Financial Supervisory Service (FSS) headquarters in Seoul / Newsis
The Financial Supervisory Service (FSS) and the U.S.-based Public Company Accounting Oversight Board (PCAOB) are currently conducting a weeks-long inspection of Samil PwC, one of the big four accounting firms in Korea, along with Samjong KPMG, Deloitte Anjin and EY Hanyoung Korea. The inspection comes as part of the two financial watchdogs' regular inspection schedule.
According to industry sources, Samjong KMPG and Deloitte Anjin underwent joint inspections two years ago. This year, it is the turn for Samil PwC and EY Hanyoung Korea. EY has already undergone its inspection earlier in the summer, an official from EY Hanyoung said.
The joint inspections by the two watchdog agencies of Korea and the U.S. began in March 2007 with the signing of a memorandum of understanding (MOU) to enhance the mutual efficiency and relevance of quality control inspections. The inspections have since become regularized, with a total of 22 joint inspections by the FSS and PCAOB having been conducted as of December 2022.
While FSS and the PCAOB have been looking into accounting firms jointly, the scope and purposes of the two inspecting agencies differ slightly. While the U.S. auditing watchdog is obligated to conduct regular inspections of accounting firms that are responsible for auditing companies listed on U.S. stock markets or the subsidiaries of such listed companies in the U.S., the FSS conducts quality control inspections on a wider scope of management and audits of the 40 accounting firms that fall under the jurisdiction of the Act on External Audit of Stock Companies.
Indeed, the duration of the inspections also differs. The investigations conducted by the FSS span six weeks, while the investigations carried out by the PACOB last for four weeks.
As the FSS looks into a wider scope of management of the firms, much of the inspection details are shared with the PCAOB to increase effectiveness. The FSS says it will maintain a close cooperative system with the U.S. auditing watchdog during joint inspections of domestic accounting firms.
"The FSS has been carrying out inspections on the big four accounting firms every two years, while the PCOAB is obliged to conduct inspections on them every three years. As the joint inspection can boost efficiency and effectiveness, the two regulators have been conducting inspections every two years," an official from the FSS explained to The Korea Times, Monday.
After the enactment of the Sarbanes-Oxley Act in 2002 in the U.S., accounting firms responsible for auditing companies listed on U.S. stock exchanges are required to register with the PCAOB and undergo regular inspections.
The inspections sometimes lead to imposing fines on accounting firms. In August 2022, Samjong KPMG was fined $350,000 by the PCAOB over failures to establish and implement appropriate quality control policies. The U.S. accounting watchdog also fined two former employees for improperly altering documents and violating auditing standards during its 2008 audit.
The PCAOB also imposed a penalty of $350,000 on Deloitte Korea in connection with its 2014 audit documents, pointing out the firm's failure to implement appropriate quality control policies and procedures.
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