Legal grounds established regarding unfair transactions and accounting firms

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Today, I would like to talk about two important notices that I believe will not only contribute to the increase in market efficiency but also to the process of solidifying justice in the financial markets. The first notice is about the addition of new sanction on those involved in unfair trading practices such as stock price manipulation. More specifically, the Financial Service Commission (FSC) from now on will report the investigation data of the investigated, including their personal information and factual grounds to the National Tax Service. However, in order for the investigation to be proceeded, the Securities & Futures Commission (SFC) needs to acknowledge the violation and has to either accuse or report the violators.

For now, the clause that will activate this change is being deliberated by the National Assembly Strategy and Finance Committee. If this change becomes effective, there will be reinforcements on taxing profits gained from unfair trading practices such as inside transactions, market-making, and illegal transactions. And this reinforcement is expected to contribute to the eradication of unfair trading practices and to the expansion of taxing database accumulated in the National Tax Service.그림1

The next notice is about the changed system regarding accountants. If you are an accountant working for Korean accounting firms, you must have felt nervous whenever you put your signature on the final audit reports. This is because had there been detected accounting frauds that the designated accountant could not have caught beforehand, not only the accountant himself but also the accounting firms altogether were put to be in charge of the mistake, which would usually cause a tremendous amount of financial loss to the firm. However, from 2014 the system regarding accountant’s liability for damages will change from ‘joint liability’ to ‘proportional liability.’

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In other hand, it used to be like this: when an accounting firm is responsible for accounting frauds and feigned audit reports, board members of the firm are considered jointly responsible and liable to compensating about the results. However, the system changes, and now the joint responsibility is replaced by compensation responsibility according to ‘imputation rate.’ The reason for the change could be found in that joint responsibility system was in dissonance with various foreign cases as well as in that it had put too much burden on the firms.

– Jaehyun Kim

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