In the domestic internal accounting management system, the major reasons for receiving an inappropriate opinion were cited as 'lack of accounting expertise' in the internal control area and 'transactions and investments with affiliates and subsidiaries' in the accounting processing area.
Samjong KPMG announced on the 16th that it published a report titled 'Audit Committee Support Center (ACI) Issue Report: The Role of Audit Committees in the Internal Accounting Management System.' This report presented the role of audit committees alongside an analysis focused on consolidation internal accounting management systems and fund controls.
According to the report, 90 corporations were counted as receiving inappropriate opinions in the domestic internal accounting management system for the fiscal year 2023. The main reasons for these inappropriate opinions were 'lack of accounting expertise' in the internal control area and 'transactions and investments with affiliates and subsidiaries' in the accounting processing area, each ranking first. Notably, among the corporations for which external auditors provided an inappropriate opinion on the internal accounting management system, only 12.2% (11 cases) had both the audit (committee) and executives stating that the internal controls were ineffective, in agreement with the external auditors.
The consolidation internal accounting management system refers to the financial reporting internal control designed and operated to ensure that the consolidated financial statements are prepared and disclosed in accordance with accounting processing standards. Key features that distinguish it from separate internal accounting management systems include ▲ selection of the scope for group-level evaluation and reporting (scoping) ▲ expansion of assessments of the design and operation of the parent company's internal accounting management system ▲ expansion of assessments of the design and operation of the subsidiary's internal accounting management system ▲ enhancement of IT controls.
The report pointed out that weak internal controls are a major cause of fraud and explained key aspects of new internal accounting management system evaluation and reporting standards to respond to the risks of financial fraud through case analyses of various financial fraud incidents. It also noted that in the future, executives should disclose control activities and assessment results in response to fraud such as embezzlement, while guiding the major considerations related to this.
Kim Min-kyu, ACI leader at Samjong KPMG, said, 'It is important for the audit committee to independently evaluate the effectiveness of the design and operation by executives concerning the consolidation internal accounting management system and fund control,' adding, 'According to the new internal accounting management system evaluation and reporting standards, the audit committee should maintain close communication with executives and external auditors and document that in the evaluation report to fulfill its supervisory role more effectively.'
The report includes examples of formats for public disclosure regarding controls against financial fraud, reports on the actual operations of executives, and detailed examples of audit (committee) evaluation reports as appendices. The report can be freely accessed on the Samjong KPMG website.