor) |
| (1) | Pursuant to Article 12 (1) of the Act, a company that has appointed or substituted an auditor shall notify its stockholders (referring to stockholders as of the latest record date for closing of a register of stockholders) or members of such fact in writing or publicly announce such fact on its website until the audit contract with the appointed or substituted auditor expires. |
| (2) | Pursuant to the main clause, with the exception of its subparagraphs, of Article 12 (2) of the Act a company shall submit the following documents to the Securities and Futures Commission in the form of electronic documents within two weeks from the date it concludes an audit contract: |
| 1. | A copy of the audit contract with the relevant auditor; |
| 2. | Documents verifying holding of a meeting of the audit committee or approval by the auditor appointment committee or the general meeting of members for the appointment of the auditor; |
| 3. | In cases of substituting an auditor, the reasons therefor and the details of the opinion stated by the former auditor. |
| (3) | Deleted. <Oct. 13, 2020> |
| (4) | Pursuant to the main clause, with the exception of its subparagraphs, of Article 12 (2) of the Act an auditor shall submit a copy of the audit contract with the relevant company to the Securities and Futures Commission in the form of electronic document within two weeks from the date the audit contract is concluded. |
| (2) | Upon receipt of an application for approval filed under paragraph (2), the Minister of Science and ICT shall verify the relevant corporate registration certificate by sharing the administrative data information pursuant to Article 36 (1) of the Electronic Government Act. <Amended on Oct. 13, 2020> |
| Article 19 (Dismissal of Auditors) |
“Ground prescribed by Presidential Decree, such as breach of duty” in Article 13 (2) of the Act means any of the following cases: | 1. | Where an auditor breaches his or her duties, including disclosing a company's confidential information; |
| 2. | Where an auditor inflicts damage upon a company by neglecting his or her duties; |
| 3. | Where an auditor makes an unreasonable demand or exercises an undue influence concerning an accounting audit; |
| 4. | Where a company has been provided with an investment by a foreign investor, and its auditor has been specified in the investment conditions; |
| 5. | Where a parent company or subsidiary is required to appoint the same designated auditor as the company in the relevant parent-subsidiary relationship. |
| Article 20 (Former Auditor’s Right to State Opinion) |
| (1) | Pursuant to Article 14 (1) of the Act, a company shall notify its former auditor in writing that he or she may state his or her opinion in writing or orally, by not later than two weeks before it concludes an audit contract with a new auditor. |
| (2) | Where the former auditor to be dismissed pursuant to Article 13 (2) of the Act has stated his or her opinion, the relevant company shall submit the following matters to the Securities and Futures Commission in writing without delay, as prescribed by the Financial Services Commission: |
| 1. | The reasons for dismissal of the former auditor; |
| 2. | The opinion stated by the former auditor; |
| 3. | The fact that all of the members of the audit committee or a majority of the members of the auditor appointment committee have verified the details of subparagraphs 1 and 2 and affixed their signature thereto. |
| Article 21 (Termination of Audit Contract by Auditor) |
| (1) | “Where a ground prescribed by Presidential Decree exists, such as where the independence determined by the standards for accounting audit is impaired” in Article 15 (1) of the Act means any of the following cases: |
| 2. | Where he or she falls under any of the following: |
| (a) | A case recognized by the Securities and Futures Commission, where the independence determined by the standards for accounting audit is impaired; |
| 3. | Where a company fails to perform its obligations under the audit contract with regard to the payment of audit fees during the immediately preceding business year or the relevant business year; |
| 4. | Where a company fails to renew the existing agreement on audit fees, although the nature of major business division or the size of the company has been significantly changed as a consequence of a merger or division of the company, or the transfer or acquisition of business after the existing audit contract was concluded; |
| 5. | Where a company is deemed to have significantly impeded an audit by failing to submit data in relation to the audit (including affairs conducted for the accounting auditor’s verification and comment attached to a half-yearly or quarterly report pursuant to Article 170 (1) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act) without any extenuating circumstances although its auditor (limited to the auditor of a stock-listed corporation, large unlisted stock company or financial company) requested such data. |
| (2) | The deadline by which an auditor may terminate an audit contract on the grounds specified in paragraph (1) 3 through 5 shall be the first day of the month to which the nine-month period from the date of commencement of the business year of the relevant company belongs. |
| (3) | “Cases with a cause prescribed by Presidential Decree, such as where an auditor has received an unreasonable demand or undue influence concerning his or her audit opinion” in Article 15 (2) of the Act means any of the following cases: |
| 1. | Where an auditor has received an unreasonable demand or undue influence from a person referred to in the main clause of Article 635 (1) of the Commercial Act, with the exception of its subparagraphs, a person in charge of accounting of a company, a stockholder, or a creditor concerning his or her audit opinion; |
| 2. | Where the discovery of any significant vulnerability is included in the audit opinion on the internal accounting control system under the proviso of Article 8 (6) of the Act for two consecutive business years. |
| (4) | An auditor shall report the following matters to the Securities and Futures Commission without delay, as prescribed by the Financial Services Commission, after terminating an audit contract pursuant to Article 15 (3) of the Act: |
| 1. | The reasons for termination of the audit contract, and documents verifying such reasons; |
| 2. | The relevant company’s opinion on the termination of the audit contract; |
