Korea’s major accounting firms are engaged in a cutthroat battle to attract more corporate clients given that most of their current contracts with some of the leading Korean conglomerates are scheduled to expire next year

2013-08-04 18:20

Accounting firms vying for survival

By Na Jeong-ju
The nation’s major accounting firms are engaged in a cutthroat battle to attract more corporate clients given that most of their current contracts with some of the leading Korean conglomerates are scheduled to expire next year. Industry sources say that more than 500 companies, including Samsung, POSCO, Doosan, CJ and KB, will decide on whether to renew their current accounting contracts with the same firms or find different accounting firms for fresh contracts. The planned implementation of new accounting standards is making the competition even fiercer.“So far, affiliates of a conglomerate have been allowed to select different accounting firms, but doing so won’t be virtually impossible once the new standards take effect next year,” an industry source said. “That’s because an auditor for the parent company must assume responsibility for the audit results of its subsidiaries under the new standards.
This means all affiliates under the same parent group may select the same auditor to secure accounting consistency. That’s a global trend.”
As the battle among the country’s top four accounting firms — Samil PwC, Deloitte Anjin, Samjong KPMG Advisory and Ernst & Young Korea — is getting fiercer, smaller firms are being pushed to the corner.
The introduction of the universal accounting system will make it more difficult for small accounting firms to secure clients.
“There has been a customary rule in this industry — large auditors work for large firms and small firms for small auditors,” the source said. “Under the new system, however, an auditor for a holding company would be given the rights to audit all of its subsidiaries. That’s a matter of survival for small accounting firms.”
According to the Financial Supervisory Service (FSS), the top four auditors controlled a combined 55 percent market share as of 2012. The remaining 45 percent was shared by some 130 smaller accounting firms.
Once the new rules are implemented, the gap between the top four firms and their smaller competitors may widen further.
The FSS plans to introduce a monitoring system for the quality of accounting services in a bid to secure fair competition between big and small accounting firms. Small firms, however, claim that’s not enough.
“We are losing our clients to big firms,” said a Seoul-based auditor who provides services to 10 small corporations. “Some of my clients are affiliated with chaebol, so their auditors could be chosen by their own parent company next year. That’s a big challenge for us.”
In the case of SK Group, the holding company is being audited by Samjong KPMG Advisory, but its key subsidiaries, such as SK Networks, SK Innovation and SK Broadband, are being audited by different firms.
Hyundai Heavy Industries, Hanwha, LG and other conglomerates are also utilizing a similar system — multiple accounting firms are providing services to their affiliates.
“The groups will have to select only one accounting firm. That will be a bonanza for the lucky one, but other accounting firms will lose jobs,” another source said.
Last year, a total of 20,072 firms listed on the stock market received auditing services from accounting firms. Among them, some 7,800 had parent companies, according to the FSS.