International Convergence of Auditing Standards – Korea May 23, 2006 A Member of Auditing...
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Transcript of International Convergence of Auditing Standards – Korea May 23, 2006 A Member of Auditing...
International Convergence ofAuditing Standards – Korea
May 23, 2006
A Member of Auditing Standards Committee, KICPAManaging Partner, Daemyung Grant Thornton
Moon-Won Choi
Korean Institute Of Certified Public Accountants Page 2
Disclaimer
The views expressed in this presentation are those of the speaker.
Official positions of the KICPA are determined only after extensive due process and deliberation.
Korean Institute Of Certified Public Accountants Page 3
Ⅰ. History of Korean Standards on Auditing
Ⅱ. Difference between ISA and KSA
Ⅲ. Application of KSA and compliance with ISA
Ⅳ. Adoption of Non-audit Assurance Standards of IFAC
Ⅴ. Efforts of Keeping Pace with IFAC standards
Ⅵ. Sanction for the Breach of KSA
Ⅶ. Reviews for Quality of the Audit
Ⅷ. Summary
Ⅸ. KICPA’s role as a Standard Setter
TOPICS
Korean Institute Of Certified Public Accountants Page 4
History of Korea Standard on Auditing
1. Beginning Stage • Voluntary audit by the request of financial institution, etc..(~1960s) • Statutory audit of public companies (Korea Securities and Exchange
Law, 1963)
• First establishment of standards on auditing by KICPA (1964)
2. Development Stage • Expansion of statutory audit to the IPOs (Capital Market Promotion
Law, 1976)• A corporation with certain size subject to statutory audit (Law on
External Audit of Stock Companies, 1982)• Establishment of KSA and its working rules
(previously KICPA and later Securities and Futures Commission ).
Korean Institute Of Certified Public Accountants Page 5
History of Korea Standard on Auditing, Continued
3. Introduction of ISA to Korea, from FX Crisis • Increased demands for non-statutory audit and non-audit
assurance service
• IMF and World Bank require Korea to adopt IFRS and ISA
• Adoption of ISA as working rules of KSA(KICPA/1999.2)
• Re-Establishment of KSA(KICPA, 2005) : •Demolishing the existing KSA •ISA Bold to new KSA and ISA Guidance to Application
Material of KSA
Korean Institute Of Certified Public Accountants Page 6
Difference between ISA and KSA
1. Difference in laws, regulations and acc. system • Subject to statutory audit: any company whose total
assets over KRW 7 billion • KSA works as a law or a regulation in the lawsuit• Required of FSC’s approval to establish or amend the
auditing standards• Difference in the approval procedures of the financial
statements • Consolidated F/S is not the PFS in Korea• No formal process for Comfort letter or Consent letter• FSC’s strong intention to include the specific audit
procedures in KSA: for their review and administrative
purpose
Korean Institute Of Certified Public Accountants Page 7
Difference between ISA and KSA, Continued
2. Timing difference between issuance of new ISA and its adoption into KSA
• Maintaining the old ISA 310 & 400 structure (risk
approach & conforming changes have not been
reflected)• Difficulty in timely adoption of new ISA 700
(Auditor’s Report) and new ISA 701 (Modification to
the Auditor’s Report) before 2009• Impractical to timely reflection of the revision of or
changes in ISA due to translation, ED Circulation,
KICPA’s internal review and finally FSC’s approval
procedures
Korean Institute Of Certified Public Accountants Page 8
Difference between ISA and KSA, Continued
▶ Practical Application of KSA and current ISA
• Current KSA which is based on ISA, was released in
Dec., 2003, following the revised Law on External Audit
of Stock Companies.
• Consequently, Risk approach (ISA 315, ISA 330, ISA
500) and its conforming changes in ISA have not been
reflected.
