In South Korea, companies are required to undergo external audits to enhance transparency and ensure responsible management practices. External audits involve an independent review of a company’s financial condition and operational activities, with the audit report prepared in accordance with the External Audit Act. This blog explores the criteria for companies subject to external audit requirements in South Korea.
What is the External Audit Act? The External Audit Act is a law in South Korea that mandates companies to undergo external audits. External audits play a crucial role in verifying a company’s financial health and the appropriateness of its financial reports. By providing transparency, companies maintain investor trust and uphold corporate integrity.
Criteria for Stock Companies Subject to External Audits
As of 2022, the criteria for companies subject to external audit requirements are as follows:
- Companies with total assets exceeding 12 billion KRW (approx. 9.5 million USD)
- Companies with total liabilities exceeding 7 billion KRW (approx. 5.5 million USD)
- Companies with annual sales exceeding 10 billion KRW (approx. 8 million USD)
- Companies with more than 100 employees
- Listed company in Korea
If a stock company meets two out of the three criteria for assets, liabilities, and annual sales, it becomes subject to external audit requirements. Through external audits, companies ensure the accuracy of their financial status and maintain transparency in their operations.
How is the Application for External Audit Conducted? Companies subject to external audit requirements engage an audit firm to conduct the external audit. The chosen audit firm reviews the company’s financial condition, business activities, management, and internal control systems, and prepares an audit report. The audit report plays a crucial role in verifying the financial status and accuracy of transactions for the company.
Advantages of External Audits: Companies undergoing external audits emphasize financial soundness and responsible management practices. External audits enable companies to objectively verify their financial status and provide transparency, thereby maintaining investor confidence. Additionally, external audits contribute to the improvement and efficiency enhancement of a company’s financial control system.
Do Companies Require Professional Assistance for Complying with the External Audit Act? Due to the complexity of the External Audit Act, which includes intricate legal and procedural requirements, seeking professional assistance is highly recommended. Engaging the expertise of a professional institution experienced in assisting with external audit applications ensures a smooth and efficient process.
Conclusion: The External Audit Act in South Korea plays a pivotal role in promoting financial transparency and responsible management practices within companies. Companies subject to external audit requirements emphasize transparency and maintain investor trust. Given the complexity of the External Audit Act, seeking assistance from a professional institution such as Korean Tax Expert can ensure a successful external audit application. For further inquiries, please contact us through our website (https://koreantaxexpert.com/contact/).
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한국의 기업들은 더욱 투명하고 책임감 있는 경영을 위해 외부감사를 받아야 합니다. 외부감사는 기업의 재무 상태와 영업 활동을 독립적으로 검토하고 감사 보고서를 작성하는 과정으로, 외부감사법에 따라 수행됩니다.
외부감사를 받아야 하는 주식회사 기업의 조건은 아래와 같습니다:
(2023년 현재 외부감사대상 기준)
- 자산이 120억원 이상인 경우
- 부채가 70억원 이상인 경우
- 연간 매출액이 100억원 이상인 경우 (*자산,부채,매출액 기준 2가지 충족시)
- 종업원이 100명 이상인 경우
- 상장기업인 경우 (증권거래소 또는 코스닥에 상장된 기업)