| 3. | Other matters prescribed by the Financial Services Commission. |
| Article 22 (Standards for Accounting Audit) |
| (1) | The standards for accounting audit shall include the following matters: |
| 1. | Requirements for maintaining the independence of the auditor; |
| 2. | Methods for formulating audit plans, and the auditing procedure; |
| 3. | Methods for classification and determination of audit opinions; |
| 4. | Management of audit affairs, including preparation of audit working papers; |
| 5. | Guidelines for reporting the audit findings. |
| (2) | A standards for accounting audit committee comprised of not more than 11 members shall be established under the Korean Institute of Certified Public Accountants to deliberate and decide on matters concerning the standards for accounting audit. |
| (3) | Matters necessary for the composition, operation, etc. of the standards for accounting audit committee under paragraph (2) shall be prescribed by Ordinance of the Prime Minister. |
| (4) | To obtain prior approval for the standards for accounting audit from the Financial Services Commission pursuant to Article 16 (2) of the Act, the Korean Institute of Certified Public Accountants shall submit a plan for establishment or amendment of the standards for accounting audit to the Financial Services Commission after deliberation and resolution by the standards for accounting audit committee. |
| (5) | The Financial Services Commission may request the Korean Institute of Certified Public Accountants to modify the standards for accounting audit, where necessary for the protection of interested persons, conformity with the international standards for accounting audit, etc. |
| Article 23 (Procedures for Determining and Modifying Standard Audit Hours) |
| (1) | “Interested persons prescribed by Presidential Decree, including the Financial Supervisory Service” in the latter part of Article 16-2 (1) of the Act means any of the following: |
| 3. | A user of accounting information, such as an investor or a person analyzing financial statements of a company; |
| 4. | Financial Supervisory Service. |
| (2) | A standard audit hours deliberative committee (hereafter referred to as the “committee” in this Article) shall be established under the Korean Institute of Certified Public Accountants to determine standard audit hours fairly. |
| (3) | The committee shall be comprised of not more than 15 members, including one chairperson. In such case, the members of the committee (hereafter referred to as “members” in this Article) shall be composed of five members representing companies, five members representing accounting corporations, four members who represent users of accounting information such as investors or persons analyzing financial statements of companies, and one member recommended by the Governor of the Financial Supervisory Service. |
| (4) | Each of the members representing companies shall be recommended by the following persons respectively and commissioned by the President of the Korean Institute of Certified Public Accountants: |
| 5. | Heads of other organizations prescribed by the Financial Services Commission. |
| (5) | The members who represent accounting corporations and users of accounting information shall be commissioned by the President of the Korean Institute of Certified Public Accountants. |
| (6) | The chairperson of the committee shall be commissioned by the President of the Korean Institute of Certified Public Accountants from among the members representing users of accounting information. |
| (7) | Two-thirds of the members of the Committee shall constitute a quorum, and any decision thereof shall require the concurring vote of at least a majority of those present. <Newly Inserted on Oct. 13, 2020> |
| (8) | The Korean Institute of Certified Public Accountants shall publicly announce a plan for determination or modification of standard audit hours that has undergone deliberation by the committee on its website for at least 20 days and shall hold a public hearing. <Amended on Oct. 13, 2020> |
| (9) | The Korean Institute of Certified Public Accountants shall determine standard audit hours after deliberation by the committee. <Amended on Oct. 13, 2020> |
| (10) | Except as provided for in paragraphs (1) through (9), matters necessary for operation of the Committee shall be determined by the Minister of the Interior and Safety. <Amended on Oct, 13, 2020> |
| Article 24 (Quality Control Standards) |
| (1) | The quality control standards under Article 17 (1) of the Act (hereinafter referred to as “quality control standards”) shall include the following matters. In such case, the details and method of application of the standards may differ in consideration of the type, scale, etc. of an accounting corporation: |
| 1. | Responsibilities of a person who creates and operates a system for the quality control of audit, such as management of an accounting corporation; |
| 2. | A plan for internal control that is necessary for fulfilling ethical requirements such as the independence of an auditor; |
| 3. | A plan for internal control that is necessary for undertaking and maintaining an audit such as the evaluation of risks of a company subject to audit; |
| 4. | The management of human resources who conduct an audit and those for the quality control of audit; |
| 5. | The method of conducting affairs necessary for the quality control of audit; |
| 6. | Matters related to the continuous inspection and evaluation of the matters prescribed in subparagraphs 1 through 5. |
| (2) | To obtain prior approval of the quality control standards from the Financial Services Commission pursuant to Article 17 (2) of the Act, the Korean Institute of Certified Public Accountants shall submit a plan for establishment or amendment of the quality control standards to the Financial Services Commission after deliberation and resolution by the standards for accounting audit committee. |
| (3) | The Financial Services Commission may request the Korean Institute of Certified Public Accountants to modify the quality control standards, where necessary for the protection of interested persons, conformity with the international quality control standards, etc. In such case, the Korean Institute of Certified Public Accountants shall comply with such request unless there is a compelling reason not to do so. |
| Article 25 (Documents to Be Attached to Audit Reports) |
| 1. | The number of participants in an external audit classified by their duties or positions and the total number of participants in the external audit; |
