FSS Gives Advance Notice of Auditor Designations to 1,193 Companies for Next Year

The Financial Supervisory Service (FSS) has given advance notice of auditor designation results to 1,193 companies subject to auditor designation for fiscal 2027. This is 37 companies, or 3.0%, fewer than the previous year.

On October 19, the FSS said it had issued advance notice of auditor designation results for fiscal 2027, including periodic designation, to companies with December fiscal year-ends. The notice covers a total of 1,193 companies: 849 listed companies and 344 unlisted companies. Of the listed companies, 202 are on the KOSPI market, 622 on the KOSDAQ market, and 25 on the KONEX market.

A total of 404 companies are subject to periodic designation. Of these, 92 are newly designated, including 88 listed companies and four large unlisted companies in which ownership and management are not separated. The remaining 312 companies will continue with auditors designated for the second or third year under existing designations.

Under the periodic auditor designation system, the financial authorities designate auditors for the following three fiscal years after listed companies, excluding those on KONEX, and large unlisted companies that meet certain criteria for having ownership and management remain unseparated have freely appointed auditors for six consecutive fiscal years. The system aims to ensure auditor independence and improve audit quality.

The average separate-basis assets of newly designated listed companies under the periodic system amount to KRW 831.2 billion. Companies listed on the KOSPI market have average assets of KRW 3.8 trillion, while those listed on the KOSDAQ market have average assets of KRW 163.3 billion.

A total of 789 companies are subject to mandatory designation, with 382 newly designated. The newly designated companies comprise 148 listed companies and 234 unlisted companies. By reason for designation, 222 companies are scheduled to be listed, accounting for 58.1% of all newly mandated designations. Companies that failed to meet financial criteria, including those with operating losses for three consecutive years, totaled 106, or 27.7%. The remaining 407 companies will retain the same auditor under the existing reason for designation, or will be assigned a different auditor if a reason for changing auditors arises.

Under mandatory designation, the financial authorities appoint an auditor when they determine that a fair audit is necessary to protect investors, such as when a company is designated as an administrative issue, is scheduled to be listed, is subject to measures following an audit review, fails to appoint an auditor, or violates auditor appointment procedures. For listed companies, failure to meet financial criteria, including operating losses or negative operating cash flow for three consecutive years, or an interest coverage ratio below 1, is also grounds for designation.

Companies and designated auditors should review the advance notice and consider whether there are grounds for reassignment or concerns that auditor independence may be impaired. If they have comments, they may submit them to the FSS within two weeks of receiving the advance notice. The FSS advised that comments concerning impaired auditor independence, the provision of non-audit services, financial interests, and related matters should, where possible, be submitted collectively through the accounting firm.

Companies may also exercise the option to extend the designation period, which is intended to reduce the burden of frequent auditor changes for unlisted companies and others. Unlisted companies and KONEX-listed companies for which a new reason for mandatory designation has arisen may request an extension within two weeks, the deadline for submitting comments on the initial advance notice. However, large unlisted companies in which ownership and management are not separated are excluded, and an extension may be requested only once.

The FSS plans to review comments and requests for reassignment submitted by companies and auditors and issue final notice of the auditor designation results on November 12. Companies and designated auditors must enter into an audit contract within two weeks of receiving the final notice. If they have no significant comments on the advance notice, they may also consult with the designated auditor and enter into a contract before the final notice.

An FSS official said, "Details such as the reason for designation, the auditor, and the designation period can be checked through the External Audit Contract Reporting System." The official added, "We plan to support the smooth conduct of designated audits, including by flexibly extending deadlines where this does not interfere with audit work."

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