Accounting Fraudsters Face Harsher Punishment

By Park Hyong-ki

Staff Reporter

The financial authorities will severely punish corporate executives involved in accounting fraud.

The Financial Services Commission (FSC) said Tuesday it will revise rules concerning accounting and auditing to strengthen disciplinary measures against accounting irregularities.

Under the proposed amendment, executives or accountants found guilty of fraud will be sentenced to up to five years in prison, from the current three years. After the regulator detects irregularities, it will ask prosecutors to seek this prison term on them.

The FSC plans to submit the revision to the National Assembly for approval by the end of October this year after holding a public hearing Wednesday, and implement it next year.

In addition, the FSC and the Financial Supervisory Service will inspect corporations suspected of accounting fraud once every five years, instead of seven years.

Under the plan to adopt global standards in accounting reports ― the International Financial Reporting Standards (IFRS) ― the FSC said it will not make it mandatory for small- and medium-sized enterprises (SME) with less than 10 billion won in assets to utilize outside auditors.

``This is to reduce unlisted SMEs' burden of capital expenditure on auditing,'' said Kwon Hyouk-se, the standing commissioner of FSC's Securities and Futures Commission.

Currently, all SMEs with assets of over 7 billion won are required to appoint an outside auditor.

It noted that if SMEs with assets of over 10 billion won post low sales with high liabilities, the regulator is considering exempting such firms from using an auditor as well.

This is the first time in 10 years for the regulator to revise rules governing the appointment of auditors.

Some 3,600 SMEs are expected to be excluded from the proposed mandate, saving them about 40 billion won in auditing commission, the FSC noted.

Under the IFRS, listed companies with assets of over 2 trillion won will be required to submit consolidated financial statements rather than separate financial statements beginning 2011.

This means that companies need to disclose their and subsidiaries' financial data, covering domestic and overseas operations. Currently, each unit and its parent company file separate financial reports, excluding overseas operations.

Other listed firms with less than 2 trillion won in assets will need to do the same beginning 2013.

phk@koreatimes.co.kr