REGULATION

ON

EXTERNAL AUDIT OF CORPORATIONS

Regulation on External Audit of Corporations

CONTENTS

I.	General Provisions

§1.	Purpose

§2.	Definitions

II.	Designation of Companies to Prepare Combined Financial Statements

§3.	Application for Exclusion of Affiliated Companies from Combined Financial Statements

§4.	Designation of the Company to Prepare Combined Financial Statements

§5.	Report on Changes in Affiliated Companies to be Combined

§6.	Scope of Consolidation

III.	Auditor Designation

§7.	Exemption from External Audit

§8.	Auditor Appointment Committee

§9.	Dismissal of Auditor of Listed and Other Corporations

§10.	Companies Subject to Auditor Designation

§11.	Improper Change of Auditors

§12.	Extinction of Conditions of Auditor Designation

§13.	Deadline of Auditor Designation, Etc

§14.	Auditors of Expected Listed and Other Companies

§15.	Notification of Designation

§16.	Submission of Audit Reports

§16-2.	Attachment to Audit Reports

§17.	Submission of Annual Reports

§18.	Submission of Designation-Related Documentation

§19.	Matters to be Reported

IV.	Accounting Corporations Qualified for Auditing Financial Institutions

§20.	Requirements for International Accounting Corporation

§21.	Contract of Audit Quality Control

§22.	Submission of Disclosure Documents

V.	Composition and Administration of Accounting Deliberation Committee

§23.	Establishment of Accounting Deliberation Committee

§24.	Composition of Accounting Policy Deliberation Committee

§25.	Composition of Surveillance Committee

§26.	Matters to be Deliberated

§27.	Duties of Chairman

§28.	Disqualifications of Members

§29.	Convening of Meeting

§30.	Method of Resolution

§31.	Subrogated Attendance of Committee Member

§32.	Participation in Meeting

§33.	Hearings of Interested Parties

§34.	Notification of Deliberation Result

§35.	Minutes

§36.	Particulars in Minutes

§37.	Principle of Not Opening to the Public and Secrecy

VI.	Procedure of Formulation and Amendment

§38.	Power of Formulation and Amendments

§39.	Draft Formulation

§40.	Procedure of Formulation and Amendment

§41.	Steering Committee

§42.	Preparation of Initial Draft

§43.	Preparation of Exposure Draft

§44.	Advance Notice

§45.	Preparation of Final Draft

§46.	Notification

VII.	Surveillance of Accounting and Auditing Practice

Section 1. Enforcement of Surveillance

§47.	Regulations and Rules for Enforcement of Surveillance

§48.	Surveillance of Audit Reports

§49.	Surveillance of Audit Firms

§50.	Scope of Surveillance

§51.	Investigation

Section 2. Follow-Up Measures

§52.	Follow-Up Measures

§53.	Penalty on Accounting Firms and Audit Teams

§54.	Penalty on CPAs

§55.	Penalty on the Company

§56.	Charges of Violations

§57.	Criteria for Taking Follow-Up Measures

§58.	Aggravation of Penalty

§59.	Public Announcement of False Accounting and Improper Auditing

§60.	Hearing Procedures

§61.	Notification of Objection Procedures

§62.	Claim for Reexamination

§63.	Application of Provisions

§64.	Ex Post Supervision

§65.	[Deleted]

§66.	[Deleted]

Section 3. Delegation of Surveillance

§67.	Delegation of Surveillance

§68.	Report on Results

§69.	Assistance

§70.	Conference

§71.	Preparation of Operation Manuals

§72.	Payment of Funds

VIII.	Supplementary Provisions

§73.	Allowances

§74.	Forms

§75.	Delegation of Power

Addenda

Enacted on March 12, 1999

Amended on November 12, 1999

Amended on September 1, 2000

Amended on December 8, 2000

Amended on April 18, 2001 FSC 2001-22

Amended on October 17, 2001 FSC 2001-80

Amended on October 31, 2001 FSC 2001-87

Amended on January 3, 2003 FSC 2002-92

CHAPTER I.

GENERAL PROVISIONS

§1. Purpose

The purpose of this Regulation is to establish detailed provisions necessary in implementing the Act on External Audit of Corporations (hereinafter referred to as "the Act"), the Enforcement Decree of the Act (hereinafter referred to as "the Decree"), the Enforcement Regulation of the Act (hereinafter referred to as "the Enforcement Regulation") and other related laws and decrees.

§2. Definitions

The terms defined in the Act and the Decree are also used in this Regulation, and additionally, the following terms shall be used in this Regulation with the meanings specified:

l. The auditor designation refers to the SFC's designation of an auditor for the audit of a company's financial statements;

2. The business group means the group of companies prescribed in Article 2/2 of the Act on Regulation of Monopoly and Fair Trade and Article 3 of the Enforcement Decree of the same Act; and

3. The affiliated company refers to a company which belongs to the business group.

CHAPTER II.

DESIGNATION OF COMPANIES TO PREPARE COMBINED FINANCIAL STATEMENTS

§3. Application for Exclusion of Affiliated Companies from Combined Financial Statements

(1) [Deleted January 3, 2003]

(2) Where, pursuant to [Article 1-4 paragraph (3)] of the Decree, the preparer of combined financial statements for the corporates subject to the combined financial statement requirement intends to apply for exemption from preparing the combined financial statements, it shall submit an application for exemption (hereinafter referred to as an "application for exemption") to the SFC, together with the documentation prescribed below, by the end of April. However, in the case of exemption under [Article 1-4 paragraph (3) subparagraph 2] of the Decree, the submission of consolidated financial documents is not required: <Amended January 3, 2003>

1. Descriptions of affiliated companies; and

2. Consolidated financial statements.

§4. Designation of the Company to Prepare Combined Financial Statements

(1) When the SFC designates the preparer of combined financial statements pursuant to [Article 1-5 paragraph (1)] of the Decree, it should designate one (1) company from the following companies:

1. The largest five (5) affiliated companies in terms of total assets. However, in the case of a business group which prepares several sets of consolidated financial statements, the parent companies of the largest five (5) consolidated entities in terms of total consolidated assets;

2. Affiliated companies with the December fiscal year-end; and

3. Affiliated companies with head offices located in Korea.

(2) In the case that an affiliated company which applies, pursuant to [Article 1-5 paragraph (1)] of the Decree, for designation of the preparer of combined financial statements, falls under one of the provisions of paragraph (1) above, the SFC should designate that company as the preparer of combined financial statements.

(3) When the SFC requests submission of the documentation prescribed below for its designation of the preparer of combined financial statements, business groups should submit the documentation unless they are unable to do so due to special reasons.

1. Descriptions of business group and its affiliated companies;

2. Financial statements of affiliated companies;

3. Lists of stockholders of affiliated companies;

4. Descriptions of new affiliated companies; and

5. Descriptions of companies that are not included in the business group.

§5. Report on Changes in Affiliated Companies to be Combined

(1) When there is a change in the list of affiliated companies to be combined, the company designated as the preparer of combined financial statements should submit a report on the change (hereinafter referred to as the "report on changes") to the SFC by the end of the month following the month in which the cause for the change has occurred. In such an event, materials such as financial statements on the preceding business year, board of directors meeting transcripts, and general shareholders' meeting transcripts, among others, of the company excluded from the affiliates required of combined financial statements shall be attached to evidence causes for exemption.

