Essay: IFRS – Korea

Essay details:

  • Subject area(s): Finance essays
  • Reading time: 10 minutes
  • Price: Free download
  • Published on: November 23, 2015
  • File format: Text
  • Number of pages: 2
  • IFRS - Korea
    0.0 rating based on 12,345 ratings
    Overall rating: 0 out of 5 based on 0 reviews.

Text preview of this essay:

This page of the essay has 2719 words. Download the full version above.

Korea’s accounting system has a long history as it faced a lot changes through the years. As the technology evolution, begun, new easier methods where introduced by the years for recording simpler the transactions of bookkeeping. However through the years of accounting history important fluctuations were made as many economical changes affected the world that lead to affection of accounting standards all over the world and also Korea’s.
Therefore through all this changes Korea decided to divide the changes in for there accounting system through seven periods. The first seven periods where divided because of the changes based on the economical factors and historically events. The seven periods were commencing from 1910 ‘ 2007. Following on the Roadmap towards IFRS adoption starting in 2007 and fully adopting IFRS in the beginning of 2011, with an early voluntary adopting in 2009.
Korea’s accounting standard system was developed through the years and was divided into 7 periods.
Korea’s first period begun on 1876. Before the country was influenced by the Western culture, Korea had on-going collaborations with countries overseas. Based on the first period Korea introduced a new accounting bookkeeping method named ” Sa- Gae -Song-Do-Chi-Bu- Bub”. This method was grounded for recording the tangible accounting.
Continuing to the second accounting period, which was introduced in 1876 to 1910, the country had a major impact by the Western countries and Japan. (Gary John Previts, 2011)
Korea was occupied by Japan in 1910 that lead to a big influence on the accounting standards system methods of the country. Therefore Korea had two different accounting methods in use at the same period of time.
As mentioned before the Korea applied ”Sa- Gae -Song-Do-Chi-Bu- Bub” double entry bookkeeping method was in use and also the Western accounting double entry bookkeeping method. Loca Paciolo’s where the first to invent double entry bookkeeping method, which the Western where affected.
Through the third period, which was stated between 1910 and 1945, Korea was forced by Japan to apply Japan’s rules and procedures. (Gary John Previts, 2011).
Nevertheless at the end of the Second World War Japan had to surrender to the United Stated and release Korea in 1945. Even though Korea was free to rule on its own yet the Korean accounting double entry method vanished as Japan had already introduced and forced Korea to work under the Japanese accounting double entry methods system.
Korea was occupied by Japan for 36 year until 1945.After the liberation of Korea there was the forth period mentioned in 1945 till 1958 where Korea was able to organise, practise and finally introduce the very first accounting standards methods of the country. (Gary John Previts, 2011)
After 36 years Korea was able to introduce it is own accounting standards in 1958. (Gary John Previts, 2011)
After all in 1958 Korea faced a war within the country and that lead the country to a division. Korea was then split in two the North Korea and the South Korea. In addition there are not specific information that show progress or innovation to the side of North Korea so the accounting standards of Korea are mostly based on the South Korea.
However after 1958 that Korea faced the inside war of the country, various internal issues continue challenging the country. (Gary John Previts, 2011)
These issues had affect to the countries rise not just on the accounting standards research and application establishment but also to the countries economy in general.
The accounting system of Korea was affected by the Japanese and the United States accounting standards rules and methods which made it even harder for Korea to prepare and introduce a new accounting standard reporting method.
The beginning of 1959 to 1981, the fifth period, Korea had already introduced the countries first Corporate Accounting Principles in 1958 by the third period. (Gary John Previts, 2011)
Korea by developing the accounting standards methods, there was application from external laws known as the Commercial Law and also the Securities Exchange Act. These acts where both used and apply by Korea in 1963 that broad a rapidly increase of the countries economy. Koreas economy continue to arise for a period of 5 years and new strategies where applied and formed in order to keep the rapidly increase. Through the countries high performance and constant rise, brand new accounting standards in a wider section of methods where introduced.
Until 1982 and 1998, the sixth period, Korea maintained a constant increase which help lead the country to a wider market, by entering the stock market overseas. Before that Korea became part of the Economic co-operation and development (OECD). This was a dangerous decision but Korea had to find a way to keep the countries growth to the maximum, by entering a wider market and going overseas there where more possibilities for the country to rise but also fall.
Period number 7 which is also the last period, was in 1998 and 2007, by Korea going foreign, there was an introduction of the international accounting standards and auditing standards to the country in order to be able to communicate and understand the same regulations in a simpler way.
The reason why Korea has to follow the International Accounting Standards board was after the crisis of the different currencies all over the world that took part in 1997. (Invest Korea, 2006)
It is stated that Korea faced a big crisis in 1997-1998 and practically lead the country to bankruptcy. (The Economist, 2000)
In order for the country to make it through without reaching a bankruptcy, the government allowed the population of the country to extend the debts to long term debts and decrease the rate payable (Cho and Kim, 1997)
