Korea

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

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.

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.

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.

The Korean Institute of Certified Public Accountants (KICPA) was established in 1954 and is recognized under the Certified Public Accountants Act (CPA Act). The KICPA is the sole organization representing the profession in Korea and any individual who wishes to use the designation of and practice as a Certified Public Accountant (CPA) must be a member. 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 (CPD) requirements for its members, and administering both a quality assurance (QA) and investigative and disciplinary (I&D) mechanism.

In addition to membership of IFAC, KICPA is a member of the Confederation of Asian and Pacific Accountants (CAPA).

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 financial statements of listed companies, audit firms that audit listed companies, and firms which fall under joint supervision with foreign regulators. FSS's QA program is aligned with the requirements of SMO 1. As of May 2024, the quality management standards have not yet been adopted.

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's QA program is aligned with the requirements of SMO 1 and has also adopted ISQC 1 for application. An analysis of ISQM 1 is being conducted to review for potential adoption.

Current Status: Partially Adopted

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.

In 2020, a “Certified Public Accountant Qualification System Deliberation Committee”, consisting of the Financial Services Commission, Financial Supervisory Service, representatives from academia, representatives from accounting firms, and KICPA was established to review and improve the CPA qualification program and overall education system.

As a result of this collaboration, starting in 2025, plans are in place to improve the CPA qualification and apprenticeship training program. The Test System Improvement Practice taskforce has been established to conduct research to support the review.

Current Status: Partially Adopted

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 2017 International Standards on Auditing issued by the International Auditing and Assurance Standards Board. The 2021 ISA are being reviewed for adoption in 2024.

The KSA are issued following the recommendation of the KAASB and the approval of the FSC.

Current Status: Partially Adopted

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.

The independence requirements of Korean laws have been developed to align with the level of independence required by the 2018 version of the IESBA Code. These requirements, established by the Financial Services Commission have not been directly developed from a specific year's version of the IESBA Code. However, the Korean government has strengthened the independence requirements of the law by referring to the IESBA Code, relevant EU Directives and SEC regulations to ensure that auditor independence is equivalent to the international level.

The following key enhancements to the independence requirements which applies to all auditors.

(1) Restrictions on auditors providing Non-Assurance Services (NAS)

In 2016, the Korean government strengthened the regulation of non-assurance services (NAS) under the Korean Certified Public Accountants Act (CPA Act) to enhance auditor independence. This amendment was based on the SEC's independence regulation which the SEC regulation was the strictest among the IESBA CODE, EU and SEC regulation at that time.

And in 2018, the NAS regulations were further strengthened as part of the Korean Accounting and Audit Reform. According to the CPA Act, auditors are prohibited from providing NAS listed in the Act, regardless of whether there is a threat of self-review. Furthermore, the NAS regulations apply to audits of listed companies as well as audits of non-listed companies.

Considering these points, KICPA reports that the NAS regulations in the CPA Act are more stringent than the SEC regulation and the IESBA CODE. In addition, even if NAS is permitted, there is a requirement to obtain consent of the audit committee or consult with it in advance, which is in line with current IESBA CODE.

In practice, compliance with the NAS provisions of the CPA Act is a de facto compliance with the IESBA CODE. Therefore, most auditors refer to the NAS provisions of the CPA Act rather than the IESBA code because they are automatically compliant with the IESBA code.

(2) Prevention of Self-Review Threats

In order to eliminate the possibility of an auditor's self-review threat, in 2018, the Korean External Audit Act was amended to prohibit the auditor from being even slightly involved in the auditee's accounting and financial statement preparation process, and also prohibits the auditee from requesting the auditor to do so.

This further complements the NAS provisions of the CPA Act by prohibiting the auditee from reflecting the auditor's opinions and judgments, as well as the results of any work performed by the auditor, in the process of preparing the financial statements. This is more stringent than the IESBA CODE.

(3) Enhanced Regulation related to Financial Interests of auditors

In 2016, as required by the government, a KICPA bylaw were established to include all employees of the accounting firm, not only the audit team and partners, as “covered persons” for financial interests in the case of listed company audit engagements. As a result, all partners and employees of the accounting firm are prohibited from acquiring shares issued by the audit client in case it is a listed company.

In 2022, the government amended the KICPA Act. to bring it in line with the SEC's regulation by strengthening restriction for auditors’ loan/debtor-creditor relationships with audit clients. The amendments to the Korean Accounting Act are stricter than the current IESBA code as they prohibit practically all loan/debtor-creditor relationships between auditors and audit clients, except for mortgages, even under normal business terms between third parties.

(4) Partner rotation system

The External Audit Act mandates a rotation rule for all partners of an accounting firm, applicable to both listed and non-listed company audit clients. In addition, the time-on/cooling-off periods for partners are much stricter than the IESBA CODE:

For listed companies: 3 years of continuous audit participation / 3 years cooling-off

For non-listed companies: 5 years of continuous audit participation / 1 year cooling-off

(5) Audit team member rotation

For audit clients that are listed companies, The External Audit Act requires that if members of the audit team, who is not a partner of the accounting firm, participates in the audit for 3 consecutive years, two-thirds of such members must be replaced. This is more stringent than the IESBA CODE.

(6) Adoption of the NOCLAR Provisions of the IESBA CODE

In 2018, the key requirements of NOCLAR (Non-Compliance with Laws and Regulations) from the International Ethics Standards were incorporated into the External Audit Act, ensuring compliance with the current International Ethics Standards.

(7) Periodic designation of auditors for listed companies

In order to prevent the threat of compromising independence despite the above-mentioned strengthening of independence requirements, the government has introduced a policy and stipulated in the External Audit Act that the government designates the auditors of listed companies every six years since 2019.

While no version of the IESBA Code is stated, it is designed and aligned with the 2018 Code.

Current Status: Partially Adopted

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

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. 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

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

Relevant Organizations

• Korean Accounting Standards Board
• Korean Institute of Certified Public Accountants
• Financial Supervisory Service
• Financial Services Commission
• Securities and Futures Commission

Relevant Legislation

• Act on External Audit of Stock Companies
• Certified Public Accountant Act
• Commercial Act
• National Accounting Act

Relevant Publications

• IFRS Foundation, South Korea, June 2017.
• KICPA, Code of Ethics.
• KICPA, Financial Reporting.
• KICPA, Professional Development.
• KICPA, SMO Action Plan, December 2018.
• World Bank, Report on the Observance of Standards and Codes Accounting and Auditing-Republic of Korea, June 2004.