South Korea tightens external audits for agricultural cooperatives

External accounting audits of agricultural cooperatives will be significantly strengthened under new rules. Cooperatives with total assets of 300 billion won ($224 million) or more will be required to undergo external audits every year, while those with assets between 50 billion won and 300 billion won will see their audit cycle shortened from four years to two. Cooperatives will also be required to appoint compliance officers.

The Ministry of Agriculture, Food and Rural Affairs announced Monday that an amended enforcement decree of the Agricultural Cooperatives Act took effect Friday.

Under the previous rules, agricultural cooperatives with total assets of 50 billion won or more were subject to external accounting audits once every four years. Under the revised decree, cooperatives whose total assets at the end of the previous fiscal year stood between 50 billion won and 300 billion won must be audited every two years, while those with assets of 300 billion won or more must be audited annually.

Large cooperatives with total assets of 1 trillion won or more will also be subject to a new periodic auditor designation system. Under the system, a cooperative that has undergone audits for four consecutive fiscal years must then be audited by an auditor designated by the agriculture minister for the following two fiscal years.

Internal control mechanisms within cooperatives will also be reinforced. Each cooperative must establish internal control standards covering lawful procedures for employees carrying out their duties, risk management in asset operations and business activities, compliance monitoring, and procedures for handling violations.

The appointment of a compliance officer at each cooperative is now mandatory. Eligible candidates include those with experience working at a cooperative or the central federation, holders of a master's degree in agriculture, livestock or finance, and those with relevant professional qualifications such as lawyers or certified public accountants.

The National Agricultural Cooperative Federation will inspect the internal control operations of individual cooperatives either on-site or through written reviews. The federation must also notify its managing director and board of directors of inspection results so that weaknesses in internal controls can be addressed — a procedure now codified under the revised decree.

Yun Won-seup, the ministry's agricultural policy director, said the amended decree would clarify cooperatives' internal control responsibilities and improve the timeliness and reliability of external audits. "We will actively guide the central federation and individual cooperatives and continue to work closely with them to ensure that measures such as the introduction of compliance officers and the shortened audit cycle take root stably in the field," he said.