The reasons that lead Korea to a bankruptcy case, was due to the poor accounting standards board system the country had at the beginning. Korea was ruled under Japan and could not take their individual decisions as a country. After Korea was released there were some internal historically events that took place and lead the country to a corruption.
However the following years there was a rapidly growth that changed positively the countries economy. However these also lead to a new corruption. Through a sustainable and rapidly economic growth is known as a booming effect. When there is a big growth eventually at a time there will be a rapidly decrease.
The Roadmap towards IFRS adoption in Korea started in February 2006 with discussions from working groups. This was followed by the effort to improve Korea’s economy, culture and image by showing that Korea is willing to take part in international movements towards a single of set of high quality of global accounting standards and rules, laws, regulations and professional preparation of statements. (n/a, IFRS, 2012)
The following working Groups were formed by the FSC (Financial Services Commission), The FSS (Financial Supervision Service), the Ministry of Strategy and Finance, the KSAB (Korea Accounting Standards Board) and the Korea Listed Companies Association, the Korea Federation of Small and Medium Business, KICPA (Korean Institute of Public Accountants), the Korea Accounting Association (KAA), and several Accounting Firms with a total of 16 members. The First Working Group was dealing with Administrative issues and the overall adoption strategy, which was led by the FSC, the Second Working Group was dealing with the formation of Consolidated Financial Statements and Disclosure of information and also with Regulation Issues, which was led by the FSS. (n/a, IFRS 2012)
Finally the last Working Group was analyzing the differences between the current Korea GAAP with the IFRS and general International co-operation, which was led by the KASB. The Task Force of the IFRS adoption in Korea was initiating monthly meetings to discuss the issues from February 2006 until August 2006. In 21 November of 2006 they held a public meeting to receive feedback from various sectors, and finally announced on 15 March 2007 the Roadmap towards the IFRS adoption in Korea. (n/a, IFRS 2012)
The events that occurred and motivated Korea to adopt IFRS, economically speaking were that they wanted to enhance foreign and domestic investors view and transparency of the financial statements provided by the Korea Private Firms and Entities. This was triggered by the Korean Financial crisis in 1997(n/a, IFRS 2012). This begun when the Korean Government on November 21 1997, which requested funds from the IMF (International Monetary Fund) to relief their total external debts which accounted to 61% in 1996 to resolve their liquidity problems, and this eventually caused a financial crisis in Korea. Foreign investors were uncertain for the future of Korean economy and had withdrawn their funds from Korean market. As a result of this an external liquidity crisis had began and ultimately had brought the financial crisis in Korea. ( Kihwan K ,2006)
Robert Wade described the Asian Slump was caused not only stacked by the vulnerabilities in the real economy, with outrageous investors withdrawing of their funds as the trigger of this financial crisis, but also the poor regulations of the national and international financial markets, was seen as the number one cause for the financial crisis. (Wade, 1998a, p.693).
In addition with the agreement of Korea and the IBRD (International Bank for Reconstruction and Development) to establish an independent private-sector accounting standard enhance accounting transparency. Another motivation of the IFRS adoption was that Korea was affected from the global trend of ‘the convergence of accounting standards. Korea is a small emerging economy and was depending on it’s international trades it was necessary to follow this global trend and therefore was planning a roadmap for the IFRS adoption. (N/A IFRS 2012)
Korea fully adopted IFRS in the beginning of 2011 and with permission of an early adoption from 2009. The Roadmap required a word-by-word translation of the Korean IFRS to the English IFRS to minimize compliance costs by the end of 2007. Including laws and regulations relating to the accounting standards. In 2011 it was required for Korean companies to prepare quarterly and half-year financial reports, including consistent consolidated financial statements under IFRS. (N/A IFRS 2012)
In addition in 2013 companies with a value of their total assets accounting less than 2 trillion KRW to prepare for two additional years of quarterly and half-yearly financial statements.
Korea followed to apply a heavy and single non-periodic approach in certain period of time to adopt IFRs instead of following a phased or convergence approach. This heavy minimal approach Korea followed for believed to be a more ideal and innovating way in order to take part in this global international movement trend towards a single set of global accounting rules and standards. (N/A IFRS 2012)
Followed on IFRS adoption switched the single tier accounting system of Korea (Korean GAAP only) to a two-tier accounting system IFRS and Accounting Standards for Non-Public Entities. Thus this resulted to benefit investors by providing them with information for future economic decisions provided by the high quality accounting standards, laws, regulations and professional accounting preparations. Therefore the Roadmap required IFRS only listed companies and financial institutions to apply the standards under the Korean IFRS. With contrast to non-listed companies with their stakeholders are minimum to avoid IFRS compliance burden by applying the Accounting Standards for Non-Public Entities under the Korean IFRS. (IFRS, 2012)
