This article was published on June 2, 2025, at 5:35 p.m. on the ChosunBiz MoneyMove site.
In the last three years, large listed companies that were subject to mandatory auditor designation have been released into the free engagement market this year, but the mood among small registered accounting firms is not bright. The situation has become even more difficult as fierce price competition has intensified among large accounting firms and financial authorities have demanded enhanced audit quality. This has led to movements to spin off the audit sectors and merge them into larger accounting firms and to return licenses.
According to the accounting industry on the 2nd, the audit sectors of mid-sized accounting firm BDO Seonghyun Accounting Corporation and smaller Bohyun Accounting Corporation have merged. This is in order to meet the high quality management standards required of registered firms that audit listed companies, according to the accounting firms. Following this merger, Seonghyun Accounting Corporation, launched in April 2019 by the combination of Seongdo and Ihyun Accounting Corporation, will see its staff increase to 340. Sixteen employees will transfer from Bohyun Accounting Corporation to Seonghyun Accounting Corporation.
Notably, Bohyun Accounting Corporation has voluntarily given up its designation as a registered accounting firm through this merger. This is because it has failed to meet the requirement for registered accounting firms to have 40 certified public accountants. However, legally, it is more appropriate to cancel its registration rather than voluntarily withdraw; thus, the Financial Services Commission plans to cancel Bohyun Accounting Corporation's registration as an auditor of listed companies within this month.
A Financial Services Commission official noted, "Bohyun Accounting Corporation has said it will no longer audit listed companies due to its own organizational restructuring, so we are in the final stages of ensuring there are no systemic disadvantages while returning the license," and added, "We are reviewing whether there are any adverse impacts on stakeholders or the market related to the listed companies for which Bohyun Accounting Corporation was designated as an auditor. The cancellation process is expected to be completed without major issues soon."
The registered accounting firm system, or the registration system for auditors of listed companies, is a system that grants external audit qualifications only to accounting firms that meet a certain level of personnel, physical facilities, and so on. It was implemented the year after the new external audit law was established in 2018. The registration requirements set by the Financial Services Commission include: ▲ 40 or more certified public accountants ▲ securing quality management personnel proportional to the size of the accounting firm ▲ establishing an integrated quality management system ▲ establishing an audit report review system ▲ using quality assessment indicators during performance evaluations.
However, among small accounting firms, there have been criticisms since the introduction of the system that the registration threshold is too high. Last year, the Securities and Futures Commission, which is under the Financial Services Commission, conducted oversight on a total of 14 firms, including large accounting firms Samjeong and Anjin, resulting in a total of 122 points of concern. The average number of concerns for the four major firms was 6.0, while the average for the other 12 small accounting firms was higher at 9.2.
The most frequently criticized area among small accounting firms was performance. Out of 110 points of concern, 28 were related to performance, averaging 2.3 points. Performance evaluations assess whether the procedures, such as pre-reviews before issuing audit reports and management of audit records, were well conducted. In the area related to leadership responsibility, which is directly linked to the issue of inadequate integrated management systems, an average of 2.1 concerns (about 23%) were raised. Despite the same firm name, accountants' independent activities make it difficult to establish an integrated quality management system.
Additionally, the fierce price competition among large accounting firms during the industry downturn is also impacting small accounting firms. Auditing represents about 30-40% of total revenue for accounting firms. As the results of the free engagement competition impact industry rankings, cases are emerging where prices are offered that are more than 30% lower than designated audit fees. Small accounting firms find themselves in a position where they have no choice but to consider mergers and acquisitions due to declining revenue.
An industry official said, "Three years after the implementation of the auditor registration system and the release of free engagement loads, small registered accounting firms are starting to make decisions about changes one by one," adding, "As financial authorities continue to demand improved audit quality, firms are increasingly grappling with whether to bear enormous expenses while auditing listed companies or, like Bohyun Accounting Corporation, separate their audit personnel and go their own way."
He continued, "Therefore, the atmosphere in the industry suggests that there will be additional firms returning their licenses." However, authorities have stated that there have been no other firms that have submitted requests for cancellation of registration apart from Bohyun Accounting Corporation.
Earlier this year, the merger of Jinil Accounting Corporation and Sailwon Accounting Corporation led to the launch of Taeil Accounting Corporation, which officially announced its full-scale launch by moving to a consolidated office. Taeil Accounting Corporation has grown to 127 affiliated accountants and has signed multiple audit contracts with listed companies in the 2 trillion won asset range. Jinil and Sailwon Accounting Corporations made history as the first to merge among registered accounting firms, reducing the number of registered firms from 41 to 40, and it is reported that two more firms are considering relinquishing their registered status this year.