(2) The following should be contained in the report on changes prescribed in paragraph (1) above:

1. Name of business group;

2. Name of the preparer of combined financial statements;

3. Reasons for changes in affiliated companies, list of affiliated companies before and after the change, and the date of occurrence of the change; and

4. Descriptions of new affiliated companies and companies that are not included in the business group together with descriptions of key financial information, external audit, consolidated financial statements, changes in the percentage of interests, provision of collateral, payment guarantee and changes of officers with respect to those companies.

(3) Where there is a change in the list of affiliate companies to be combined, the same list which has been notified pursuant to the provisions of Article 1-5 paragraph (2) of the Decree, the SFC shall notify the change to the preparer of combined financial statements within 3 months from the end of business year.

§6. Scope of Consolidation

(1) "The case specified by the SFC in consideration for the distribution of shares", prescribed in subparagraph 2 of [Article 1-3 paragraph (1)] of the Decree, means one of the following;

1. The case where the other company belongs to a different business group; or

2. The case that falls under the provisions of subparagraphs 2 and 3 of [Article 1-3 paragraph (1)] of the decree and where the voting rights are clearly less than 50/100 due to contracts or related laws.

(2) "The case specified by Financial Supervisory Commission," prescribed in subparagraph 7 of [Article 1-3paragraph (1)] of the Decree, means one of the following:

1. The case where each of multiple stock companies has more than 30/100 of voting shares of the other company, thereby being its largest shareholder, and those companies and the other company belong to the same business group; or

2. In the case that two or more of those stock companies prescribed in subparagraph 1 above and the other company belong to the same business group, the largest company in terms of total assets is regarded as the parent company.

(3) "The case where the SFC deems that the parent-subsidiary relationship will be certainly terminated", mentioned in subparagraph 5 of [Article 1-3 paragraph (2)] of the Decree, means one of the following:

1. The case where the subsidiary is to be disposed of, due to a contract, etc., by the end of next fiscal year; or

2. The case where a resolution of liquidating the subsidiary is made within three months from the end of the current fiscal year and the liquidation is to take place by the end of next fiscal year.

(4) "The parent company prescribed by the SFC in [Article 1-3 paragraph (3)] of the Decree" means the top controlling company. In the case of a circular parent-subsidiary relationship, the parent company is the one that has the largest total assets as of the end of the preceding fiscal year. However, the parent company which falls under one of the following should prepare consolidated financial statements even if it is not the top controlling company:

1. When the top controlling company is a foreign company, the top controlling company among domestic companies; or

2. When the company, which is a listed company, a registered company or a company operating in the banking and insurance industry, is a subsidiary of one company and a parent company of another company at the same time.

(5) Other details necessary in implementing paragraphs (1) to (4) may be provided by the Governor of Financial Supervisory Service.

CHAPTER III.

AUDITOR DESIGNATION

§7. Exemption from External Audit

The companies which are not subject to external audit as determined by the SFC in accordance with Article 2 paragraph (2) subparagraph 6 of the Decree shall be the ones applicable under the following subparagraphs;

1. Mutual savings bank for which the FSC has appointed a manager in accordance with the Mutual Savings and Banking Act and the Act on Structural Improvement of the Financial Industry;

2. Companies reported to the National Tax Agency on their suspension or closing of business;

3. Companies whose license or authorization for business undertaking is revoked by the FSC;

4. Companies whose major assets are auctioned or seized by a court of law;

5. Companies with which communication by mail correspondence or telephone, among others, is disabled;

6. Companies having proven that being subject to audit by reason of force majeure resulting in the loss of books, etc. is unfeasible; and

7. Companies whose auditor is submitting statement of reasons for exemption from audit for reasons provided under subparagraphs 2 through 6. [Amended January 3, 2003]

§8. Auditor Appointment Committee

(1) Where at least 2 persons satisfy the requirements under Article 3-2 paragraph (1) subparagraph (3) or (4) of the Decree, and where at least 1 person satisfies the requirements under Article 3-2 paragraph (1) subparagraph (5), member(s) under subparagraph (1) shall determine the membership by considering the stock holding period and residual maturity of claims, etc.

(2) Two voting rights shall be conferred upon those who satisfy all requirements under Article 3-2 paragraph (1) subparagraphs (3) and (4) of the Decree, subparagraphs (4) and (5), or subparagraphs (3) through (5), whereas one voting right shall be conferred upon those who satisfy the requirements under subparagraphs (3) and (5).

Paragraphs (3), (4), and (5) deleted.

§9. Dismissal of Auditor of Listed and Other Corporations

An auditor of a listed or an association registered corporation under Article 3 paragraph (5) subparagraph (5) of the Decree means an auditor against whom measures of suspension of duty or exclusion from appointment are taken as a consequence of audit performed pursuant to Article 15 paragraph (1) of the Act and Article 8 of the Decree or a certified public accountant under employment deregistered.

§10. Companies Subject to Auditor Designation

(1) The SFC shall designate an auditor for the companies falling under one of the following. In this case, the SFC shall designate an auditor within the period of two (2) fiscal years for the companies prescribed in subparagraph 2, and within the period of three (3) years for the companies prescribed in subparagraph 3 or 11:

1. A company which has failed to appoint an auditor within the period stipulated in 〔Article 4 paragraphs (1) and (5) or Article 4-2 paragraph (1)] of the Act;

2. A company whose reasons for changing an auditor are deemed improper or a company which has appointed an auditor in violation of [Article 4 paragraph (2) or Article 4-2 paragraph (1)] of the Act;

3. A company against which negative measures in relation to auditor designation have been taken because its financial statements or consolidated financial statements are found to have been prepared or disclosed in violation of the Financial Accounting Standards for Business Enterprises;

4. A company, which falls under one of the following, and whose controlling stockholder is a representative director of the company and owns 50/100 (25/100 in the case of a listed company) or more of the company's shares outstanding (excluding non-voting shares, and the same hereinafter) as of the end of the preceding year:

a. A listed corporation;

b. [Deleted]

c. A company, which is not a listed corporation, and whose total assets exceed one (1) hundred billion won.

5. [Deleted]

6. [Deleted]

7. A listed company (excluding companies in the banking, insurance and leasing business) whose debt-to-equity ratio as of the end of the preceding fiscal year is equal to or above 1.5 times the average debt-to-equity ratio of listed companies in the same industry, and is equal to or above the average debt-to-equity ratio of entire listed companies. However, if the number of listed companies in the same industry is five (5) or less, it shall be a company whose debt-to-equity ratio is equal to or above 1.5 times the average debt-to-equity ratio of entire listed companies;

8. A listed company designated as a poor quality stock by the KSE in accordance with its Business Regulation as of the base date for auditor designation (the first day of the sixth month from the beginning of the fiscal year);

9. A listed company whose ratio of loans to equity capital as of the end of the preceding fiscal year falls under one of the following:

a. A company whose loans (including advances, cash or marketable securities provided as collateral, and the same hereinafter in subitem b) to its officers, its largest stockholder (excluding corporation, and the same hereinafter in Subitem b) and its related companies prescribed in [Article 5] of the Decree exceed 30/100 of its equity capital; or

b. A company whose loans to its controlling stockholders and payment guarantee for loans exceed 10/l00 of its equity capital;

10. A company prescribed in subparagraph 2 of [Article 4 paragraph (5)] of the Decree;

11. A listed company against which negative measures in relation to auditor designation have been taken by the FSC or the Governor of FSS ((hereinafter referred to as "the Governor") due to its violation of the Securities and Exchange Act;

12. A company which has applied for auditor designation or for which the head of the related government office has requested the same in accordance with the provisions of related laws;

13. A company for which its major creditor bank designated by the Governor requests the SFC to designate an auditor after obtaining the consent from the company; and

14. [Deleted]

(2) The debt-to-equity ratio, average debt-to-equity ratio of the same industry, and average debt-to-equity ratio of entire listed companies prescribed in subparagraph 7 of paragraph (1) shall be calculated by use of the method determined by the Governor.

