FSC Finalizes Amendments to External Audit Law to Incentivize Strong Audit Governance

[Alpha Biz= Paul Lee] Seoul, May 14, 2025 — The Financial Services Commission (FSC) of Korea announced today the finalization of amendments to the Enforcement Decree of the Act on External Audit of Stock Companies and the Regulation on External Audit and Accounting. Following cabinet approval on May 13 and the FSC’s regular meeting on May 14, the revised rules will come into effect on May 20, 2025.

These regulatory updates are part of the FSC’s continued efforts to strengthen audit governance and enhance corporate accountability, following the “Audit and Governance Excellence Deferral Plan” introduced in December 2023.

Key Highlights

Three-Year Deferral for Auditor Designation:

The Securities and Futures Commission (SFC) may now grant a three-year deferral from mandatory external auditor designation to companies recognized for exemplary audit and accounting governance.

Rigorous Evaluation Criteria:

Companies will be evaluated across five categories and 17 indicators, including:

Independence of the audit function

Expertise of audit committee members

Effectiveness of internal audit systems

Transparency in auditor appointment procedures

Efforts to enhance accounting transparency

Audit Governance Evaluation Committee:

The amendments formally establish a dedicated Audit Governance Evaluation Committee, composed of independent experts recommended by the financial authorities, accounting profession, and business sector. The committee will provide professional and impartial assessments of applicant companies.

Regulatory Incentives for Value-Up Companies:
Companies that demonstrate outstanding governance and corporate value enhancement may receive incentives such as reduced exposure to accounting inspections or sanctions.

Application Schedule:
Applications will be accepted through the External Audit Contract Reporting System from June 2, 2025 for approximately three weeks. Evaluations will be conducted from August to September, with final selections announced by the SFC between September and October.

These reforms aim to foster a more transparent, trustworthy, and investor-friendly capital market by rewarding companies that demonstrate strong self-regulation and commitment to audit excellence.