Korean Institute Of Certified Public Accountants Page 9
Application of KSA and compliance with ISA
◆ Statutory Audit : Current KSA
◆ International reporting for the global companies :
• Auditing in accordance with current ISA or PCAOB’s
Standard for the local company listed in NYSE, NASDAQ
and EU market
• Upon request from local subsidiary or principle auditor of
foreign MNC for their consolidated financial statement
Korean Institute Of Certified Public Accountants Page 10
Application of KSA and compliance with ISA, Continued
▶ Effort to minimize the difference between KSA and
current ISA
• Seeking to implement Principle based approach rather than
that of the traditional Rule base of government
• Planning to adopt all of New ISA by Clarity Project,
expected to be completed by 2008-9: together with
discussion and cooperation with government
Korean Institute Of Certified Public Accountants Page 11
Adoption of Non-audit Assurance Standards of IFAC
◆ ISQC, IFAE, ISAE, etc Other standards than ISA have been adopted as following: -New ISA Ethics translated into Korean Professional
Ethics (currently ED in Korea) -ISQC (2005.12) -Assurance Framework (IFAE) (2006.1) -Review Standards : ISRE 2400 (2006.1) -Related Service Standards : ISRS 4000, 4400 (2006.1) -ISAE 3000, 3400 (2006.1~3)
◆ These Standards are established solely by KICPA - No legal requirement for FSC’s approval unlike ISA - Make it Possible Timely Adoption
Korean Institute Of Certified Public Accountants Page 12
Efforts of Keeping Pace with IFAC standards
◆ Annul report of Korean convergence status and
future action on IFAC’s standards including ISA in
response to SMO (Statements of Membership
Obligations)’ requirement
◆ Planning to provide, via KICPA’s on-line system, an
explanation of IFAC’s Framework of Assurance
Engagement• Deepening the understanding of IFAE with enhancing
the concept of professional standard, i.e. ISA • Systematic classification of Engagement with ISA,
Engagement with ISAE and Engagement with ISRS
Korean Institute Of Certified Public Accountants Page 13
Efforts of Keeping Pace with IFAC standards
◆ Our Efforts to following the IFAC’s Clarity Project
• Introduce IFAC’s Clarity Project to the members of
KICPA (2006.2)• Introduce redrafted ISA ED 240, 300, 315, 330, 550 to
members requesting the comments (2006.2) • Circulating ISA ED 600 (The Audit of Group Financial
Statements) requesting the comments by the end of June,
2006 (2006.2)
Korean Institute Of Certified Public Accountants Page 14
Efforts of Keeping Pace with IFAC standards
◆ Prompt Adoption of redrafted Standards of IFAC
• IFAC announced Clarity Project of ISA to be completed by
2008~2009
• Korea will adopt all or at least most of project-completed
ISA at the specific time, expected approximately in 2008~9
Korean Institute Of Certified Public Accountants Page 15
Sanction against Breach of KSA
◆ Civil Liability for Damage Compensation• Auditors take responsibility for compensating damages
of the users of the report under the terms of “Law on
External Audit of Stock Companies”, “Korea Securities
and Exchange Law” and “Civil Law”, • Threat to audit firms’ going concern in case of paying
the huge amount of compensation when breaching of
KSA
◆ Criminal Punishment• Imprisonment• Fine
Korean Institute Of Certified Public Accountants Page 16
Sanction for Breach of KSA , Continued
◆ Administrative Sanction• Penalty reaching to KRW 2 billion, Restriction or
Suspension of Audit services, other sanction on
individual • Rotation of its audit client
◆ Market • The audit firms which failed to follow KSA will lose
their public trust in the audit engagements • Resulting financial loss
Korean Institute Of Certified Public Accountants Page 17
Reviews for Quality of the Audit
◆ QC by Audit Firms
◆ QC by KICPA• Periodic review of compliance with KSQC for the middle
and small audit firms• Review of an individual audit report for private company
and IPO
◆ QC by SFC• Periodic Review of compliance with KSQC for the 20
major audit firms • Review of an individual audit report for public company
Korean Institute Of Certified Public Accountants Page 18
Summary
● Recognize national specific condition • Law, regulation, acc,system and economy • Developed, Developing, and Undeveloped countries
● ISA convergence is deeply related to the adopting level of IFRS
• countries fully adopting, partly adopting IFRS and adopting the local GAAP• adopting the whole ISA is not easy in small and simple economies
● Difference between Principle base and Rule base• ISA should define its position on the Rule-based countries
● Translation of ISA• simple and clear wording is required• enhancing communication and applicability of ISA
Korean Institute Of Certified Public Accountants Page 19
Contact persons of the KICPA
- Moon, Tack Kon, Vice-president of KICPA and Chairman of Auditing Standards Committee
☎ 82-2-3149-0108 (E) [email protected] • Shim, Yeong Soo, Chief Researcher of KICPA ☎ 82-2-3149-0286 (E) [email protected]
Thank You