Korea

Member Organizations

Member Organization Associate Other PAOs

  Korean Institute of Certified Public Accountants

Legal and Regulatory Environment

  • Overview of Statuatory Framework for Accounting and Auditing

    The Korean Commercial Act outlines the framework for financial reporting in Korea. This law requires the maintenance of company accounts and requires companies meeting certain conditions to have their financial statements audited. Accounting Standards

    Under the Korean Commercial Act, all listed companies listed on the Korea Stock Exchange (Korea Exchange), financial institutions (banks, insurance companies, financial holding companies, credit card companies, investment traders, investment brokers, collective investment business entities, and trust business entities), and state-owned companies are required to apply accounting standards as prescribed by the Korean Accounting Standards Board (KASB).

    As authorized by the Act on External Audit of Stock Companies, the KASB has issued the Korea International Financial Reporting Standards (K-IFRS), which are fully in line with the International Financial Reporting Standards (IFRS) without modification. The KASB also sets the Korean Generally Accepted Accounting Principles (K-GAAP) which are local accounting standards to be applied by all other companies. IFRS for SMEs is not adopted and is not allowed to be applied in Korea.

    Auditing Standards

    According to the Act on External Audit of Stock Companies (revised in 2017), a stock company or limited liability company which meets one of the following criteria is required to have its financial statements audited: (a) a stock company with total assets equal to or greater than KRW 12 billion; (b) a listed company and a stock company which intends to be listed in the relevant business year; (c) a stock company with total assets and total liabilities each equal to or greater than KRW 7 billion or (d) a stock company with total assets equal to or greater than KRW 7 billion and holding 300 employees or more. In addition to the requirements above, listed companies are required to submit an external auditor’s semi-annual review report. Listed companies with total assets equal to or greater than KRW 500 billion are required to disclose the external auditor’s review and its report on quarterly financial statements. Finally, the financial statements of public institutions, organizations or groups having a substantial impact on the public interest are also subject to audits.

    Under the Act on External Audit of Stock Companies, the Financial Services Commission (FSC) is responsible for setting auditing standards to be applied in Korea. The FSC has delegated this function to the Korean Auditing & Assurance Standards Board (KAASB) operating within the Korean Institute of Certified Public Accountants (KICPA). Auditing standards in Korea are called the Korean Standards on Auditing (KSA) and KICPA reports the standards are developed in line with the latest International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB). KSA are issued following the recommendation of the KAASB and the approval of the FSC.

  • Regulation of Accountancy Profession

    In Korea, the overarching authority that regulates all aspects of financial services including the conduct and activities of the accountancy profession is the Financial Services Commission (FSC). The FSC’s authority is established in the Certified Public Accountants Act (CPA Act). The CPA Act sets out the regulatory framework for the accountancy profession by stipulating the scope of services to be provided by Certified Public Accountants (CPAs), the establishment of the national CPA examination, requirements for CPA qualification, establishment of audit corporations, duties and responsibilities of CPAs, the role and organization of the Korean Institute of Certified Public Accountants (KICPA), roles of other regulatory authorities, and the disciplinary and criminal sanctions applicable to CPAs.

    There is one professional designation—CPA—in Korea which is protected and regulated by the CPA Act. Under the CPA Act, CPAs in Korea are defined as professionals who conduct all services and functions related to the accountancy profession. In order to become a CPA in Korea, the candidate must first pass the eligibility requirements prescribed in the CPA Act, and pass Levels 1 and 2 examinations facilitated by the FSC. To sit for Level 1 examinations, the candidate must complete more than 24 university-level credit hours in accounting, business administration and economics. All prospective CPA candidates are required to pass Level 2. Individuals who complete the examinations attain a CPA certificate issued by the FSC through the KICPA. After receiving the CPA certificate, these individuals must complete a minimum of one year of work experience in an accounting firm or other designated organizations in the performance of CPA work, and a minimum 100 hours of training offered by the KICPA. To perform audit work, individuals are required to have an additional one year of work experience (for a total of 2 years) in accounting firms or other designated organizations. In accordance with the CPA Act, any person who is qualified as a CPA must apply to the FSC to register as a CPA and membership with KICPA is mandatory.

    There is one professional accountancy organization operating in Korea, and as indicated above, KICPA’s responsibilities are laid out under the CPA Act. KICPA’s responsibilities include: registering CPAs, setting auditing standards to be applied in Korea, setting ethical requirements to be observed by CPAs, establishing continuing professional development requirements for its members, administering a quality assurance (QA) system for entities and individuals that fall outside the scope of the mechanisms of the FSC; and operating an investigative and disciplinary mechanism in coordination with FSC.