(3) The company falling under subparagraph 10 of paragraph (1) shall apply for auditor designation to the SFC., stating reasons for application. (Proviso deleted)

(4) Notwithstanding paragraph (3), application for auditor designation is not required for companies falling under one of the following:

1. Public corporations provided in Article 199 paragraph (2) of the Securities and Exchange Act;

2. Corporations established under special laws;

3. Financial institutions under the Banking Act;

4. Securities companies under the Securities and Exchange Act;

5. Insurance companies under the Insurance Business Act; and

6. Merchant banking corporations under the Merchant Banking Corporation Act.

(5) When, pursuant to paragraph (1), the SFC designates an auditor of the parent-only financial statements for companies subject to preparation of consolidated financial statements, that auditor (hereinafter referred to as "consolidation auditor") is regarded as a designated auditor of consolidated financial statements.

(6) Where the companies applicable under paragraph (1) subparagraphs 4, 7 and 9 have appointed an auditor with approval of the Selection Committee, the SFC shall not designate an auditor.

(7) Circumstances or events recognized by the SFC as provided under the provisions of Article 4-2 paragraph (2) of the Decree shall mean any of those applicable under the following subparagraphs; <Added January 3, 2003>

1. Where auditor is restricted in foreign capital inducement agreement, among others;

2. Where the identical auditor is appointed for companies entered into mutual relations for governance and subordination as provided under the provisions of Article 1-3 of the Decree; and

3. Where there are reasons to believe that the auditor's independence might be undermined.

§11. Improper Change of Auditors

(1) The cases prescribed in subparagraph 2 of [Article 10 paragraph (1)] where an auditor change is deemed improper are as follows:

1. The case where the restriction of important auditing procedures is imposed;

2. The case where an improper request is made with respect to the expression of an audit opinion;

3. The case where an audit contract is made at an exceptionally low price; or

4. The case where the company has not reappointed the auditor who expressed a qualified opinion, an adverse opinion or a disclaimer of opinion for its financial statements for the preceding fiscal year. However, this provision shall not apply to cases where an auditor change is due to reasons attributable to the auditor or the circumstances prescribed in＿Article 3 paragraph (4)ａof the Decree.

5. Where auditor is replaced, or where the company has breached its obligation to pay auditing expenses or other terms of audit agreement without due justification against the previous auditor. <Added January 3, 2003>

(2) In the case that an auditor change has been made pursuant to the proviso of subparagraph 4 of paragraph (1), the company should submit immediately to the SFC documents describing the reasons for not making an audit contract.

(3) In the case that the company has changed its auditor, the SFC may have the auditor of its financial statements for the preceding fiscal year submit documents related to the auditor change or present a statement.

§12. Extinction of Conditions of Auditor Designation

(1) The conditions of auditor designation prescribed in subparagraphs 4, 7 and 9 of [Article 10 paragraph (1)] shall be judged as of the end of the preceding fiscal year, and the designation is not made if the conditions are extinct as of that date. In this case, the company should submit immediately to the SFC documents relating to the extinction.

(2) For the application of paragraph (1) on the extinction of conditions, cases shall be limited to reduction of share under Article 10 paragraph (1) subparagraph 4, and capital contribution by issuance of new shares and asset revaluation under Article 10 paragraph 1 subparagraph 7 and 9.

(3) In case the major bank, designated by the Governor, of a company subject to auditor designation pursuant to subparagraph 7 of [Article 10 paragraph (1)] requests that the company be exempt from auditor designation before the base date of designation, the designation shall not be made.

(4) Notwithstanding the main provision of paragraph (1), in the case that the representative director of a company which falls under the designation requirement in subparagraph 4 of＿Article 10 paragraph (7)ａhas taken up his position before the date of submission of the document regarding the designation pursuant to [Article 18 paragraph (1)], the SFC shall designate an auditor for the fiscal year concerned.

§13. Deadline of Auditor Designation, Etc.

(1) The deadline of auditor designation by the SFC shall, in princip1e, be within six (6) months from the beginning of the fiscal year. However, this provision does not apply to the case where auditor designation is impossible within the deadline.

(2) The SFC may exclude auditor from selection for a specified period if he or she does not enter into an audit contract with the company designated by the SFC without a reasonable cause.

(3) Designation of auditor shall in principle be made by the following methods from the point in time of the designation; <Added January 3, 2003>

1. Companies subject to the designation shall be aligned in the sequence of asset size as provided in the balance sheet as of the end of the previous business year;

2. The sequence of the auditor shall be aligned based upon the designation points calculated as follows; in such an event, the points shall be calculated based upon the auditor point calculation standards provided under the annexed Table 2, and the designation points shall be based upon the following. The number of companies designated in calculating the designation points, however, may deduct the points where any has been subjected to the "auditor designation exclusion" or by an auditor redesignation request or the suspension of the company's transactions, among others;

Auditor designation points = Auditor points / 1 + Number of companies designated.

a. Auditor in receipt of most points;

b. Auditor in receipt of most points where the designation points are identical; and

c. Auditor in receipt of lesser demerits where the auditor points are identical;

3. The sequence of the auditor provided under subparagraph 2 shall be aligned in accordance with the order of the companies subject to the designation as provided under subparagraph 1;

4. Where the auditor has committed the acts provided under Article 10 paragraph (1) of the Act as a result of examination conducted in accordance with the methods provided under subparagraph 3, the auditor shall be replaced by the auditor assigned for the preceding company in the order of the designation, whereas it shall not be counted towards the number of companies designated as under subparagraph 2;

5. Where assigned for the company from the previous business year, the auditor may be designated up to 3 business years consecutively, notwithstanding the provisions of Article 10 paragraph (1) of the Regulations; and

6. Where a company subject to designation has appointed an auditor reprimanded by the SFC, or where it has appointed one in violation of the regulations, the auditor appointed shall not be designated as the auditor for the company in question.

§14. Auditors of Expected Listed and Other Companies

(1) Accounting corporations designated in advance by the FSC pursuant to the proviso of Article 4 paragraph (5) subparagraph (2) of the Decree shall be those applicable under the following.

1. Accounting corporation whose measuring points in proportion to auditor points are lower than the total average of accounting corporations.

2. Accounting corporations qualified to audit financial institutions under Chapter 4 except the accounting corporations whose licenses were suspended by the Minister of Finance and Economy in connection with auditing business during the term for auditor point calculation.

(2) Where expected listed and other companies apply for auditor designation pursuant to Article 10 paragraph (3), the auditor designated by the SFC shall be those applicable under paragraph (1).

(3) [Deleted January 3, 2003]

§15. Notification of Designation

When the SFC designates an auditor pursuant to [Article 10], the SFC shall notify it immediately to the company, the auditor and the Korea Institute of Certified Accounts (hereinafter referred to as the "KICPA").

§16. Submission of Audit Reports

(1) The auditor shall submit audit reports to the SFC within two (2) weeks from the stockholders' meeting. Where the auditor has prepared a special report on material dishonest acts of directors to the stockholders' meeting pursuant to [Article 10] of the Act, the special report shall be attached to the audit report. As for consolidated financial statements, two copies of the audit report shall be submitted to the SFC within four (4) months from the fiscal year-end. In addition, the audit reports on combined financial statements shall be submitted within six (6) months from the fiscal year-end.

