EY Korea helps enhance audit quality, accounting transparency in Korea

Yong keun Park, chief executive officer of Ernst & Young Hanyoung [Courtesy of EY Korea]

Last month, the South Korean financial authorities released a complementary accounting reform plan after more than nine months of deliberation. The business community and the accounting industry debated whether or not to adjust the Act on External Audit of Stock Companies introduced in 2018 with the goal of easing burdens and enhancing accounting transparency.

In the end, they decided to maintain the current system for the time being without making any changes to the periodic auditor designation system.

The Korean Accounting Association’s study concluded that the accounting reforms have improved audit quality. The accounting industry was relieved that the four-year momentum of an accounting reform remained in place.

Korea’s top four accounting firms have led the way in improving audit quality and accounting transparency since the accounting reform. As a testament to this, all of the heads of the big four accounting firms since the early 2020s have been re-elected. Their reputation is largely similar - they have done a good job of maintaining each corporate character and delivering impressive results in sales, even during the peak of the pandemic.

Yong keun Park, chief executive officer of Ernst & Young Hanyoung (EY Korea), and the youngest among the heads of the big four firms, stands out in particular.

While he is not known for his high-profile public appearances, Park has delivered a number of meaningful results in his first term.

EY Korea’s sales jumped to 436.4 billion ($341.5 million) in fiscal year 2022 between July 2021 and June 2022 from 388 billion won in 2020. Including the sales of EY Consulting worth 191.5 billion won, EY Korea’s total sales reached 628 billion won. During his term, EY Korea also saw the first Korean winner of World Entrepreneur of the Year award given by Ernst & Young Global Ltd. Celltrion Group Chairman Seo Jung-jin became the first Korean to win the award, which is often referred to as the “Oscars of the business world,” in 2021, another significant achievement under Park.

Maeil Business Newspaper recently met with Park, who won a second term in December last year and has begun his new term in July.

“It’s not easy, both internally and externally, but our goal is to build organizational capacity to move quickly when opportunities arise,” Park said.

“I think it’s a balanced measure that takes into account the realistic difficulties of companies while maintaining the intent of the accounting reform,” Park said of the supplementary plan for accounting reform announced last month.

He also emphasized the accounting industry’s efforts.

Yong keun Park, chief executive officer of Ernst & Young Hanyoung [Courtesy of EY Korea]

“We need to organically communicate with corporate governance bodies such as audit committees and increase the industry expertise of audit teams,” Park said. “Introducing the consolidated internal accounting management system has been deferred for five years for listed companies with less than 2 trillion won in assets, and the accounting industry should utilize this grace period to improve accounting transparency.” This means that the accounting industry should actively support companies in actively preparing for critical areas such as internal controls and fraud risk management processes for subsidiaries located in countries with poor accounting infrastructure.

Park views the accounting profession to be no different than the business community based on his cool-headed assessment of reality.

“There were some predictions earlier this year that the economy would pick up in the second half of the year, but it won’t be easy until next year,” he said. “While the financial environment is somewhat better than it was at the end of last year, acquisition financing rates are still in the 7 percent range. The certainty of deal closings is still not high due to the postponement of initial public offerings by platform companies and the big valuation gap between sellers and buyers.”

The current trend is set to continue at least until the end of this year, and the revitalization of the merger and acquisition market, which is one of the indicators of economic conditions, still needs more time, according to Park.

Park cited electric vehicle components, batteries, renewable energy, recycling, bio and health care, semiconductors, and robotics as some of the emerging sectors for deals.

The economic recovery is bound to have an impact on accounting firms like EY Korea. In particular, there have been recent concerns in the industry that new employment of certified public accountants (CPAs) this year will shrink.

“EY Korea makes recruitment plans based on overall economic conditions, so the scale varies from year to year,” Park said. “This year, it is expected that the economy will continue to be sluggish, so it is inevitable that the accounting industry as a whole will be conservative in hiring. EY Korea is also likely to hire less than usual.”

“Meanwhile, the turnover rate is also decreasing, which means that professionals with a lot of experience are staying with the company longer,” Park said. “We are trying to strengthen organizational capabilities by placing them in the right places to increase work efficiency and performance.”

Efforts to improve efficiency are also being driven by digital technologies such as artificial intelligence (AI).

EY Global has announced that it will invest $10 billion by 2024 in audit quality, innovation, technology, and talent. The company is investing in innovative technologies, including AI, to support clients’ digital transformation and utilizing its digital audit platform EY Canvas and big data analytics solution EY Helix to improve audit quality. In particular, EY Helix, which has been applied in Korea since 2017, is considerably helping the firm’s accountants with their work.

Park considers the mandatory disclosure of environmental, social, and governance (ESG) information and certification for disclosure as new opportunities for EY Korea. EY Korea has already set up an “ESG Impact Hub” with 50 dedicated employees and 150 personnel in concurrent positions to target the area.