In accordance with the Commercial Act, listed companies are required to appoint independent professionals as non-executive directors.
Joint stock companies, prescribed as stock companies in the Act on External Audit of Stock Companies, are required to appoint internal auditors, and listed companies having assets above a certain amount are required to appoint full-time internal auditors.
Joint stock companies can opt to appoint an audit committee independent from management instead of internal auditors, while it would be mandatory for listed companies having assets above a certain amount.
Appointment of External Auditor
In accordance with the Commercial Act, the appointment of external auditors for joint stock companies are to be conducted through open bidding and approved by an independent auditor selection committee, or in the absence of such, the internal auditor. For listed companies, approval must be attained from the audit committee for companies having more than a certain amount of assets, otherwise from an independent auditor selection committee.
The audit committee must include directors independent from management and major shareholders to ensure objectivity and independence of the external auditor.
Protection of Minority Shareholders’ Rights and Increased Management Responsibility
In accordance with the Commercial Act, joint stock companies are required to protect the interests of minority shareholders through the use of concentrate vote and representative action, which also serve to keep majority voters in check.
Those in position to exercise their influence on the decision making of the company whether through direct exercise or through proxy are also required to assume an appropriate amount of risk associated with the exercise of their influence as to ensure management responsibility.
Internal Control over Financial Reporting (ICFR)
All joint stock companies, excluding non-listed companies having less than a certain amount of assets are required to establish and operate an ICFR in order to prevent accounting fraud and error, as well as to disclose reliable accounting information
CEOs are responsible for the assessment and operation of the company’s internal control over financial reporting and may appoint an executive director to manage the company’s ICFR.
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