A new audit system that requires external auditors to not only examine and correct the books but also provide additional information about management risk will be applied to listed companies in South Korea, the country’s financial regulator said on Thursday.

The so-called key audit matters system will be adopted in stages starting with 2018 financial reports for companies with 2 trillion won ($1.9 billion) or more in assets.

The new audit system is one of the measures announced by the Financial Services Commission on Thursday as part of efforts to reform the country’s overall accounting system. The regulator had formed a task force with the Financial Supervisory Service, Korean Institute of Certified Public Accountants, Korea Listed Companies Association, and Kosdaq Listed Companies Association to introduce accounting reform measures.

The key audit matters system will be applied to companies with 2 trillion won or more in assets from the 2018 fiscal year before expanding to all listed companies in phases. Under the new rule, external auditors will be required to examine and monitor matters that may pose risk to overall management and report them separately on audit reports.

The financial regulator also said that it will present standard auditing hours to all companies subject to external auditing starting 2019 to allow auditors sufficient time to examine financial statements.

A new committee under the Korean Institute of Certified Public Accountants next month will decide on the details including minimum auditing hours based on comply and explain regulatory approach.

Listed companies will also be required to mention the name of account managers on their financial reports starting next year to enhance auditors’ responsibility and overall transparency.

By Jin Young-tae and Lee Eun-joo

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