| 2. | Audit hours of each participant in the external audit classified under subparagraph 1 and the total audit hours; |
| 3. | Details of major audit performed in accordance with the audit procedures based on the standards for accounting audit (including the details of services, such as consultation or advice, where an auditor has been provided with such services by an outside expert); |
| 4. | The number of face-to-face meetings with the statutory auditor or the audit committee, attendees at each meeting, and details of major discussions. |
| (2) | Forms for preparation of documents concerning the matters required to be attached pursuant to paragraph (1), and other detailed matters shall be determined by the Financial Services Commission. |
| Article 26 (Scope of Related Companies) |
| (1) | “Company which has relations prescribed by Presidential Decree with the relevant company, such as possessing its stocks or shares in a certain ratio or more” in the former part of Article 21 (1) of the Act means any of the following companies: |
| 1. | A subsidiary in the parent-subsidiary relationship under Article 3 (1); |
| 2. | A related company according to accounting standards (referring to an enterprise over which an investor has a certain influence although it is not a subsidiary); |
| 3. | A joint enterprise according to accounting standards (referring to an enterprise jointly governed by at least two investors); |
| 4. | Any other company that has an interest in the relevant company, as prescribed by the Financial Services Commission. |
| (2) | Data which an auditor may request to submit or cooperate for pursuant to Article 21 of the Act shall be in the form of medium which can effectively provide information necessary for the auditor’s auditing regardless of the type, such as books, documents, and electronic documents (including electronic files, etc. that are accumulated in a system for electronically processing information generated in the process of managing a company). |
| Article 27 (Submission of Audit Report) |
| (1) | The deadline by which an auditor shall submit an audit report to the relevant company pursuant to the main clause of Article 23 (1) of the Act shall be classified as follows: |
| 1. | A company governed by the Korean International Financial Reporting Standards: Not later than one week before an ordinary general meeting is held (within three months after the end of each business year in cases of a company under rehabilitation proceedings); |
| 2. | A company not governed by the Korean International Financial Reporting Standards: The corresponding deadline set in the following categories: |
| (a) | Financial statements: The deadline set in subparagraph 1; |
| (b) | Consolidated financial statements: Within 120 days after the end of each business year (within 90 days after the end of each business year in cases of a corporation whose total amount of assets as of the end of the immediately preceding business year is at least two trillion won from among corporations subject to submitting a business report). |
| (2) | Notwithstanding paragraph (1), where an auditor audits financial statements (excluding consolidated financial statements of a company that is not governed by the Korean International Financial Reporting Standards) of a company that holds an ordinary general meeting after the deadline for submitting a business report, the auditor shall submit an audit report to the relevant company by not later than one week before the deadline for submitting a business report (within three months after the end of each business year in cases of a company under rehabilitation proceedings). |
| (3) | The deadline by which an auditor shall submit an audit report to the Securities and Futures Commission and the Korean Institute of Certified Public Accountants pursuant to the main clause of Article 23 (1) of the Act shall be classified as follows: |
| 1. | Financial statements: Within two weeks after the closing of an ordinary general meeting (in cases of a company under rehabilitation proceedings, within two weeks after reporting to the relevant company's administrator); |
| 2. | Consolidated financial statements: The corresponding deadline set in the following categories: |
| (a) | A company governed by the Korean International Financial Reporting Standards: The deadline set in subparagraph 1. In such case, the audit report shall be submitted together with an audit report on financial statements at the same time; |
| (b) | A company not governed by the Korean International Financial Reporting Standards: Within 120 days after the end of each business year (within 90 days after the end of each business year, in cases of a corporation whose total amount of assets as of the end of the immediately preceding business year is at least two trillion won from among corporations subject to submitting a business report). |
| (4) | The Securities and Futures Commission and the Korean Institute of Certified Public Accountants shall make the audit report submitted by an auditor pursuant to paragraph (3), available for the public inspection for three years pursuant to the main clause of Article 23 (2) of the Act, and shall post such report on their websites. |
| (5) | A company shall submit its financial statements to the Securities and Futures Commission within two weeks from the date the financial statements are approved at an ordinary general meeting or by the board of directors, pursuant to the main clause of Article 23 (3) of the Act: Provided, That a company under rehabilitation proceedings shall submit its financial statements to the Securities and Futures Commission within two weeks from the date the financial statements are reported to and approved by its administrator. |
| (6) | “Documents prescribed by Presidential Decree, such as the current status of stock holdings of a large shareholder and a person specially related to the large shareholder” in Article 23 (4) of the Act means documents stating the current status of stock holdings of a large shareholder and a person specially related to the large shareholder, the details of changes therein, etc. |
| (7) | When a company keeps and publishes its financial statements and auditor’s audit report pursuant to Article 23 (5) of the Act, it shall comply with the following: |
| 1. | Financial statements and the audit report: The method classified as follows: |