(2) The auditor shall submit a report on the execution of audit agreement to the SFC within 2 weeks from the execution. <Amended January 3, 2003>

(3) In the case that it is impossible to submit audit reports (including consolidated and combined audit reports) due to special reasons, the auditor should report it immediately to the SFC.

(4) Audit report and report on the execution of audit agreement shall be submitted electronically in accordance with the provisions of the Regulation on the Securities Issuance and Disclosure.

(5) Where the auditor has submitted and disclosed the audit report, connective audit report, and combined audit report in accordance with the Securities Exchange Act and relevant provisions prior to submitting them in accordance with the provisions of paragraph (1), it shall be deemed that they have been submitted to the SFC in accordance with the provisions of paragraph (1); provided that this provision shall not be applied where the audit report is changed as a result of the financial statements approved at the general shareholders' meeting, among others.

§16-2. Attachments to Audit Reports

(1) When submitting audit reports (excluding consolidated and combined audit reports; the same hereinafter in this article), in accordance with Article 8 paragraph (1) of the Act, an auditor shall attach important management indices reflecting stability, profitability and growth of the company as follows. The standard form of an important management index is provided under <Annex Table 1>. However, other management indices may be attached in regard to matters focusing on important trends of financial and management performance of the company concerned and others considered as useful to the users of audit reports in making reasonable decisions.

1. Stability indices: current ratio, debt ratio, borrowings and bonds payable ratio, times interest to operating income; provided, however, that a company subject to external audit under Article 2 of the Act, conducting financial or insurance business under standard classification disclosed by the Commissioner of the National Statistical Office pursuant to Article 17 paragraph (1) of the Statistics Act, and subject to calculation and submission of adequacy ratios under supervision of the FSC (for a bank, capital adequacy ratio established by the Bank for International Settlements; for a securities company, net working capital to risk weighted assets ratio; and for an insurance company, payment reserves ratio, etc.) may not attach the stability indices.

2. Profitability indices: operating profit margin on sales, profit margin on sales, rate of return on assets, rate of return on equity, rate of cashflow on assets

3. Growth and activity indices: sales growth, operating income growth, net income growth, total assets growth, asset turnover

(2) Where violation of the Accounting Standard for Business Enterprises leads audit opinion of important management indices under paragraph (1) to either a qualified or an adverse opinion, important management indices shall be measured on the basis of revised financial statements. Where impropriety of continued business operation leads an audit opinion to an adverse opinion, and where limitation of scope leads an audit opinion to a qualified opinion or disclaimer of opinion, important management indices shall not be attached; however, that continued business operation is not reasonable or management indices could not be produced by reason of limitation of scope shall be explained on record.

(3) Important management indices shall be attached to audit report, together with cover and financial statements.

§17. Submission of Annual Reports

(1) The accounting corporation should submit two (2) copies of its annual reports to the SFC and KICPA within three (3) months from its fiscal year-end.

(2) The annual report prescribed in paragraph (1) should be accompanied by the following documents:

1. Articles of incorporation; and

2. Transcript of corporation register.

§18. Submission of Designation-Related Documentation

(1) Listed·association registered corporations and other non listed and non association registered corporations, whose total assets exceed one (1) hundred billion won, shall submit to the SFC auditor designation related documents pursuant to the provisions under each of the following subparagraphs within two (2) weeks from the end of the shareholders' meeting. However, this requirement shall not apply to the case where an auditor is appointed with the approval of the Selection Committee pursuant to Article 4 paragraph (2) of the Act.

1. Descriptions of shares held by controlling shareholders and changes of representative directors during the period from the beginning of the preceding fiscal year to the submission date;

2. A transcript of corporation register showing changes of	representative directors since the beginning of the preceding fiscal year, in the case of total shares held by controlling stockholders equal to or exceeding 50/100 (25/100 in case of a listed company) of total shares issued; and

3. A description of changes in shares and percentage of interests in accordance with subparagraph 28 of [Article 45 paragraph (3)] of the Enforcement Regulation of the Corporate Income Tax Act.

(2) The SFC may request the company and the auditor to submit documents necessary for performing duties related to the auditor designation pursuant to subparagraph 9 of [Article 10 paragraph (1)].

(3) The SFC may request the KICPA to submit documents necessary for performing duties related to the auditor designation pursuant to [Article 10 paragraph (1)].

§19. Matters to be Reported

When one of the following occurs to a company in the current fiscal year, it should report immediately to the SFC with supporting documents:

1. The case where a local government has invested 1/2 or more of paid-in capital;

2. The case where a company's current account transactions have been suspended by a bank under the Banking Art;

3. The case where a company is in the process of liquidation or suspends its operations for one (1) year or longer;

4. [Deleted]

5. The case where a company is in the process of merger in accordance with COCO and is expected to disappear in the current fiscal year; and

6. The case where a company has changed its name, fiscal year, location, etc.

CHAPTER IV.

ACCOUNTING CORPORATIONS QUALIFIED FOR AUDITING FINANCIAL INSTITUTIONS

§20. Requirements for International Accounting Corporation

A foreign accounting corporation which is deemed by the SFC to have international reputation in the annexed table of [Article 4 paragraph (1)] of the Enforcement Regulation refers to the accounting corporation which meets the following requirements (hereinafter referred to as the "international accounting corporation"):

1. Its member firms should be distributed throughout more than 30 countries; and

2. The number of professionals belonging to the member firms should be more than 2,000.

§21. Contract of Audit Quality Control

(1) The contract of audit quality control mentioned in the annexed table of Article 4 paragraph (1) of the Enforcement Regulation should include the following:

1. An agreement of mutual control of audit quality among member firms. In this case, audit quality control means that accounting corporations should, within the scope not violating the statutes and regulations, observe the standards for audit quality control which the international accounting corporation demands; and

2. An agreement that accounting corporations may publish an audit report in the name of the international accounting corporation.

(2) Accounting corporations should be subject to the review of audit quality control by an international accounting corporation when they audit financial institutions. However, this requirement does not apply to the case that the accounting corporation has joined a Professional Indemnity Insurance adopted by the international accounting corporation.

§22. Submission of Disclosure Documents

(1) An accounting corporation qualified to audit financial institutions should submit to the SFC documents describing the following matters on the international accounting corporation for perusal by interested parties including financial institutions:

1. The name and address;

2. Description and types of services;

3. Descriptions of countries where member firms operate and the number of professionals;

4. Matters on audit quality control;

5. Matters on Professional Indemnity Insurance; and

6. Other matters relating to business cooperation.

(2) The document to be submitted pursuant to paragraph (1) should be accompanied by the following:

1. A copy of an admission contract of member firm in Korean and in English, respectively; and

2. Supporting documents for the requirements in Article 20 and the contract mentioned in Article 21 paragraph (1).

(3) An accounting corporation qualified to audit financial institutions should immediately notify the SFC when one of the following takes place:

1. The case where the international accounting corporation to whom an accounting corporation belongs fails to meet the requirements in Article 20; or

2. The case where the agreements prescribed in Article 21 paragraph (1) are not included in the audit quality control contract or when such a contract is terminated.

(4) The SFC should disclose the documents submitted by accounting corporations in accordance with paragraphs (1) to (3) at a certain place.

CHAPTER V.

COMPOSITION AND ADMINISTRATION OF ACCOUNTING DELIBERATION COMMITTEE

§23. Establishment of Accounting Deliberation Committee

The Accounting Policy Deliberation Committee and the Surveillance Committee shall be established in the FSS for effective accomplishment of the duties of the FSC and SFC prescribed in the Act, the Decree and other laws.

