FSS pushes to shorten audit cycle to 10 years for Kospi, 5 years for Kosdaq firms

The Financial Supervisory Service has launched formal discussions on reforming its accounting review and audit oversight regime to improve financial transparency and restore confidence in capital markets.

The FSS held a research seminar on improving the accounting review and audit oversight system Wednesday at its headquarters in Yeouido, Seoul, bringing together representatives from the Korean Accounting Association, the National Assembly, the Financial Services Commission, and the corporate and accounting sectors.

The seminar was organized around concerns that the current average audit cycle of about 20 years for listed companies is too long to effectively prevent and detect accounting fraud.

Researchers Park Kyung-jin, a professor at Myongji University, and Oh Myung-jeon, a professor at Sookmyung Women's University, said the domestic accounting review and audit cycle is excessively long compared with overseas practices, undermining the timeliness and deterrent effect of fraud detection.

The researchers proposed cutting the average audit cycle — currently about 20 years for listed companies — to 10 years for Kospi-listed firms and five years for Kosdaq-listed firms. To achieve this, they said the number of dedicated audit departments should be doubled from two to four, with additional specialist staff hired.

On audit methods, the researchers said the existing voluntary review process should be retained, while enforcement tools available during formal audits should be partially strengthened.

The researchers said companies found to have committed intentional or serious accounting fraud should be swiftly delisted by linking audit findings directly to the delisting regime. They noted that the current connection between audit outcomes and delisting procedures is inadequate.

Participants broadly agreed on the need to shorten the review and audit cycle and expand specialist staffing. They also discussed using AI to analyze accounting risk levels by company and applying differentiated review cycles based on assessed risk.

However, some participants cautioned that the targets of 10 years for Kospi and five years for Kosdaq could place an excessive burden on companies, calling for a phased rollout and careful system design.

FSS Governor Lee Chan-jin said in his opening remarks that recurring accounting fraud cases have become a structural threat to market confidence. "We need to shift to a preventive supervisory framework that identifies accounting fraud early and responds proactively," he said.

Lee also said legislative support from the National Assembly is essential for the reforms to produce meaningful results, and called on lawmakers to back the necessary legislation.

Kim Nam-geun, a Democratic Party of Korea lawmaker on the National Assembly's Political Affairs Committee, said in congratulatory remarks that accounting fraud is a serious problem that harms investors and undermines trust in the entire market. "I will actively pursue legislative support to protect investors and improve accounting transparency," he said.

The FSS plans to work with the Financial Services Commission, drawing on the research findings and feedback from Wednesday's seminar, to develop concrete measures for reforming the accounting review and audit oversight system. The regulator said it intends to move quickly on a roadmap for shortening the audit cycle, expanding staffing and upgrading audit tools.