November 29, 2024

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Cover of K SOX Audit Review published by Samjong KPMG ( Samjong KPMG)

The inappropriate behavior of senior management and a lack of financial control saw the largest increases among causes of Korean companies' internal control problems in 2022, according to the K SOX Audit Review published by Samjong KPMG, a Seoul-based consulting firm, Wednesday.

A total of 46 cases of inappropriate behavior or negligence of senior management were spotted among Korean companies, surging from 18 cases last year, the report said.

Companies that did not have proper financial control also increased to 27 from 19 cases on-year.

The consulting firm added in the report that these two causes are not commonly seen in US firms and are unique to Korean companies.

Only two cases of inappropriate behavior or negligence of senior management behavior and one case of lack of financial control were indicated as reasons for the lack of internal control in US companies.

The consulting company’s report also explained that these two causes are the main reason behind many embezzlement cases in Korea this year.

Moreover, the report pointed out that among Korean companies that were evaluated as not having appropriate internal control systems, 27 cases were mainly due to their weakness in controlling their funds this year.

Only one similar case existed among the US companies with inappropriate internal accounting control systems.

The report also analyzed that the internal accounting management system is not performing its function in Korea.

Among companies that were found to have inappropriate internal accounting management systems by external auditors, more than 90 percent of the firm’s internal accounting control division evaluated otherwise.

These differences in evaluation results, however, are not found in any of the US companies that received a poor internal control report card.

“US firms’ internal accounting divisions derived reliable evaluation results and there was also timely and smooth communication between the external auditor and the company,” the report analyzed.

While there are differences, there were also some common factors among firms in the two countries.

A meaningful portion of Korean and US firms -- 19.9 percent and 23 percent, respectively -- showed deficiencies in accounting personnel and expertise.

Cases of both Korean and US companies inappropriately making amendments to financial statements during the audit process also accounted for 16.6 percent and 6.5 percent, respectively.

Since 2018, Samjong KPMG has published annual K SOX Audit Review reports, comparing and analyzing Korean and US companies’ internal control systems.

By Song Seung-hyun (ssh@heraldcorp.com)