§24. Composition of Accounting Policy Deliberation Committee

(1) The Accounting Policy Deliberation Committee shall be composed of the following eleven (11) members:

1. Executive Commissioner of the SFC;

2. Accounting deliberation member of the FSS;

3. Director-General, Financial Policy Bureau, the Ministry of Finance and Economy;

4. Director-General for Tax Policy, the Ministry of Finance and Economy; and

5. Seven (7) experts in financial accounting, auditing or COCO.

(2) The chairman of the Accounting Standards Policy Committee shall be the person mentioned in subparagraph 1 of paragraph (1).

(3) The term of office of the members mentioned in subparagraph 5 of paragraph (1) shall be three (3) years.

§25. Composition of Surveillance Committee

(1) The Surveillance Committee shall be composed of the following nine (9) members:

1. Executive Commissioner of the SFC;

2. Accounting deliberation member of the FSS;

3. Director-General, Financial Policy Bureau, the Ministry of Finance and Economy;

4. One (1) person recommended by the president of the KICPA;

5. One (1) person recommended by the Chairman of the Korea Listed Corporations Association;

6. One (1) attorney-at-law with professional knowledge of financial accounting;

7. One (1) representative of users of accounting information such as creditor or council of consumer protection organization; and

8. Two (7) experts in accounting or auditing.

(2) The Chairman of the Surveillance Committee shall be the person mentioned in subparagraph 1 of paragraph (1).

(3) The term of office of the members mentioned in subparagraphs 4 to 8 of paragraph (1) shall be three (3) years.

§26. Matters to be Deliberated

(1) The Accounting Policy Deliberation committee shall deliberate the following matters. However, deliberation of immaterial matters may be omitted.

1. Request of revision by the FSC pursuant to [Article 13 paragraph (5)] of the Act and acceptance of the result of the delegated duties pursuant to [Article 68 paragraph (1)];

2. Approval of Auditing Standards pursuant to [Article 5] of the Act;

3. Formulation of, or amendments to the standards related to external audit and financial reporting that should be formulated by the FSC or SFC

4. [Deleted January 3, 2003]

5. Formulation of, or amendments made to the Procedure for Reviewing Semiannual Financial Statements pursuant to Article 194-3 of the Securities and Exchange Act and Article 84-30 of the Enforcement Decree of the Act; <Amended January 3, 2003>

6. Other matters related to subparagraphs 1 to 5.

(2) The Surveillance Committee shall deliberate the following matters:

1. Selection of the company subject to surveillance pursuant to [Article 48 paragraph (3)];

2. Actions ensuing from the surveillance pursuant to [Article 53 to Article 58];

3. Petitions for retrials pursuant to Article 62 ;

4. [Deleted]

5. Approval of formulation of, and amendments to the provisions related to the surveillance by the KICPA pursuant to [Article 67]; and

6. Other matters deemed, by the Chairman of the Surveillance Committee, necessary for performing the surveillance.

§27. Duties of Chairman

(1) The Chairman of the Accounting Policy Deliberation Committee or the Surveillance Committee (hereinafter referred to as the "Chairman") shall represent the Accounting Policy Deliberation Committee or the Surveillance Committee, administer related affairs concerned and preside meetings.

(2) In the event the Chairman is absent or unable to perform his duties, the person mentioned in Article 24 paragraph (1) subparagraph 2 or Article 25 paragraph (1) subparagraph 2 shall act for him.

(3) The Chairman may, when necessary, have the person mentioned in Article 24 paragraph (1) subparagraph 2 or Article 25 paragraph (1) subparagraph 2 preside a meeting.

§28. Disqualifications of Members

To be qualified for a member of the Accounting Policy Deliberation Committee or the Surveillance Committee, a person should not fall under each of the following:

1. A person who is not a Korean national;

2. An incompetent or a quasi-incompetent;

3. A bankrupt who has not been reinstated; and

4. A person for whom two (2) years have not elapsed since the completion of an imprisonment or heavier punishment.

§29. Convening of Meeting

(1) The Chairman shall convene a meeting of the Accounting Policy Deliberation Committee or the Surveillance Committee when he recognizes the necessity thereof or a majority of the committee members request him to do so.

(2) The Chairman shall, when he intends to convene a meeting of the Committee, notify each committee member and participants pursuant to [Article 32] of the written document and agenda describing the date, place, and agenda of the meeting at least two (2) days before the meeting. However, in case dispatch of agenda is greatly inadequate for certain matters or in case of emergency, this provision does not apply.

(3) The Chairman of the Accounting Policy Deliberation Committee may convene an informal gathering for discussion on accounting policies.

§30. Method of Resolution

(1) A quorum for a meeting of the Accounting Policy Deliberation Committee or the Surveillance Committee shall be the presence of a majority of its members, and the resolutions shall be adopted by the concurrence of a majority of those present.

(2) A committee member of the Accounting Policy Deliberation Committee or the Surveillance Committee (including subrogated attendants pursuant to [Article 31]) shall be excluded from deliberation and resolution about the matters falling under one of the following:

1. The matters in conflict of interest with a committee member; and

2. The matters in conflict of interest with relatives of a committee member such as spouse, cousins, relatives by blood within the forth degree, relatives by marriage within second degree or with the employer firm.

(3) A committee member of the Accounting Policy Deliberation Committee or the Surveillance Committee should avoid participating in deliberation and resolution about the matters mentioned in paragraph (2).

§31. Subrogated Attendance of Committee Member

A committee member mentioned in subparagraphs 3 and 4 of Article 24 paragraph (1) and subparagraphs 3 of Article 25 paragraph (1) may, in case there is an unavoidable reason, have the person designated by him among section chiefs of his institution attend a committee meeting on behalf of him.

§32. Participation in Meeting

The person falling under one of the following may, when the Chairman deems it necessary, participate in the Accounting Standards Deliberation Committee or the Surveillance Committee and express his opinion:

1. Public officials designated by the MOFE; and

2. Officers and employees designated by the Governor.

§33. Hearings of Interested Parties

The Accounting Policy Deliberation Committee or the Surveillance Committee may, when necessary to hear the opinions of the parties concerned and other interested persons, request them to attend meetings and express their opinions.

§34. Notification of Deliberation Result

The department head in charge of proceedings of the Accounting Policy Deliberation Committee or the Surveillance Committee shall notify the deliberation results after the meeting to relevant department heads.

§35. Minutes

(1) The minutes of a meeting of the Accounting Standards Deliberation or the Surveillance Committee shall be prepared, which contains the gist of proceedings and the result thereof, and shall be reported to the Chairman.

(2) In the minutes mentioned in paragraph (1), the Chairman and the relevant department head shall write down their names and seals thereon.

(3) The minutes mentioned in paragraph (1) shall be reported to the next meeting of the Accounting Policy Deliberation Committee or the Surveillance Committee.

§36. Particulars in Minutes

(1) The following matters should be included in the minutes:

l. Date and time of opening, suspension of meeting, and closing;

2. Place of meeting;

3. Names of committee members, vacancy members and participants;

4. Description of meeting (gist of proceedings);

5. Names of committee members who clearly expressed negative opinion in respect to the matters resolved; and

6. Other matters deemed necessary

(2) In preparing minutes mentioned in paragraph (1), description of part of resolved matters may be omitted when necessary.

§37. Principle of Not Opening to the Public and Secrecy

(1) Meetings of the Accounting Standards Deliberation Committee or the Surveillance Committee shall not be open to the public, in principle. However, in case the Chairman recognizes the necessity of opening, the meeting may be open to the public.

CHAPTER VI.

