How Is the New Auditing Law Doing So Far?

Lim, Do Yeub

It has been three years since the first implementation of ‘The New External Auditing Law’. The Financial Services Commission declared the new law about external audit of corporations in November 2018 for the purpose of enhancing the credibility of accounting. Compared to the law that existed before, three key points are added in the new one. They are periodic designation of external auditor, standards of auditing time, and internal management of accounting. There have been disputes about the effects of the new law.

There are positive assessments about the effects of the new law. A former director of the accounting management department in the Financial Supervisory Service mentioned that the new law has enhanced the quality and transparency of the financial information. According to an article from News 1, the International Institute for Management Development announced that the accounting transparency ranking of Korea has increased to 37^th in 2021 compared to 61^st in 2019. He claimed this data approves the positive effects of the new law.

There are also negative sides of the new law. Companies listed on the stock market are those who are strongly saying the new law is doing bad. According to a survey conducted towards 291 enlisted corporations by professor Jung of Chung-Ang University, 94.2% of the corporations responded that they are faced with a huge financial burden after implementation of the new law. 62.2% responded that there are no meaningful changes to the quality of auditing, and 93.4% claimed the law should be revised again. This result came out because the auditing fee has increased a lot after implementation of the new law.

There are both positive and negative sides of the new law. It is important to carefully watch impacts of the law and solve serious problems caused by the law. Professor Jeon of Soongsil University advises that disputes will never end if they keep sticking to their sides. Governments, corporations, auditors, and market participants all have to understand each other’s situation and cooperate to enhance quality and transparency of the financial market.