| 2. | Consolidated financial statements and the audit report: Such statements and report shall be kept and published at the head office and branch offices for five years and three years, respectively, from the day immediately after the deadline for submission under paragraph (1). |
| (8) | An audit report, etc. referred to in paragraphs (1), (2), (5), and (6) shall be submitted in the form of electronic document, as prescribed by the Financial Services Commission. |
| Article 28 (Submission, Keeping, and Publication of Business Report by Accounting Corporation) |
| (1) | Pursuant to Article 25 (3) of the Act, an auditor that is an accounting corporation shall keep a business report at its head office and branch offices, respectively, for three years from the closing date of the relevant business year, and publish the business report on its website. In such case, significant matters in relation to the quality control of audit, such as the governance structure of the accounting corporation, among the details of the business report shall be separately published on the website, as prescribed by the Financial Services Commission. |
| (2) | The Securities and Futures Commission and the Korean Institute of Certified Public Accountants shall make a business report available for the public inspection for three years pursuant to Article 25 (4) of the Act, and publish it on their websites. |
| 1. | Appearance of any significant matter in the process of conducting an audit; |
| 2. | Occurrence of any significant change in an accounting corporation; |
| 3. | Occurrence of any significant change in the management of an accounting corporation due to a change in external environments, such as a disposition by an administrative agency; |
| 4. | Other matters determined by the Financial Services Commission, which are required to be published urgently for the protection of parties interested in audit, etc. |
| Article 29 (Supervision by Securities and Futures Commission) |
| Article 30 (Demand for Submission of Materials) |
“Data prescribed by Presidential Decree” in the former part of Article 27 (3) of the Act means taxation-related data held by the National Tax Service, including the name of a company, the name of the representative and the address of the head office of the company, and the company’s business registration number, corporate registration number, telephone number, period of each business year and the dates of commencement and end of each business year, total amount of assets, total amount of liabilities, sales, number of employees, type of corporation, etc., which are necessary for the Securities and Futures Commission to request the appointment or substitution of an auditor pursuant to Article 11 (1) and (2) of the Act.
| Article 31 (Reporting or Notification of Wrongful Acts) |
| 1. | Where an auditor (including certified public accountants of an auditor; hereafter the same shall apply in this Article and Article 32) has committed an offense specified in subparagraphs of Article 28 (1) of the Act (hereinafter referred to as "violation") (including where an executive officer or employee of a company and an auditor have jointly committed a violation): Reporting to the Securities and Futures Commission; |
| 2. | Where an executive officer or employee of a company has committed a violation: Notifying the company's auditor or statutory auditor or reporting to the Securities and Futures Commission. |
| (2) | A person who reports or gives notice under Article 28 (1) of the Act (hereinafter referred to as “reporter, etc.”) shall submit a document stating the following matters (hereinafter referred to “written report”), together with evidence of the relevant violation, etc.: |
| 1. | Personal information on the reporter, etc.; |
| 3. | Details of the violation; |
| 4. | The purport of and reasons for reporting or notification. |
| (3) | Notwithstanding paragraph (2), a reporter, etc. may report or give notice of a violation verbally where he or she is under extenuating circumstances that prohibit him or her from submitting a written report. In such case, the reporter, etc. shall submit evidence of the relevant violation, etc. |
| (4) | A person who receives a verbal report or notice under paragraph (3) shall write down the matters told by the reporter, etc. in a written report, show or read the same to him or her, and have him or her affix his or her signature or seal to the written report. |
| (5) | The auditor or statutory auditor in receipt of a notice under paragraph (1) 2 shall promptly transfer the relevant written report and the evidence, etc. received from the reporter, etc. to the Securities and Futures Commission. |
| (6) | The Securities and Futures Commission may verify matters necessary for specifying the reported or notified matter, such as personal information on the reporter, etc., the circumstances surrounding and the purport of reporting or notification, and other details thereof. In such case, the Securities and Futures Commission may request the reporter, etc. to submit necessary data within the extent necessary for verifying the authenticity of the relevant matter. |
| (7) | Except as provided in paragraphs (1) through (6), the methods in which a reporter, etc. reports to the Securities and Futures Commission or gives notice to the auditor or statutory auditor of the relevant company, etc. shall be determined by the Financial Services Commission. |
| Article 32 (Mitigation of or Exemption from Measures on Reporters) |
Where a reporter, etc. satisfies all of the following requirements, the Securities and Futures Commission may mitigate or exempt the measures to be taken under Article 29 of the Act regarding the reporter, etc., pursuant to Article 28 (1) of the Act: | 1. | The reporter, etc. has never played a leading role in the reported or notified violation, nor forced other persons involved to commit such violation; |
| 2. | The reporting or notification has been made under the circumstances in which the Securities and Futures Commission, the auditor or the statutory auditor has not obtained information on the violation reported or notified by the reporter, etc. or has obtained information about such violation without securing sufficient evidence; |
| 3. | The reporter, etc. has reported or notified the relevant violation, provided evidence necessary for proving the violation, and cooperated until investigations are completed. |
| Article 33 (Rewards for Reporters) |