PROCEDURE OF FORMULATION AND AMENDMENT

§38. Power of Formulation and Amendment

(1) For those auditing and accounting standards which are prescribed in other laws and decrees (hereinafter referred to as "the Standards"), they shall be formulated by the FSC through deliberation of the SFC.

(2) The standards for the preparation and review of quarterly and semiannual financial statements provided under Article 186-3 of the Securities and Exchange Act and Article 84-30 of the Enforcement Decree of the Act shall be determined by the SFC. <Amended January 3, 2003>

§39. Draft Formulation

(1) The SFC shall prepare a draft of the Standards when it recognizes the necessity of formulating or amending the Standards in the following cases:

1. When there are suggestions from opinion inquiry institutions;

2. When there are suggestions from petitioners; and

3. When the necessity of formulating or amending the Standards is recognized due to other problems.

(2) In the draft prescribed in paragraph (1), major points, proceeding schedule, procedures of formulation or amendment should be included,

(3) The opinion inquiry institutions mentioned in subparagraph 1 of paragraph (1) shall be as follows:

1. KICPA;

2. Korea Accounting Association;

3. Ministry of Finance and Economy;

4. National Tax Office;

5. Korea Accounting Institute (hereinafter referred to as "the KAI"); and

6. Other institutions or organizations related to setting of the Standards.

§40. Procedure of Formulation and Amendment

(1) Formulating or amending the Standards should follow the procedures below:

1. Preparation of an initial draft;

2. Preparation of an exposure draft;

3. Inquiry of comments and advance notice (if necessary, hold a public hearing during advance notice period); and

4. Preparation of a final draft.

(2) Notwithstanding paragraph (1), the procedures prescribed in subparagraphs 1 to 3 of paragraph (1), Article 10 and Article 39 paragraph (1) may be omitted when the matters related to the Standards are not material.

§41. Steering Committee

(1) The SFC may establish a steering committee for setting a specific standard if it is necessary to incorporate results of academic research and consider conventions in practice.

(2) The steering committee shall comprise the following nine members:

1. Experts in practice;

2. Experienced CPAs;

3. Academics; and

4. Staffs of the FSS.

(3) The steering committee shall operate until the determination of the final draft.

§42. Preparation of Initial Draft

The SFC shall prepare an initial draft which includes background information, related regulations, arguments for and against each alternative and comments of the steering committee.

§43. Preparation of Exposure Draft

(1) The SFC shall prepare an exposure draft based on the deliberation of the Accounting Policy Deliberation Committee.

(2) The exposure draft shall be prepared using a sing1e alternative, but the minority opinion may be included, if necessary.

§44. Advance Notice

(1) When the exposure draft is prepared, the SFC shall conduct an inquiry about the draft, and make an advance notice of it to the interested parties.

(2) The advance notice shall be made by use of computer communication network, publications, etc., and the notice period shall be, in principle, thirty (30) days. However, when necessary, the period may be adjusted by the Accounting Policy Deliberation Committee.

(3) Opinion inquiry institutions and interested parties may submit comments on the exposure draft by the end of the notice period.

(4) The SFC may ho1d a public hearing during the notice period in order to hear comments of the interested parties and experts on the exposure draft. In this case, the SFC should announce in advance the date and place and other details of the hearing.

§45. Preparation of Final Draft

(1) The SFC shall review comments on the exposure draft submitted during the notice period and prepare the final draft through the deliberation of the Accounting Policy Deliberation Committee.

(2) In case there are no comments on the exposure draft during the notice period, the exposure draft shall be regarded as the final draft.

§46. Notification

When the Standards are formulated or amended, the SFC may notify the opinion inquiry institutions of the new Standards.

CHAPTER VII.

SURVEILLANCE OF ACCOUNTING AND AUDITING PRACTICE

Section 1.

Enforcement of Surveillance

§47. Regulations and Rules for Enforcement of Surveillance

Regulations and rules to comply with in enforcement of surveillance are as follows:

1. The Act, the Decree, and the Enforcement Regulation;

2. Financial Accounting Standards for Business Enterprises;

3. Auditing Standards;

4. Relevant statutes including the CPA Act, the Commercial Act, and the Securities and Exchange Act; and

5. Regulations and orders of the FSC, and bylaws of the KICPA

§48. Surveillance of Audit Reports

(1) The SFC shall conduct surveillance of audit reports (including audit reports on consolidated and combined financial statements) in the following cases:

1. When the SFC receives a request from the FSC;

2. When the SFC recognizes a suspicion about a company's violation of Article 13 paragraph (3) of the Act (hereinafter referred to as "false accounting") or an auditor's violation of Article 5 paragraph (1) of the Act (hereinafter referred to as "improper auditing");

3. When the SFC receives a request from government organizations including the Public Prosecutor's Office with evidence of suspicion about a company's false accounting or an auditor's improper auditing; and

4. When the SFC receives a request from a company's officer, an audit participant or other interested parties under a real name with detailed evidence about a company's false accounting or an auditor's improper auditing.

(2) Despite the provision in paragraph (1), the SFC is not required to conduct surveillance of audit reports in the following cases:

1. When the suspicion concerned is under investigation or in litigation (except the case where a request by investigation authorities such as the Public Prosecutor's Office is received);

2. When the SFC determines that the suspicion concerned needs a compulsory investigation by the Public Prosecutor's Office; and

3. When the SFC determines that surveillance of audit reports is not expected to result in significant outcome due to lack of information value or low degree of violation.

(3) In order to induce fair auditing practice, the SFC may conduct surveillance of audit reports selected on a random basis.

§49. Surveillance of Audit Firms

The SFC may conduct surveillance regarding administrative aspects of audit firms (hereinafter referred to as "organization surveillance") when there is information about audit firms' serious misconducts or in similar circumstances.

§50. Scope of Surveillance

(1) In application of Article 48 and Article 49 of this Regulation, the SFC may restrict the scope of surveillance to a suspicious matter, specific accounts or items for efficiency of surveillance.

(2) Even in application of paragraph (1) above, the SFC shall extend the scope of surveillance if it detects other serious suspicions in the course of the initial surveillance.

§51. Investigation

(1) The SFC may conduct investigation using the following methods when necessary for effective surveillance.

1. Request for submission of data, a written opinion or a report pursuant to Article 15-2 paragraph (1) of the Act;

2. Inspection of accounting books and documents or investigation of operations and financial condition pursuant to Article 15-2 paragraph (1) of the Act; and

3. Request for submission of data pursuant to Article 18-2 of the Act.

(2) The SFC may also conduct investigation under the Regulation on Investigation of Securities and Futures Transactions if it detects suspicion about violations of the Securities and Exchange Act or the Futures and Exchange Act in the course of investigation pursuant to paragraph (1) above.

Section 2.

Follow-Up Measures

§52. Follow-Up Measures

When the chairman of the SFC finds evidence of violating the Act, such as false accounting and improper auditing (hereinafter referred to as "violation"), he shall submit a report of surveillance and a proposal for follow-up measures to the SFC pursuant to the provisions of this section.

§53. Penalty on Accounting Firms and Audit Teams

(1) The SFC shall take the following measures against the violation by accounting firms and audit teams.

1. Suggestions to the Minister of MOFE

a. Cancellation of registration of the accounting firm;

b. Suspension of partial or entire operations of the accounting firm up to one year; and

c. Cancellation of registration of the audit team

2. The SFC's exclusion of the auditor from auditor designation

a. Exclusion from auditor designation up to three years; and

b. Exclusion from auditor designation for a certain number of companies (within the limit of 5/100 of audit contracts during the year immediately before the year of taking measures and 25, whichever is smaller).

