CEOs to Be Punished for Company Misstatements

A 5 year prison sentence or a maximum 30 million won fine will be imposed for CEOs of companies listed either on the KSE or KOSDAQ if they sign official documents known to have false statements.

An accounting company cannot serve the same company for over six years, but a local company may be exempted from the law if it gains unanimous approval by an audit committee. Also foreign-invested companies may be applicable for exemption.

The Ministry of Finance and Economy (MOFE) announced yesterday that vice ministers at a June 7 meeting approved a series of revised bills, regulating securities transactions with advanced accounting standards, independent auditing of companies, and CPA conduct. The bills will go forward to the National Assembly by the end of June after the decision at the ministers‘ meeting.

The newly adopted bill, which the Regulatory Reform Committee and related government agencies have already agreed upon, focuses on strengthening corporate responsibility on financial reports, thereby improving the accounting system to meet global standards.

The reformist bill includes civil charges on a corporate CEO for false reporting of the company‘s information.

Up to a five-year prison sentence or 30 million won penalty will be imposed if a major shareholder with no less than 10% of his/her company‘s equity or a director is found to have borrowed money from the company. A small amount of money borrowed for the purpose of schooling and other welfare benefits, however, is allowed for a director.

Technically, an accounting firm cannot audit its client company for over six years. However, exemptions are applicable for certain conditions: when a company is listed on the New York Stock Exchange (NYSE) or London Stock Exchange (LSE); when a company is foreign-invested and incapable of replacing an auditor for the sake of its parent company; when a company employs more than two accounting firms; or when a company earns high marks for six consecutive years by the Securities & Futures Commission. On top of that, the MOFE decided to expand the mandatory period for relevant data storage from the current six to seven years.

The revised regulations on an accounting firm`s service term will take effect two years after the public announcement is made.

Ki-Jeong Ko koh@donga.com