| (1) | Pursuant to Article 28 (5) of the Act, the Securities and Futures Commission shall deliberate and decide on whether to and how much to grant a reward for reporting, taking into consideration the gravity of the reported violation and the reporter’s contribution to uncovering the violation or taking countermeasures against the violation, up to one billion won within four months from the date on which the reported act under paragraph (1) of the same Article is determined as a violation (except in extenuating circumstances). In such case, the Financial Services Commission shall pay the reward within one month from the date on which the deliberation and decision is made. |
| (2) | Guidelines for granting rewards and other matters necessary therefor shall be determined by the Financial Services Commission. |
| Article 34 (Inspection of Compliance with Recommendation for Improvement after Supervising Quality Control Standards) |
| (1) | The Securities and Futures Commission may receive a plan for compliance with a recommendation for improvement, the result thereof, etc. from an auditor in writing pursuant to Article 29 (5) of the Act, and may conduct a field investigation where necessary. |
| (2) | When an auditor fails to comply with the Securities and Futures Commission’s recommendation for improvement by the deadline prescribed by the Financial Services Commission, the auditor shall report the reasons therefor and measures to be taken in the future to the Securities and Futures Commission without delay. |
| (3) | Except as provided in paragraphs (1) and (2), detailed matters necessary for inspecting compliance with a recommendation for improvement shall be determined by the Financial Services Commission. |
| Article 35 (Disclosure of Recommendation for Improvement after Supervising Quality Control Standards) |
| (1) | Pursuant to Article 29 (6) of the Act, the Securities and Futures Commission may disclose a recommendation for improvement under paragraph (5) of the same Article for a period not exceeding three years from the date such recommendation is made to the relevant auditor. |
| (2) | Where an auditor fails to comply with a recommendation for improvement made under Article 29 (5) of the Act without good cause within one year from the date of receipt of such recommendation, the Securities and Futures Commission may disclose the noncompliance for a period not exceeding three years from the date on which it verifies the noncompliance, pursuant to Article 29 (7) of the Act. |
| (3) | The Securities and Futures Commission shall hear the opinion of the relevant auditor before the disclosure under paragraphs (1) and (2). |
| (4) | Except as provided in paragraphs (1) through (3), matters necessary for disclosing a recommendation for improvement, noncompliance therewith, etc. shall be determined by the Financial Services Commission. |
| Article 36 (Publication of Violations) |
| (2) | “Financial institutions prescribed by Presidential Decree” in Article 30 (2) of the Act means the following financial institutions: |
| 11. | Other financial institutions which request the Securities and Futures Commission to inform them of the results of supervision, etc. to reflect such results in examinations, etc. of credit offering to companies, etc. |
| Article 37 (Liability for Damage) |
| (1) | “Cases of not exceeding the amount prescribed by Presidential Decree” in Article 31 (5) of the Act means where the total of the recognized amount of income (referring to the recognized amount of income under subparagraph 9 of Article 2 of the National Basic Living Security Act) of a person claiming damages during the 12 months immediately preceding the month to which the date of claiming damages belongs shall be equal to or below 150 million won. |
| (2) | The liability for additional amount of damages as prescribed in Article 31 (6) of the Act shall be borne by persons liable for damages under the proviso of Article 31 (4) of the Act, excluding any person incapable of paying such damages, to the extent of 50 percent of their respective ratios of liability determined pursuant to the proviso of Article 31 (4) of the Act with respect to the amount of damages which cannot be paid by such incapacitated person. |
| Article 38 (Purchase of Compensation Liability Insurance Policy) |
| (1) | “Indemnity insurance policy prescribed by Presidential Decree” in the proviso of Article 32 (1) of the Act means compensation liability insurance that satisfies all of the following requirements (hereafter referred to as "liability insurance" in this Article): |
| 1. | Insurance with coverage of at least an amount calculated by multiplying the number of certified public accountants who belong to an accounting corporation by 50 million won (or three billion won, if the amount so calculated is less than three billion won); |
| 2. | Insurance with coverage and deductibles borne by an accounting corporation per incident that conform to the standards prescribed by the Korean Institute of Certified Public Accountants after obtaining approval from the Financial Services Commission. |
| (2) | Where an accounting corporation purchases a liability insurance policy, it shall notify the Korean Institute of Certified Public Accountants of the fact, along with evidential documents. |
| (3) | Where an accounting corporation that purchases a liability insurance policy falls under any of the following cases, the Korean Institute of Certified Public Accountants shall return the annual reserves deposited by such accounting corporation under Article 32 (2) of the Act (including profits accrued from the operation of the annual reserves): |
| 1. | Where the liability insurance policy purchased by an accounting corporation provides coverage for liabilities incurred before purchasing the liability insurance policy; |
| 2. | Where liabilities incurred before purchasing the liability insurance policy are extinguished by the completion of extinctive prescription or any other cause. |
| Article 39 (Reserves Accumulated for Joint Fund for Damages) |
| (1) | Pursuant to Article 32 (2) of the Act, each accounting corporation shall accumulate the following amounts as a basic reserve for the joint fund for damages under paragraph (1) of the same Article (hereinafter referred to as "joint fund"): |
| 1. | Where the number of certified public accountants who belong to the accounting corporation (the method of calculation thereof shall be prescribed by the Korean Institute of Certified Public Accountants; hereinafter the same shall apply) is less than 100: 50 million won; |
| 2. | Where the number of certified public accountants who belong to the accounting corporation is at least 100: 250 million won. |
