CONTENTS
- 1. Advance Audit Oversight Advisory | Definition
- - Importance of Advance Audit Oversight Advisory
- 2. Advance Audit Oversight Advisory | Financial Supervisory Service Accounting Standards
- 3. Advance Audit Oversight Advisory | Audit Oversight Procedure
- - Commencement of an Audit Review
- - How an Audit Review Is Conducted
- - Review of Violations and Opportunity to Explain
- - Audit Review Results and Measures
- 4. Preliminary Audit Review Advisory | Items to Check and Response Strategy
- - Review of Key Accounting Items
- - Preparation of Internal Materials and Supporting Documents
- - Collaboration with Legal and Accounting Professionals
- 5. Preliminary Audit Review Advisory | Preventing Disputes in Advance
1. Advance Audit Oversight Advisory | Definition
Advance audit oversight advisory is a procedure for checking whether accounting conforms to the accounting standards before the Financial Supervisory Service's accounting review and accounting audit oversight proceed.
Through the advisory, a company can prevent violations of accounting standards and identify in advance the legal risks that may arise so as to take corrective measures.
It can be a key step for responding actively before audit oversight or an audit is initiated.
Importance of Advance Audit Oversight Advisory
The accounting audit oversight system has recently become considerably more stringent.
A structure is now in place under which, even where there is no improper gain obtained through window dressing or the amount is difficult to calculate, a fine of up to 1 billion won may be imposed based on the unlawfulness or the intentional nature of the accounting treatment alone.
Amid this trend of strengthened accounting audit oversight, if a company's internal accounting treatment is uncertain or open to dispute, checking the risk factors through advance audit oversight advisory before the external audit can be a practical necessity.
2. Advance Audit Oversight Advisory | Financial Supervisory Service Accounting Standards
Through advance audit oversight advisory, compliance with the following accounting standards of the Financial Supervisory Service can be reviewed.
▶ Korean International Financial Reporting Standards (K-IFRS)
These are accounting treatment standards established by adopting the International Financial Reporting Standards of the International Accounting Standards Board pursuant to Article 5 of the External Audit Act.
▶ International Financial Reporting Standards (IFRS original text)
These are the International Financial Reporting Standards established by the International Accounting Standards Board (IASB) to enhance, in line with the trend toward liberalization of capital markets, the international uniformity of corporate accounting treatment and the preparation of financial statements.
▶ Korean Generally Accepted Accounting Principles for Non-Listed Entities
These are accounting standards selectively applied by entities subject to the Act on External Audit that do not apply the ‘Korean International Financial Reporting Standards.’
▶ Accounting Standards for Special Fields
These are accounting standards established or amended by the Korea Accounting Standards Board of the Korea Accounting Institute to reflect requirements of relevant statutes or differences in transactions or business environments unique to Korea.
3. Advance Audit Oversight Advisory | Audit Oversight Procedure
Accounting audit oversight is a system for checking whether financial statements and audit reports have properly followed the accounting standards, and where a violation is confirmed, a sanction may be imposed on the company or the auditor.
Audit oversight procedures are generally initiated based on the results of a financial statement review or on reports, and the final measure is taken after on-site inspection, questioning, and review of the violation.
Commencement of an Audit Review
An audit review is generally commenced when a violation is suspected as a result of a review of financial statements, or when a report or issue regarding a particular matter arises.
When the suspicion is specific and serious, the matter may be converted directly into an audit review without a preliminary review.
How an Audit Review Is Conducted
During the audit review, the supervisory authority may examine accounting books, internal documents, and other materials, and may also conduct on-site inspections.
With respect to the external auditor, the authority may request submission of audit working papers, or may confirm the facts through audit review questioning and written inquiries.
Review of Violations and Opportunity to Explain
If a violation is identified during the audit review, the company is given an opportunity to explain through its responses to questioning or written inquiries.
Through this process, whether a violation actually occurred and who bears responsibility are determined.
Audit Review Results and Measures
The supervisory authority notifies the company and the auditor of the audit review results in advance, and determines whether to impose sanctions through the Audit and Review Committee and the Securities and Futures Commission.
The parties may submit a written opinion regarding the audit review results, and may also raise objections.
4. Preliminary Audit Review Advisory | Items to Check and Response Strategy
The preliminary audit review advisory covers the key accounting items, the internal supporting documentation system, and the response strategy that must be checked.
Detailed review of each area and systematic preparation of materials provide a basis for effectively managing audit review risk.
Review of Key Accounting Items
The items most frequently at issue in an accounting audit review include revenue recognition, provisions, transactions with affiliates and related parties, and asset valuation.
These items carry a significant potential for dispute due to differences in the interpretation of accounting standards, and they become subject to focused examination during an audit review.
Through a preliminary audit review advisory, the appropriateness of the accounting treatment of these items can be closely reviewed, and potential risk factors can be identified in advance.
Preparation of Internal Materials and Supporting Documents
Responding to an audit review requires the systematic organization of relevant internal materials and supporting documents.
Contracts, transaction records, review meeting minutes, internal reports, and other materials that serve as the basis for the accounting treatment should be carefully prepared and organized.
It is particularly important to clearly document the decision-making process and the basis for accounting judgments, so that a prompt explanation can be provided during the audit review.
Collaboration with Legal and Accounting Professionals
During the preliminary audit review advisory, close cooperation with legal and accounting professionals can be effective.
This is because the review must comprehensively address not only the technical issues of the accounting treatment, but also legal risks such as violations of the Financial Investment Services and Capital Markets Act and the use of material nonpublic information.
5. Preliminary Audit Review Advisory | Preventing Disputes in Advance
A preliminary audit review advisory provides an important opportunity for a company to address in advance the risk factors it may face during an accounting audit review or an audit.
If an unexpected error or violation is discovered during an accounting review or audit review, the company may face significant disadvantages.
For this reason, it is important to analyze risks in advance and to prepare a response strategy through professional advice.
This firm includes numerous attorneys handling accounting audit review and 🔗finance attorneys, and it maintains a system in which professionals in each field, such as certified public accountants and tax accountants, collaborate.
On this basis, the firm thoroughly analyzes a company's financial position, identifies latent risks in advance, and proposes appropriate response measures to help prevent disadvantages.
If you wish to prevent unnecessary legal disputes through preliminary advice in advance of an accounting audit, you may request assistance at any time.
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