3. Restriction of audit service for specific companies up to five years

4. Additional contributions to the joint fund for indemnity pursuant to Article 17-9 of the Decree (within the limit of the audit fee received or to be received from the company for which the audit report was falsely made)

5. Other necessary measures, such as correction order, request for submission of a memorandum (in which the auditor should promise to comply faithfully with the Auditing Standards), and warning

(2) When taking measures pursuant to paragraph (1), the SFC shall take preferential measures under subparagraphs (3) through (5) or the Regulation on Research Business of Securities and Futures, and may impose auditor of demerit points in line with the nature of violation.

(3) Where demerit points imposed upon auditor under paragraph (2) add up to a certain extent during a specified period, measures provided under paragraph (1) subparagraphs (1) through (2) may be taken against the auditor.

§54. Penalty on CPAs

(1) The SFC shall take the following measures against CPAs involved in the violation.

1. Suggestions to the Minister of MOFE

a. Cancellation of registration

b. Suspension of license up to two years

2. One-year restriction of audit service (limited to audit services for listed companies, registered companies, and companies designated by the SFC)

3. Restriction of audit service for specific companies up to five years

4. Completion of professional education program of the KICPA up to twenty hours

5. Other necessary measures, such as correction order, request for submission of a memorandum (in which the auditor should promise to comply faithfully with the Auditing Standards), and warning

(2) In imposing penalties pursuant to paragraph (1), the SFC shall discriminate a principal offender from an accessory on the following bases if there are two or more CPAs involved with the violation.

1. In the case of violations corresponding to subparagraph 1 of paragraph (1), the partner in charge (the CPA in principal charge in case of an audit team) shall be deemed the principal offender and the manager in charge (CPAs other than the principal offender in case of an audit team) shall be deemed the accessory offender.

2. In the case of violations not corresponding to subparagraph 1 of paragraph (1), the manager in charge shall be deemed the principal offender and the partner in charge shall be deemed the accessory offender.

(3) In imposing penalties pursuant to subparagraph 1 of paragraph (1) in connection with paragraph (2), the SFC may impose necessary penalties on the following CPAs of an accounting firm or audit team:

1. Representative partner who signed the audit report

2. Reviewing partner for the audit report

3. Partner who signed the audit contract (only when involved in the audit)

4. Other supervising partners

§55. Penalty on the Company

(1) The SFC shall impose the following penalties when a company violated the Act.

a. Restriction of issuance of securities up to one year

b. Recommendation of dismissal of officers

c. Auditor designation or request for auditor change up to three years.

d. Other necessary penalties, such as correction order, request for submission of a memorandum (in which the company should promise to comply faithfully with the Financial Accounting Standards for Business Enterprises), and warning.

§56. Charges of Violations

(1) The SFC may charge the related parties when they intentionally violate any subparagraph of Article 20 paragraph (1) to (3) of the Act. The SFC, however, may notify the Public Prosecutor's Office of their violations instead of charging them in consideration of motives, causes and effects of violations.

(2) When the SFC determines that there is a suspicion of violation, which needs compulsory investigation, it may ask for the Public Prosecutor's Office's investigation.

§57. Criteria for Taking Follow-Up Measures

The SFC shall consider the following when taking the measures pursuant to Article 53 to Article 56:

1. Qualitative and quantitative importance of the contents of violation;

2. Intentional or non-intentional violation, and the extent of error;

3. Whether the violation is related to the provisions of other laws or not; and

4. Whether the violation is related to the policies of the Government or not.

§58. Aggravation of Penalty

(1) The SFC may increase the penalty when an accounting firm, a CPA or a company violates the Act again within two years from the date of the previous penalty.

(2) The SFC may impose multiple penalties, when necessary, in application of Article 53 to Article 56.

(3) [Deleted December 8, 2000]

(4) The SFC may increase or decrease the penalty in consideration of each subparagraph of Article 57 and the context of the violation.

(5) [Deleted December 8, 2000]

(6) [Deleted December 8, 2000]

§59. Public Announcement of False Accounting and Improper Auditing

The Governor shall publicize the results of surveillance and the follow-up measures through the FSS Internet Home Page and notify the following institutions of these facts:

1. Financial institutions under Article 7 paragraph (2) of the Enforcement Decree of the Corporate Restructuring Promotion Act.

2. KICPA;

3. Korea Stock Exchange and KOSDAQ;

4. Korea Federation of Banks, Korea Securities Dealers Association, Korea Life Insurance Association, Korea Non-life Insurance Association and Korea Investment Bankers Association, Korea Credit Financial Association, Korea Mutual Savings Bankers Association, Korea Investment Trust Association.

5. Rating and appraisal agencies for debentures designated by the regulation of FSC;

6. National Tax Office; and

7. Korea Fair Trade Commission (only in the case of false accounting by a company which is an affiliate of the business group under the Monopoly Regulation and Fair Trade Act).

§60. Hearing Procedures

(1) When a violation of the Act is found, the Governor shall give the related parties, the company and the auditor an opportunity to present an opinion regarding the violation.

(2) The hearing under paragraph (1) shall be conducted by use of a written inquiry and questions & answers. If no response is made, it is deemed that they have no opinion.

§61. Notification of Objection Procedures

The SFC shall give the parties concerned a notice of procedures which they need to know, such as procedures of application for administrative litigation or an appeal of dissatisfaction, as to the measures taken under the provisions of this Regulation.

§62. Claim for Reexamination

(1) In the case that the violators consider the penalty imposed under this Regulation illegal or unfair, they can make a claim for reexamination within one month from the date at which the penalty has been imposed.

(2) When a claim for reexamination is made under paragraph (1), it should be accompanied by relevant documentation.

(3) For the matters reexamined under the provision of paragraph (1), no additional claim for reexamination can be made.

§63. Application of Provisions

The provisions of Article 53 to Article 58 shall be applied to improper auditing detected from the review of audit reports by the KICPA under the provision of Article 67.

§64. Ex Post Supervision

(1) The Governor may order the violators to report on whether they have fully performed the duties imposed under this Regulation.

(2) When it is deemed that the violators have not fully performed their duties, the Governor shall ask the SFC to take necessary actions.

§65. [Deleted]

§66. [Deleted]

Section 3.

Delegation of Surveillance

§67. Delegation of Surveillance

(1) The SFC shall delegate the authorities for the following to the KICPA. However, this provision does not apply to surveillance of audit reports which the chairman of the SFC deems necessary.

1. Surveillance of audit reports for companies other than listed or registered companies;

2. Call to submit documentation related to the surveillance under subparagraph 1 above; and

3. Recommendation of cancellation of registration to the minister of MOFE, restriction of audit service, and other necessary measures pursuant to Article 16-1 of the Act.

(2) The KICPA shall obtain approval from the SFC when it formulates or amends related regulations which are necessary in performing the surveillance delegated pursuant to paragraph (1).

(3) The SFC shall delegate to the Governor the authority to receive the KICPA's report on surveillance and to take necessary actions under the provisions of Article 9 paragraph (5) and Article 9 paragraph (6) of the Decree.

§68. Report on Results

(1) The KAI shall immediately report to the FSC important details of setting of accounting standards pursuant to [Article 7-2 paragraph (1)] of the Decree, accompanied by the following documentation:

1. Necessity and progress of formulating or amending accounting standards;

2. Summary of the formulation or amendments;

3. Results of opinion inquiry;

4. Tables comparing old provisions with new ones; and

5. Agenda items and the minutes of Korea Accounting Standards Board.

(2) The FSC shall delegate to the SFC the matters concerning acceptance of the report pursuant to paragraph (1).