| (2) | The accumulation limit under Article 32 (2) of the Act shall be an amount equivalent to 20/100 of the average of audit fees for two immediately preceding business years and for the relevant business year. In such case, when calculating the total reserves (referring to the sum of the accumulated amount of the basic and annual reserves that an accounting corporation shall accumulate for the joint fund and the profits from the operation of such reserves; hereafter the same shall apply in this Article and Article 42), the amount additionally accumulated under Article 29 (3) 3 of the Act shall be excluded therefrom. |
| (3) | The annual reserves that each accounting corporation shall accumulate for the joint fund each year shall be an amount equivalent to four percent of their audit fees for the relevant business year: Provided, That the Financial Services Commission may require an accounting corporation to accumulate annual reserves at a different rate, taking into consideration the accounting corporation’s increase in audit fees, total reserves, actual balance of the joint fund under Article 33 (5) of the Act, etc. |
| (4) | Notwithstanding paragraph (3), the Securities and Futures Commission may allow an accounting corporation falling under Article 29 (3) 3 of the Act to additionally accumulate an amount not exceeding 3/100 of its audit fees for the immediately preceding business year as annual reserves. |
| (5) | As regards the annual reserves additionally accumulated pursuant to paragraph (4) (excluding profits accrued from the operation of such reserves), the Korean Institute of Certified Public Accountants shall return, upon receipt of a claim from the accounting corporation that accumulated the reserves, the reserves with the lapse of the period given for the exercise of rights to claim damages under Article 31 (9) of the Act concerning auditing affairs that become the cause of additional accumulation: Provided, That where a lawsuit for a claim for damages under Article 31 of the Act is in progress on the ground of such auditing affairs as of the closing date of the period given for the exercise of rights to claim damages, such reserves shall be returned after a judgment on the lawsuit becomes final and conclusive. |
| (6) | Where an accounting corporation falls under any of the following cases, it may draw the relevant excess amount: |
| 1. | Where the accounting corporation referred to in paragraph (1) 2 falls under subparagraph 1 of the same paragraph: An excess amount of the basic reserve (including profits accrued from the operation of the excess amount); |
| 2. | Where the relevant accounting corporation's total reserves exceed 110/100 of the accumulation limit: An excess amount of the accumulation limit. |
| Article 40 (Timing to Reserve Joint Fund) |
An accounting corporation shall accumulate the basic and annual reserves for the joint fund by the following deadlines:
| 1. | Basic reserve: Within one year from the date of authorization for establishment: Provided, That, where the number of certified public accounts increases during a business year to reach or exceed 100, the deadline shall be within the closing date of the following business year; |
| 2. | Annual reserves: Within three months from the closing date of each business year. |
| Article 41 (Transfer of Joint Fund) |
| (2) | Where an accounting corporation makes a transfer under paragraph (1), it may transfer the joint fund after the third anniversary (hereafter referred to as "transferable date" in this paragraph) of the date on which the relevant cause occurs (or the date of approval, where approval is required): Provided, That, where a lawsuit is pending in relation to the relevant accounting corporation's liability for damages under Article 31 of the Act as of the transferable date, the joint fund may be transferred from the date on which payment from the joint fund is completed in compliance with a final and conclusive judgment on the relevant lawsuit. |
| Article 42 (Payment and Limit of Joint Fund) |
| (1) | When the Korean Institute of Certified Public Accountants pays the joint fund pursuant to Article 33 (1) of the Act, it shall use the joint fund deposited by the accounting corporation that is liable for the causes of the relevant damages (hereafter referred to as "liable corporation" in this Article) first and shall use amounts deposited by other accounting corporations for deficiency, if any, in proportion to the amount deposited by each accounting corporation within the limit for each accounting corporation under paragraph (2) of the same Article (referring to an amount equivalent to twice as much as total reserves as of the end of the immediately preceding business year based on the date on which an accounting corporation files an application for the payment of the joint fund with the Korean Institute of Certified Public Accountants; hereafter the same shall apply in this Article). In such case, when calculating the limit for each accounting corporation, the amount additionally accumulated under Article 29 (3) 3 of the Act shall be excluded from their total reserves. |
| (2) | Where the total amount of damages payable to each applicant in making payments pursuant to paragraph (1) exceeds the limit for each accounting corporation, the Korean Institute of Certified Public Accountants shall distribute such payments to applicants pro rata in accordance with the guidelines set by the Korean Institute of Certified Public Accountants within the limit for each accounting corporation. |
| (3) | The limit for each applicant under Article 33 (2) of the Act shall be the smaller amount of either the amount of a final and conclusive judgment on damages of the relevant applicant or 30 million won. |
| (4) | Pursuant to Article 33 (4) of the Act, the Korean Institute of Certified Public Accountants shall exercise the right to demand reimbursement of an amount paid in excess of the total reserves deposited by a liable corporation. |
| (5) | Where the Korean Institute of Certified Public Accountants receives reimbursement pursuant to paragraph (4), it shall appropriate the reimbursement first for the portion paid from the joint fund deposited by other accounting corporations in proportion to the amount used therefrom. |