    QA reviews of audit reports and the conduct of auditors rests with the Securities and Futures Commission (SFC), operating under the oversight of the FSC. The SFC has delegated the responsibility for QAs to the Financial Supervisory Service (FSS) for audit reports of listed companies, audit firms that audit listed companies, and firms which fall under joint supervision with foreign regulators and to KICPA for all other QA reviews.

  • Audit Oversight Arrangements

    In Korea, two independent audit oversight bodies exist: the Financial Services Commission (FSC) and the Financial Supervisory Services (FSS). Both the FSC and FSS are members of the International Forum of Independent Audit Regulators (IFIAR).

    The FSC’s authority is established in the Certified Public Accountants Act (CPA Act). The CPA Act sets out the regulatory framework for the accountancy profession by stipulating the scope of services to be provided by Certified Public Accountants (CPAs), the establishment of the national CPA examination, requirements for CPA qualification, establishment of audit corporations, duties and responsibilities of CPAs, the role and organization of the Korean Institute of Certified Public Accountants (KICPA), roles of other regulatory authorities, and the disciplinary and criminal sanctions applicable to CPAs.

    Under the oversight of the FSC, KICPA is responsible for the following as related to auditors: setting auditing standards to be applied in Korea; setting ethical requirements to be observed by CPAs; establishing continuing professional development (CPD) requirements for its members; administering a quality assurance (QA) system for entities and individuals that fall outside the scope of the mechanisms of the FSC and the Securities Futures Commission; and operating an investigative and disciplinary (I&D) mechanism in coordination with FSC.

Adoption of International Standards

  • Quality Assurance

    In Korea, the responsibility for quality assurance (QA) reviews of audit reports and the conduct of auditors rests with the Securities and Futures Commission (SFC), operating under the oversight of the Financial Services Commission . The SFC has however delegated the responsibility for QA reviews to the Financial Supervisory Service (FSS) and the Korean Institute of Certified Public Accountants (KICPA). In accordance with the Certified Public Accountants Act , all auditors and audit firms of listed companies are subject to mandatory QA reviews.

    The FSS has established a QA review program that inspects audit reports of listed companies, audit firms that audit listed companies, and firms which fall under joint supervision with foreign regulators. Additional information is required to determine if the QA review program by the FSS is aligned with the best practices of SMO 1.

    KICPA’s Audit Quality Control Review Committee is responsible for conducting QA reviews of unlisted companies and other audit firms that do not fall under the oversight of the FSS. KICPA reports that its QA program is aligned with the requirements of SMO 1 and has also adopted ISQC 1 for application.

    Current Status: Partially Adopted

  • International Education Standards

    In Korea, the Certified Public Accountant Act (CPA Act) establishes initial professional development (IPD) and continuing professional development (CPD) requirements for Certified Public Accountants (CPAs), which seem to adopt many of the IES requirements. Under the CPA Act, CPAs in Korea are professionals who conduct all services and functions related to the accountancy profession. The entities that are responsible for the implementation of IPD and CPD requirements are the FSC and KICPA.

    The CPA Act establishes eligibility requirements for all individuals who wish to become CPAs. In order to become a CPA, individuals are required to hold a recognized university degree and have completed more than 24 credits in accounting, business administration and economics related subjects during their university studies. They then complete two levels of professional examinations administered by the FSC in order to receive the CPA certificate. After achieving the CPA certificate, these individuals must complete a minimum of one year’s work experience in an accounting firm or other designated organizations in the performance of CPA work, and a minimum 100 hours of training offered by the KICPA. To perform audit work, individuals are required to have an additional one year of work experience (for a total of 2 years) in accounting firms or other designated organizations.

    Under the CPA Act, the KICPA requires its members to complete 40 hours of CPD each year. Training programs by KICPA are conducted with the approval from the FSC.

    KICPA reports that a taskforce, consisting of many key stakeholders in the jurisdiction, was established in 2017 to review and bring its IPD and CPD systems in line with the revised 2015 IES. While the taskforce has provided suggestions on the improvement and restructuring of the CPA exam and overall education system, the FSC is currently prioritizing activities related to Korea’s accounting and audit reforms.