(3) The SFC shall report to FSC semiannually the matters concerning the acceptance of the report pursuant to paragraph (2).

§69. Assistance

(1) The Governor shall assist the FSC for the matters delegated pursuant to [Article 7-2 paragraph (1)] of the Decree in the following manner:

1. Review of the report made pursuant to Article 68; and

2. Preparation of agenda for the FSC.

(2) In dealing with the matters related to paragraph (1), the Governor may apply the procedures prescribed in [Article 39 through Article 45].

§70. Conference

The president is in conference with the directors.

(1) The Governor may request conference with the KAI for effective standard- setting pursuant to [Article 7-2 paragraph (1)] of the Decree.

(2) The Governor may request the KAI to submit relevant documentation in relation to Article 69.

§71. Preparation of Operation Manuals

(1) The KAI shall prepare and keep its operation manuals pursuant to [Article 14 paragraph (1)] of the Regulation of Authorization and Delegation of Administration Authorities.

(2) The KAI shall obtain approval of the Chairman of the FSC for its operation manuals.

§72. Payment of Funds

(1) The funds supplied by the FSS to the KAI pursuant to [Article 7-2 paragraph (3)] of the Decree shall be determined on the basis of issuing charges collected pursuant to [Article 8] of the Collection Allotted Charges after deducting excessive collection.

(2) The payment of funds prescribed in paragraph (1) shall be made quarterly in principle.

CHAPTER VIII.

SUPPLEMENTARY PROVISIONS

§73. Allowances

(1) Payment of allowances or reimbursement of transportation expenses and other necessary expenses may be made, within the limit of the budget of the SFC, to the committee members mentioned in subparagraphs 3 to 5 of Article 24 paragraph (1), subparagraphs 3 to 8 of Article 25 paragraph (1) and subparagraphs 1 to 3 of Article 41 paragraph (2) and the persons attending the Accounting Policy Deliberation Committee or the Surveillance Committee in accordance with [Article 32].

(2) The Governor may have external research conducted in order to improve accounting standards.

§74. Forms

The SFC may specify the format of reports necessary in implementing this Regulation.

§75. Delegation of Power

(1) The SFC shall delegate its authorities to the Governor for the matters listed below. When the Governor sets detailed provisions for the matters related to subparagraph 11 below, an report thereof shall be immediately made to the SFC.

1. Matters regarding acceptance and review of the documents submitted to the SFC pursuant to [Article 3 & Article 15], and [Article 2-2, Article 4-3, Article 10, Article 11, Article 12, Article 16, Article 17, Article 18, Article 22] of the Decree;

2. Matters regarding notification pursuant to [Article 5 & Article 15];

3. Matters regarding order to submit of documentation pursuant to [Article 6, Article 9 paragraph (2), Article 11 paragraph (3), Article 18 paragraph (2) to (3)];

4. Matters pertaining to the auditor designation provided under Articles 10 and 13;

5. Matters concerning composition of committee members pursuant to [Article 24, Article 25 & Article 41 paragraph (2)];

6. Matters concerning draft formulation of accounting standards, etc. pursuant to [Article 39];

7. Matters regarding preparation of the initial draft, exposure draft, and final draft of accounting standards, etc. pursuant to [Article 42, Article 43, Article 45];

8. Matters regarding advance notice pursuant to [Article 44];

9. Matters regarding surveillance pursuant to [Article 48 through Article 50];

10. Matters regarding investigation pursuant to [Article 51];

11 Establishment of detailed provisions for the follow-up measures pursuant to [Article 53 through Article 58]; and

12. Matters regarding forms pursuant to [Article 74].

(2) When the Governor designates auditors pursuant to subparagraph 4 of paragraph (1), a report showing the details of auditor designation during the year shall be submitted to the Chairman in January of the next year.

(3) Other details necessary in implementing this Regulation shall be delegated to the Governor.

Addenda

(March 12, 1999)

§1. Effective Date

This Regulation shall be effective on March 13, 1999.

§2. Applicability to Auditor Designation

The provision regarding listed corporations in subparagraph 4 of Article 10 paragraph (1) and subparagraph 2 of Article 18 paragraph (1) shall be applied to the designation of auditors for the fiscal year beginning on or after January 1, 1999. For the auditor designation for the fiscal year beginning on and after January 1, 1997, the ratio shall be 40/100, and it shall be 30/100 for the fiscal year beginning on or after January 1, 1998.

§3. Applicability to Accounting Corporations Qualified for Auditing Financial Institutions

The provisions of Chapter IV shall be applied to auditor designation on or after December 11, 1998.

§4. Interim Measures for Appointment of Auditors by Recommendation of Appointment Committee

In the case that a listed corporation which appointed the same auditor as the auditor for the consecutive three (3) years pursuant to＿Article 4-2 paragraph (1)ａof the Act changes to the auditor approved at the shareholders' meeting upon recommendation of the Appointment Committee in the fiscal year beginning on or after April 1, 1998, it may appoint that auditor, notwithstanding＿Article 4-2 paragraph (2)ａof the Act, without approval of the SFC for dismissal of the previous auditor.

§5. Interim Measures for Term of Committee Members

The term of the initial committee members of the Accounting Standards Deliberation Committee shall, notwithstanding ＿24 paragraph (3)ａ, be two (2) years for three (3) persons, and three (3) years for four (4) persons, while the term of the initial committee members of the Surveillance Committee shall, notwithstanding＿Article 25 paragraph (3)ａ, be two (2) years for two (2) persons, and three (3) years for four (4) persons.

§6. Interim Measures Regarding Repealing of Previous Regulation

(1) The previous Regulation on Auditor Designation, the previous Regulation on Accounting Corporations Qualified for Auditing Financial Institutions, the previous Regulation on Professional Deliberation Committees and the previous Supervision Regulation (hereinafter referred to as the "previous Regulations") shall be repealed from the effective date of this Regulation.

(2) As for the decisions made by the SFC, its Chairman, and the Governor under the previous Regulations, they shall be regarded as made pursuant to this Regulation.

§7. Relations to Other Regulations

When reference to the previous Regulations is made in any other regulations as of the effective date of this Regulation, that reference is regarded as the reference to this Regulation. As for the matters deliberated by the Accounting Standards Deliberation Committee and the External Audit Deliberation Committee under the previous Regulations prior to the effective of this Regulation, they are regarded as deliberated by the Accounting Standards Deliberation Committee and the Surveillance Committee pursuant to this Regulation.

Addendum

(April 18, 2001)

This Regulation shall be effective on the date of promulgation.

Addenda

(October 17, 2001)

§1. Effective Date

This Regulation shall be effective on the date of promulgation.

§2. Applicability to Demerit Point Scoring System

The amended provisions of Article 53 paragraphs (2) and (3) shall be applied to audit reports on financial statements for the business year-end after December of 2000.

Addenda

(October 31, 2001)

§1. Effective Date

This Regulation shall be effective on the date of promulgation.

§2. Applicability to Attachments of Audit Report

The amended provisions of Article 16-2 shall be applied to audit reports on financial statements for the fiscal year ending on December 31, 2001.

Addenda

(January 3, 2003)

§1. Enforcement Date

This Regulation shall be effective on the date of promulgation.

§2. Applicable Cases on the Amended Provisions of Annexed Table Subparagraph 2

The amended provisions of the annexed Table 2 subparagraph 2 shall be applied from April 1, 2003, in which event the provisions on the audit action point calculation standards and weight shall be applied to the recent 1 year for 2003 and recent 2 years for 2004, whereas the weight each be applied by 50 and 30 percent each starting the recent business year.