| (6) | Where the actual balance of the joint fund falls short of the basic reserve due to the use of the joint fund, the Korean Institute of Certified Public Accountants shall require the relevant accounting corporation to accumulate the amount of deficiency within a fixed period not exceeding one year pursuant to Article 33 (5) of the Act: Provided, That a liable corporation shall accumulate the amount of deficiency immediately. |
| Article 43 (Standards for Imposition of Penalty Surcharges, and Imposition and Collection Thereof) |
| (1) | “Standards prescribed by Presidential Decree” in the provisions, with the exception of its subparagraphs, Article 36 (1) of the Act means the standards specified in attached Table 1. |
| (2) | In imposing a penalty surcharge pursuant to Article 35 of the Act, notice of payment of the relevant penalty surcharge shall be given in writing in a manner prescribed and publicly notified by the Financial Services Commission, with the classification of the relevant violation and the amount of the penalty surcharge specified, and a person who receives such notice shall pay the penalty surcharge to a receiving institution designated and publicly notified by the Financial Services Commission within 60 days from the date of receipt of the notice. |
| Article 44 (Entrustment of Duty) |
| (2) | The Securities and Futures Commission shall entrust the following duties to the Governor of the Financial Supervisory Service pursuant to Article 38 (1) of the Act: |
| 1. | Receiving and examining financial statements submitted by a company (excluding a stock-listed corporation) pursuant to Article 6 (4) of the Act; |
| 2. | Where a stock-listed corporation submits its financial statements after the deadline referred to in Article 6 (4) of the Act, receiving and publishing the reasons therefor pursuant to paragraph (5) of the same Article; |
| 3. | Receiving documents related to the designation of an auditor under Article 11 of the Act and Article 17 of this Decree, requesting the submission of data and examining such data, notifying the results of appointment or designation of a designated auditor, and conducting other execution-related duties; |
| 4. | Where a company reports the appointment or substitution of an auditor pursuant to Article 12 (2) of the Act, receiving and examining the details of the report; |
| 5. | Where a stock-listed corporation, large unlisted stock company or financial company reports the termination of an audit contract or the dismissal of an auditor pursuant to Article 13 (3) of the Act, receiving the details of the report; |
| 9. | Making an audit report submitted by an auditor, available for the public inspection pursuant to Article 23 (2) of the Act; |
| 13. | Making a business report submitted by an accounting corporation, available for the public inspection pursuant to Article 25 (4) of the Act; |
| 15. | Supervising or evaluating the following auditors pursuant to Article 26 (1) 1 and 3 of the Act (hereafter referred to as “supervision, etc. over an auditor” in this subparagraph and paragraph (4)): |
| (a) | The auditor of a stock-listed corporation; |
| (b) | An auditor over whom supervision, etc. by the Governor of the Financial Supervisory Service is determined necessary by the Chairperson of the Financial Services Commission or the Chairperson of the Securities and Futures Commission and is notified to the Governor of the Financial Supervisory Service; |
| 16. | Supervising the following companies pursuant to Article 26 (1) 2 of the Act (hereafter referred to as “supervision, etc. over a company” in this subparagraph and paragraph (4)): |
| (a) | A corporation subject to submitting a business report; |
| (c) | A company over which supervision, etc. by the Governor of the Financial Supervisory Service is determined necessary by the Chairperson of the Financial Services Commission or the Chairperson of the Securities and Futures Commission and is notified to the Governor of the Financial Supervisory Service; |
| 18. | Duties prescribed by the Financial Services Commission from among the measures referred to in Article 29 (1), (3), or (4) of the Act (limited to duties concerning subparagraphs 15 and 16 of this paragraph); |
| 19. | Inspecting whether an auditor complies with the Securities and Futures Commission’s recommendation for improvement pursuant to Article 29 (5) of the Act; |
| 22. | Other duties similar to those referred to in subparagraphs 1 through 21, which are prescribed and publicly notified by the Financial Services Commission as necessary for implementing a decision by the Securities and Futures Commission. |
| (4) | The Securities and Futures Commission shall entrust the following duties to the Korean Institute of Certified Public Accountants pursuant to the former part of Article 38 (2) of the Act: |
| 1. | Duties referred to in Article 26 (1) of the Act (excluding duties referred to in paragraph (2) 15 and 16 of this Article); |
| 2. | Requesting the submission of data within the extent necessary for performing duties under subparagraph 1, from among data on a company or its related company or an auditor under Article 27 (1) of the Act; |
| 3. | Taking measures under subparagraphs of Article 29 (3) of the Act or subparagraphs of paragraph (4) of the same Article (limited to duties concerning subparagraph 1). |
| (5) | The Korean Institute of Certified Public Accountants shall establish an entrusted supervision committee to perform the duties entrusted pursuant to paragraph (4), as prescribed by Ordinance of the Prime Minister. |
| (6) | Where the Korean Institute of Certified Public Accountants intends to enact or amend regulations concerning the performance of the duties entrusted pursuant to paragraph (4), it shall obtain approval from the Securities and Futures Commission. |
| (7) | The Governor of the Financial Supervisory Service and the Korean Institute of Certified Public Accountants shall report to the Securities and Futures Commission the results of handling the duties entrusted pursuant to paragraphs (2) and (4), in a manner prescribed by the Financial Services Commission. |
| (8) | The Securities and Futures Commission may request the Governor of the Financial Supervisory Service, an exchange, and the Korean Institute of Certified Public Accountants to submit data in relation to the duties entrusted pursuant to paragraphs (2) through (4) or may take other necessary measures. |
| Article 45 (Specialized Deliberative Body) |
A specialized deliberative body may be established under the Financial Services Commission in order to support the performance of the duties of the Securities and Futures Commission under the Act and this Decree.
