SEOUL, Feb. 8 (Korea Bizwire) – The government has revealed the first draft of new guidelines for audit transparency, advising conglomerates to set up an all external director audit committee.
The draft released by the Korea Corporate Governance Service (KCGS) during a policy discussion on Wednesday at the National Assembly Members’ Office Building, sets out guidelines for the setup, management, and operation of audit committees, as part of efforts to improve audit transparency at major corporate groups.
The guidelines were designed to help financial authorities improve audit transparency and make more effective the Enforcement Decree of the Act on External Audit of Stock Companies, which was revised last year.
The latest move by the government comes on the heels of criticism that in-house audit institutions have been nothing but yes men to management, and have failed to uphold their responsibilities.
Under the new guidelines, listed firms in South Korea with over 1 trillion won in total assets are advised set up an audit committee with a minimum of three members, in which all members are outside directors, for better independence and professionalism.
While audit committee members will be selected at a general meeting of shareholders, at least one member will be chosen independently, separate from a director election.
Companies following the KCGS’s guidelines will also be encouraged to launch an in-house inspection department to hold the committee accountable.
As a follow-up measure, audit committees will be asked to hold a meeting every quarter, along with regular assessment of their independence and outcomes.
In addition to the main guidelines, a manual and a checklist have been released to help companies monitor their progress.
“The guidelines are part of a self-regulatory policy that pushes audit committees to contribute to reforming accounting systems and corporate structures. Contrary to previous guidelines that were limited to the financial sector, the new standards focus on systematization for wider application covering all companies,” said Jeong Jae-kyu, a senior researcher at the KCGS.
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