By what procedure is the Financial Supervisory Service's accounting review conducted?

The Financial Supervisory Service's accounting review is generally conducted in two distinct stages: the examination stage and the review stage.

First, at the examination stage, whether there was a violation of accounting standards is reviewed, focusing on the company's financial statements and disclosure materials, and examination targets are selected through random sampling, tips, media reports, and the like.

After notifying the company that the examination has commenced, the Financial Supervisory Service, if unusual matters are found in the accounting treatment, requests the submission of related materials and reviews the company's explanation.

As a result, if there is no violation of accounting standards, the matter is concluded as no charge, and even if there is a violation, if it amounts to mere negligence and the correction recommendation has been implemented, it is concluded with a light measure.

However, if a violation of accounting standards is judged during the examination to be intentional or grossly negligent, if a repeated violation is confirmed where there is a prior record of sanctions, or if the Financial Supervisory Service's correction recommendation is not implemented, the matter converts to the review stage.

At the review stage, the submission of extensive materials is required, such as the company's accounting books, related contracts, and audit working papers, and, as necessary, financial transaction inquiries, securing statements from relevant parties, and even on-site inspections may be conducted.

If a violation of accounting standards or auditing standards is confirmed as a result of the review, various sanctions may be imposed, comprehensively considering the motive of the violation and its effect on the financial statements, such as a penalty surcharge, the designation of an auditor, sanctions against executives, and notification to the prosecution.

Because the outcome of an accounting review can vary greatly depending on the initial response, it is important to respond systematically by obtaining advice from an expert with experience in handling accounting reviews from the examination stage.