| Article 46 (Support for Duties of Financial Supervisory Service) |
To support the duties of the Financial Services Commission and the Securities and Futures Commission under the Act and this Decree, the Financial Supervisory Service may employ one accounting expert who has overall control over the relevant duties.
| Article 47 (Processing of Sensitive Information and Personally Identifiable Information) |
The Securities and Futures Commission (including a person who is entrusted with the duties of the Securities and Futures Commission pursuant to Article 44) may manage information equivalent to criminal history records under subparagraph 2 of Article 18 of the Enforcement Decree of the Personal Information Protection Act, or data that contain a resident registration number, passport number, or alien registration number under subparagraph 1, 2 or 4 of Article 19 of the same Decree, where it is inevitable to conduct the following affairs: | 2. | Affairs such as the request for the submission of data, investigation, etc. under Article 27 of the Act; |
| 3. | Affairs concerning the protection of a person who reports wrongful acts, provision of rewards to such reporter, etc. under Article 28 of the Act; |
| Article 48 (Criteria for Imposition of Administrative Fines) |
| (1) | When imposing administrative fines under Article 47 of the Act, the Governor of the Financial Supervisory Service may suggest imposing administrative fines to the Securities and Futures Commission, stating the fact of violation after investigating and verifying the relevant violation. |
| Article 49 (Review of Regulations) |
The Financial Services Commission shall review the feasibility of the subject of external audit under Article 5 every three years as of January 1, 2020 (referring to before January 1 of every third year) and take measures for improvement, etc. [This Article Wholly Amended on Oct. 13, 2020]
ADDENDA <Presidential Decree No. 29269, Oct. 30, 2018>
Article 1 (Enforcement Date)
This Decree shall enter into force on November 1, 2018.
Article 2 (Applicability to Standards for Companies Subject to External Audit)
The amended provisions of Article 5 (1) shall apply, beginning in the business year classified as follows: | 1. | A stock company that falls under any subparagraph of Article 2 (1) of the previous Enforcement Decree of the Act on External Audit of Stock Companies (referring to the Enforcement Decree before being wholly amended by Presidential Decree No. 00000; hereinafter the same shall apply) at the time this Decree enters into force: The corresponding business year according to the following classification: |
| (a) | A stock company that falls under the amended provisions of any subparagraph of Article 5 (1): The business year to which the enforcement date of this Decree belongs; |
Article 3 (Applicability to Internal Accounting Control Regulations)
The amended provisions of Article 9 (2) 6 shall apply, beginning on the first day of the business year classified as follows: | 1. | A stock-listed corporation whose total amount of assets as of the end of the immediately preceding business year is at least 2 trillion won: The business year that commences on and after December 31, 2021; |
| 2. | A stock-listed corporation whose total amount of assets as of the end of the immediately preceding business year is at least 500 billion won but less than 2 trillion won: The business year that commences on and after December 31, 2022; |
| 3. | Other stock-listed corporations: The business year that commences on and after December 31, 2023. |
Article 4 (Applicability to Return of Additional Reserves for Joint Fund for Damages)
The amended provisions of Article 39 (5) shall apply, beginning with the return of annual reserves additionally accumulated pursuant to Article 29 (3) 3 of the Act after this Decree enters into force. Article 5 (Special Cases concerning Financial Support by Korea Accounting Institute)
The Korea Accounting Institute shall include at least 20/100 of the amount calculated by subtracting its total expenditure budget for two business years preceding 2018 from the amount accumulated pursuant to Article 7-3 (4) of the previous Enforcement Decree of the Act on External Audit of Stock Companies before this Decree enters into force, in its own revenue under the amended provisions of Article 7 (4) in each business year from 2019 to 2023. Article 6 (Transitional Measures concerning Parent-Subsidiary Relationship)
Article 7 (Transitional Measures concerning On-The-Job Training)
Article 8 (Transitional Measures concerning Protection of Persons Who Report Wrongful Acts)
Article 9 (Transitional Measures concerning Amounts Paid as Rewards)
Article 10 Omitted.
Article 11 (Relationship to Other Statutes)
ADDENDA <Presidential Decree No. 31113, Oct. 13, 2020>
Article 1 (Enforcement Date)
This Decree shall enter into on the date of its promulgation.
Article 2 (Transitional Measures concerning Appointment of Audit Committee Members and Full-Time Auditors)
Notwithstanding the amended provisions of Article 14 (1) and (2), a company requested by the Securities and Futures Commission to appoint an accounting corporation designated by the Securities and Futures Commission as an auditor during a period of time for the total business year, as at the time this Decree enters into force, shall be governed by the former provisions until such period ends.
ADDENDUM <Presidential Decree No. 31394, Jan. 12, 2021>
This Decree shall enter into on the date of its promulgation.
ADDENDA <Presidential Decree No. 31444, Feb. 17, 2021>
Article 1 (Enforcement Date)
This Decree shall enter into on the date of its promulgation. (Proviso Omitted.)
Articles 2 through 21 Omitted.