Does your Korean subsidiary need a statutory audit? The thresholds explained (2026)
If your group has a subsidiary in Korea, sooner or later someone at HQ will ask: does this entity need a statutory audit? The answer is in Korea's Act on External Audit of Stock Companies, etc. (the "External Audit Act") and its Enforcement Decree. The rules are not complicated, but they have a few traps that catch foreign-owned companies every year.
This article summarises the rules in force as of November 2026 (Enforcement Decree as amended on 26 May 2026).
Short answer: a Korean company generally needs an annual statutory audit if, at the end of the previous fiscal year, it had total assets or revenue of KRW 50 billion or more, or met at least two of four size tests (assets KRW 12bn, liabilities KRW 7bn, revenue KRW 10bn, 100 employees). Limited companies (yuhan hoesa) use a slightly different test.
1. Companies that are always in scope
Regardless of size, a company is subject to external audit if:
- its shares are listed on a Korean exchange, or
- it plans to list in the current or the following fiscal year.
Most foreign-owned subsidiaries are not in this group, so the size tests below are what matter.
2. The size tests for stock companies (jusik hoesa)
All tests look at the previous fiscal year — the numbers at 31 December 2025 decide whether the FY2026 financial statements must be audited (for a December year-end company).
Test A — one large number is enough. The company is in scope if, in the previous year:
- total assets at year-end were KRW 50 billion or more, or
- revenue was KRW 50 billion or more (annualised if the year was shorter than 12 months).
Test B — two out of four. Otherwise, the company is in scope if it met two or more of these at the previous year-end:
| Criterion | Threshold |
|---|---|
| Total assets | KRW 12 billion or more |
| Total liabilities | KRW 7 billion or more |
| Revenue | KRW 10 billion or more |
| Employees | 100 or more |
Employees are counted as workers under the Labor Standards Act, and the Decree excludes certain categories of workers from the count — if headcount is the deciding criterion, check the exact counting rules.
3. Limited companies (yuhan hoesa) have a different test
Many foreign groups chose the yuhan hoesa (limited company) form partly because it used to be outside the audit regime. Since November 2019 that is no longer true, but the test is a little looser:
- Test A is the same: assets or revenue of KRW 50 billion or more → in scope.
- Test B becomes three out of five: the four criteria above plus "50 or more members (equity holders)", and the company must meet at least three.
Because most foreign-owned limited companies have one or two members, in practice they need three of the four financial/employee criteria.
Anti-avoidance rule: a stock company that converted into a limited company on or after 1 November 2019 is still tested as a stock company (the "two out of four" test) for five years from the conversion registration.
4. Who is out of scope
A company is not required to be audited in the fiscal year in which it was first incorporated. Certain other companies are also excluded — for example, companies in dissolution or bankruptcy, companies that have suspended business for a year or more, and some special-purpose vehicles.
5. Worked examples
| Situation (previous year-end) | Stock company? | Limited company? |
|---|---|---|
| Assets KRW 55bn, revenue KRW 8bn | Audit (Test A) | Audit (Test A) |
| Assets KRW 13bn, revenue KRW 11bn, 40 staff | Audit (2 of 4) | Not required (only 2 of 5) |
| Assets KRW 13bn, liabilities KRW 8bn, revenue KRW 11bn | Audit | Audit (3 of 5) |
| Revenue KRW 30bn, everything else small | Not required (1 of 4) | Not required |
6. The deadlines HQ usually misses
Once a company is in scope, the clock starts at the beginning of the fiscal year, not at year-end.
- Auditor appointment: within 45 days from the start of the fiscal year (around mid-February for a December year-end). If it is the company's first year of statutory audit, the deadline is four months from the start of the fiscal year.
- Financial statements to the auditor: the separate financial statements must be handed to the auditor six weeks before the annual general meeting.
- Audit report: the auditor delivers the report to the company one week before the AGM, and files it with the regulator within two weeks after the AGM. Audit reports of non-listed companies become publicly available on DART, Korea's disclosure system.
A common pattern: the subsidiary crossed the thresholds at 31 December, nobody in Korea flagged it, and HQ only notices in March when the bank or the group auditor asks for the Korean audit report. By then the appointment deadline has passed. Missing it can lead to penalties and to the regulator designating an auditor for you.
7. A quick checklist for HQ
- Pull the Korean entity's previous year-end balance sheet, revenue and headcount.
- Check Test A (KRW 50bn assets or revenue).
- Count how many of the Test B criteria are met — two for a stock company, three for a limited company.
- If the entity converted from a stock company to a limited company after November 2019, check whether it is still within the five-year window.
- If in scope, make sure an auditor is appointed within 45 days of the fiscal year start (four months if it's the first audit year).
If the answer is "it's close", it's worth checking early: thresholds are tested on numbers prepared under Korean GAAP, which can differ from what HQ sees in the group reporting package.
Sources: Act on External Audit of Stock Companies, etc., Articles 4 and 10; Enforcement Decree of the same Act, Articles 5, 8 and 27 (as amended 26 May 2026). This article is general information, not advice for a specific company.