À̹ÌÁö È®´ë The number of listed companies in the South Korean bourses that are unlikely to receive clean reports from auditors this year is expected to surge under the country¡¯s stricter external audit act.
South Korea¡¯s sole stock exchange operator Korea Exchange (KRX) on Friday warned investors that total of 22 companies listed on the country¡¯s primary Korea Composite Stock Price Index (Kospi) and secondary Korea Securities Dealers Automated Quotation (Kosdaq) markets have already received unclean audit reports – qualified or disclaimer opinion – from their external auditors so far this year, including those of three top-ranking companies. The KRX projected the number of firms with invalid reports to exceed 30 next month, significantly higher than last year¡¯s total of 20 companies.
There are four types of audit opinions – unqualified, qualified, adverse and disclaimer. Only the company with sufficient verification of transactions is given an unqualified opinion.
A qualified opinion is issued to a company whose audit is completed by an external auditor but misses some information on the financial records. An adverse opinion means that there are serious misstatements in the company¡¯s financial reports, while a disclaimer of opinion is issued when the auditor is unable to complete the audit report due to insufficient information.
On Friday, Kospi-listed Asiana Airlines Inc., Kumho Industrial Co., and Polus BioPharm Inc. submitted audit reports with a qualified opinion. Their stocks were immediately suspended on Friday after suspension of full approval by their auditors. Stock trading will resume on Tuesday after companies clarify to the stock exchange operator the reasons for receiving a qualified opinion from their auditors.
Concerns are growing that more companies in the secondary stock market would get unclean reports as 37 Kosdaq-listed firms are still holding off submitting their auditor reports to the KRX. The country¡¯s sole stock market operator estimates that shares of more than 30 companies in the secondary Kosdaq would face delisting risk due to invalid reports next month.
Under the regulations, all listed companies should submit a business report that includes audit statements to the KRX by April 1. Shares will be on the watch list if companies are unable to submit reports. They will be given 10 more days to submit reports, or else, will be kicked out from the stock market. Law stipulates that Kosdaq-listed companies should be delisted from the market if they receive adverse, disclaimer, or qualified opinions from their auditors.
Companies will be given a year of deferment until their shares are delisted from the market after the Financial Services Commission¡¯s move last week to ease the overall external audit system. But their shares will be suspended from trading, nevertheless, hitting a big blow to retail investors. Companies must receive clean reports from their auditors in the following business year or an amended report at an earlier period.
The rise in the number of companies receiving unclean reports from their auditors is partly attributable to auditors¡¯ more stringent review on companies due to the country¡¯s stricter external audit law, market analysts said.
Since November last year when the amended audit law took effect, financial authorities have placed more pressure on external auditors to monitor companies and enhanced disciplinary action on them. From next year, companies must also change their accounting firms regularly, and auditors and their reports must be evaluated by other accounting firms and in some cases be responsible for any outcome.
The latest change was made in response to a number of accounting frauds that local companies had recently committed despite regular audits by external audit companies. In 2016, Deloitte Anjin, one of the major three accounting firms in Korea, was even accused of window dressing audit reports of debt-ridden Daewoo Shipbuilding & Marine Engineering Co. (DSME).
Companies have raised complaints that accounting firms are asking for more than twice the documents this year than last year due to strengthened auditing rule.
By Jin Young-tae and Lee Eun-joo
[¨Ï Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]