Public sector audit in the Republic of Korea consists of external audit conducted by the Board of Audit and Inspection (BAI) and internal audit performed by internal audit bodies within central administrative agencies, local governments and public institutions (hereinafter referred to as central administrative agencies). As good governance in public sector audit can be promoted by both internal and external audits, the BAI alone cannot ensure the accountability in the public sector without effective internal audit services. To ensure that internal audit bodies exercise their internal control and audit functions within the specific legal arrangement, the Act on Public Sector Audit was enacted in 2010.

The Act was enacted for the purpose of ensuring sufficient independence and power of discretion for internal audit bodies to carry out their duties. It prescribes (1) fundamental matters concerning the composition, operation, etc., of internal audit bodies, (2) matters necessary for establishing efficient audit systems, and (3) mandates to enhance the cooperative relationship between internal audit bodies and the BAI.

Independence

Internal audit bodies can accomplish their tasks when they are independent from the auditees and are protected against outside influence. For this, the independence of internal audit bodies should be anchored in the legislation. The Act obliges central administrative agencies, local governments and public institutions to have internal audit bodies, and to ensure that internal auditors remain independent in performing their duties. It is also prescribed in Articles 8, 9 and 10 of the Act that the heads of internal audit bodies shall be hired through an open recruitment process and their terms of office be guaranteed.

Professionalism

Professional competence is one of the most significant factors when performing internal audit activities and, as such, internal auditors should possess the knowledge, skills and expertise necessary to successfully complete the audit. Considering the importance of recruiting qualified personnel, the Act and the Enforcement Decree describe essential issues related to the appointment of internal auditors, such as qualifications necessary to be appointed for the position. According to the Act, internal auditors are offered training services so as to maintain their professional competence, and due to the difficulty of their work, the heads of central administrative agencies may show them preference during performance evaluations.

Effectiveness

To ensure the effectiveness of internal audit, Article 20 of the Act prescribes that internal audit bodies have access to all records and documents relating to financial management, and that they can request, orally or in writing, any information deemed necessary to perform their internal audit activities. Standardized audit procedures, re-examination procedures and the obligation of publishing reports are prescribed in the Act to promote the production of high quality audit reports.

Cooperation

To promote cooperation between internal audit bodies and the BAI, the Act prescribes that an “Audit Activity Coordination Council” be established within the BAI to consult and coordinate on matters such as cooperation among internal audit bodies, comprehensive audit plans, audit standards, and so on. The Act also prescribes that the BAI shall provide necessary support and share audit methods and techniques with internal audit bodies.

The Bureau of Public Sector Internal Audit is dedicated to promoting good governance in the field of public sector audit by strengthening constructive relationships with internal audit bodies. For example, the Bureau provides support to internal audit bodies by (1) evaluating the performance of internal audit activities, (2) providing consulting and advisory services, and (3) offering human resources training programs.

Evaluation

The Bureau evaluates the performance of internal audit activities and audit results, and examines whether internal audit bodies observe auditing standards, codes of audit practice, etc., when performing their duties. If deemed necessary, the Bureau recommends internal audit bodies to improve audit practices and to amend relevant rules and regulations. In cases where internal audits are considered to be well-conducted, the entities concerned may be exempt from being audited by the BAI as long as there are no issues regarding the settlement of accounts.

Internal and External Auditors’ Meeting

The Bureau holds an auditors’ meeting in which internal auditors, BAI auditors and heads of external auditors come together regularly on an annual basis. Auditors discuss their audit plans, auditing methods, and any other issues needing coordination between the BAI and the internal audit bodies.

Capacity Building

The Bureau provides internal auditors with online and offline training courses, focusing on areas of accounting and auditing to maintain their professional competence. In addition, the BAI provides consulting and advisory services to internal audit bodies with regard to their audit plans and auditing methods.

In addition, the BAI and internal audit bodies have put forth a cooperative effort to improve the public audit system, as well as to strengthen the responsiveness, accountability, effectiveness and public integrity in the field of public sector audit.

Audit Activity Coordination Council

Pursuant to Article 31 of the Act, the Audit Activity Coordination Council was established within the BAI to consult and coordinate on matters concerning the improvement and development of the audit system. The council is comprised of not more than 20 members from various fields.

Improvement Measures

According to the Act, the heads of central administrative agencies are to develop and implement measures to improve the functions of their internal audit bodies. Improvement measures include software aspects (e.g. internal audit procedures, internal audit standards, related regulations) and hardware aspects (e.g. composition of internal audit bodies). Taking into account all improvement measures prepared by the central administrative agencies, the BAI also prepares comprehensive improvement measures for the purpose of enhancing independence, professional competence and effectiveness of internal audit bodies.

Coordination

The BAI and internal audit bodies (heads of central administrative agencies) continuously engage in communication with one other, sharing information on internal and external audit management plans, risks to be controlled and managed, and so on, to coordinate audit plans, prevent audit duplication and enhance audit efficiency.

Public Audit Information System

The BAI developed the “Public Audit Information System (PAIS)” to facilitate communication and sharing of information between internal audit bodies and the BAI. The PAIS creates a platform where internal and external auditors can come together to share their best practices and expertise.