    Current Status: Partially Adopted

  • International Standards on Auditing

    Under the Act on External Audit of Stock Companies, the Financial Services Commission (FSC) is responsible for setting auditing standards to be applied in Korea. The FSC has delegated this function to the Korean Auditing & Assurance Standards Board (KAASB) operating within the KICPA. In accordance with the same legislation, stock company meeting certain thresholds, listed companies, and public institutions, organizations or groups having a substantial impact on the public interest are subject to audits.

    Auditing standards in Korea are called the Korean Standards on Auditing (KSA) and KICPA reports the standards are developed in line with the 2015 International Standards on Auditing issued by the International Auditing and Assurance Standards Board , which include the new auditor’s report. The KSA are issued following the recommendation of the KAASB and the approval of the FSC.

    Current Status: Adopted

  • Code of Ethics for Professional Accountants

    Under the Certified Public Accountant Act , the KICPA is responsible for establishing mandatory ethical requirements for Certified Public Accountants with oversight from the Financial Services Commission .

    As reported by KICPA, the Ethics Standard Board of KICPA (KESBA) has adopted the 2005 IESBA Code of Ethics to be applied in Korea.

    There have been efforts since 2009 to update the Code. KICPA reports that upon completion of Korea’s accounting and audit reform that is expected to conclude in 2019, the KESBA will issue an exposure draft on the new 2018 IESBA Code of Ethics for eventual adoption.

    Current Status: Not Adopted

  • International Public Sector Accounting Standards

    Under the National Accounting Act of 2007 and the Local Accounting Act of 2016, the Ministry of Strategy and Finance and the Ministry of the Interior and Safety are responsible for establishing public sector accounting standards in Korea. Public sector accounting standards in Korea come in the form of the National Accounting Standards and the Local Government Accounting Standards.

    Both sets of standards are developed based on the rules-based corporate accounting standards framework that was previously applied while the International Public Sector Accounting Standards (IPSAS) and the US Federal Financial Accounting Standards Advisory Board’s accounting standards were being considered for their establishment. IPSAS are not currently adopted but are considered during the setting of the standards. KICPA reports that there are no plans for the adoption of IPSAS.

    Current Status: Not Adopted

  • Investigation and Discipline

    In Korea, both the Financial Services Commission (FSC) and the Korean Institute of Certified Public Accountants (KICPA) are responsible for establishing investigative and disciplinary (I&D) systems.

    Under the Certified Public Accountant Act (CPA Act), the FSC is responsible for taking disciplinary action against any Certified Public Accountant (CPA) that violates all applicable rules and regulations as set out in the act. In addition, the Act on External Audit of Stock Companies also allows auditors of listed companies to be sanctioned when they do not comply with applicable regulations as set out in the act.

    The FSC has delegated responsibility to the KICPA to implement and operate the I&D system in Korea. As established under the CPA Act, KICPA’s Ethics Committee undertakes investigations and issues appropriate disciplinary measures against CPAs in violation of the CPA Act. In addition, a separate Ethics Investigation and Deliberation Committee undertakes investigations and issues appropriate disciplinary measures against CPAs in violation of KICPA’s Code of Ethics. The Ethics Committee also reviews recommended sanctions against non-complying for auditors issued by KICPA’s Audit Quality Control Review Committee (AQCRC). Decisions on disciplinary measures are reported to the FSC which is the entity that imposes disciplinary actions such as revocation of practicing license, suspension, censure, and fines. The committee also takes appropriate disciplinary measures against CPAs who fail to complete the required professional training program.

    KICPA reports that the I&D system is developed in line with the requirements of SMO 6.

    Current Status: Adopted

  • International Financial Reporting Standards

    Under the Act on External Audit of Stock Companies, the Korean Accounting Standards Board (KASB) is responsible for establishing accounting standards to be applied in Korea.

    The KASB issues the Korea International Financial Reporting Standards (K-IFRS), which are fully in line with the International Financial Reporting Standards (IFRS) without modifications. Under the Korean Commercial Act, all listed companies listed on the Korea Stock Exchange (Korea Exchange), financial institutions (banks, insurance companies, financial holding companies, credit card companies, investment traders, investment brokers, collective investment business entities, and trust business entities), and state-owned companies are required to apply these standards.

    The KASB also sets the Korean Generally Accepted Accounting Principles, local accounting standards to be applied by all other companies. IFRS for SMEs is not adopted and is not allowed to be applied in Korea.

    Current Status: Adopted

Disclaimer

IFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information.

Methodology

Methodology
Last updated: 12/2018
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