As a sum up to all these changes in the Korea Accounting system 14 entities early adopted IFRS 2009, 59 entities early adopted IFRS in 2010 and a total of 3,126 entities, including 1,783 listed entities, 201 non-listed financial institutions and 1,142 non-listed entities started to apply IFRS in 2011. ( N/A IAS, 2013)
During the period of the Roadmap towards IFRS adoption in Korea announced in 2007, big efforts were taking in place for the reform of the entire accounting system to be exact as required by IFRS. Despite the numerous efforts, users, preparers and auditors of the financial statements came to various challenges and implications for adapting the new accounting standards, laws, regulations and accounting preparations. As for any new member country that will follow IFRS some core difficulties cannot be avoidable. Korea needed time to adopt the new system, there was a risk of wide diversity practice, financial costs to companies to hire and train accountants to learn and use the new system. Also there were requests for detailed guidance and interpretations. Therefore there was IFRS education and an operation of a Help Desk for IFRS. Resulting that Korea’s preparers and auditors had to stop their old habits and ways of approach behind and adopt and get used to the new standard required by IFRS. (N/A IFRS 2012)
Firstly by applying principles required by the IFRS rather than specific rules from the Korean GAAP. The Korean GAAP before IFRS adoption included specified and detailed requirements of various different transactions and events. In contrast, IFRS focuses on providing basic principles based on ‘substance over form’, without the need of including numerous information of solid guidance through out. Furthermore the IFRS principles based form states that there are no specific forms for financial statements. As for the statement of financial position and the statement of comprehensive income and the cash flow statement. Limited guidance is provided on how to present items in the financial statements. Thus entities now are allowed to present figures with limited information, except some specified items as required by IFRS.
Such specified items are required by the preparers and auditors to use their professional judgment and expertise. These specified items are under the discloser section by IFRS. Thus the discloser section is becoming more detailed as years go by. Thus more information needs to be provided to help users make future economic decisions about a specific entity. (N/A IFRS 2012).
Secondly Korean GAAP considers the economic substance but IFRS is about the legal form. As Korean GAAP classified redeemable preference shares as equities but IFRS classified them as liabilities. The measure to adapt the change the commercial law was amended and allowed companies to issue hybrid bonds, which meet the meaning of equity. Also in the Korean GAAP when a transfer of receivables meets some requirements of the Securities Law it is considered as a true sale. In contrast IFRS does not necessarily recognize it as a true sale. Thus IFRS encouraged disposing their non-performing trade receivables as straight sales rather then securitization. (Lim, S. 2013 – slide 12-13).
Thirdly preparing consolidated financial statements rather than individual financial statements. From this Korea was challenge to cope with the big change and needed time. As a result there was a exemption for the requirement of entities preparing quarterly and half-year consolidated financial statements for entities with assets less than 2 trillion KRW until 2012. (Lim, S. 2013 slide 14).
Fourthly using fair value measurement rather than historical cost measurement. Korea had to acknowledge the importance of independent valuation professionals and the enhancement on their regulation. Resulting to this IFRS proposed a Fair value measurement group and published a research report in 2011 explaining and differences and requirements. (Lim, S. 2013 slide 15)
While Korea adopting IFRS it was realized that the role of the IFRS Interpretations Committee should be strengthen. The role of the IFRS IC is essential for new adopting members, which face major changes with their old accounting system compared to IFRS. This is because IFRS IC is not expanding proportionally with the increase of the new member countries. Thus measures to overcome this kind of problems IFRS IC should operate on a full time basis and maximizing the number of staff. However this kind of measures are hard to be achieved in the short run.
To conclude, the total of 138 countries that are members of the IFRS are equal to the 96% of the total GDP (Gross Domestic Product) all over the world. Among these 138 countries the 114 countries require all or most of their listed companies to use IFRS. (Prada, M. 2014) Thus the 114 countries out of the 247 countries that exist globally in 2015 are in use of IFRS, which accounts the 46% of the total number of countries worldwide. Most of those countries including Korea adopted IFRS in full with no modifications or exceptions. The result of this full supporting members of IFRS are a role model in the Asia region and also globally. As today ”52% of Fortune Global 500 companies use IFRS in contrast to 29% use the US GAAP, as this IFRS became the dominant reporting language format” (Prada, M. 2014). In addition roughly ten years ago there were no major requirements for the use of IFRS and this is a remarkable transition worldwide in a very short period of time.

About Essay Sauce

Essay Sauce is the free student essay website for college and university students. We've got thousands of real essay examples for you to use as inspiration for your own work, all free to access and download.

...(download the rest of the essay above)

About this essay:

This essay was submitted to us by a student in order to help you with your studies.

If you use part of this page in your own work, you need to provide a citation, as follows:

Essay Sauce, IFRS – Korea. Available from:<> [Accessed 20-09-20].

Review this essay:

Please note that the above text is only a preview of this essay.

Review Title
Review Content

Latest reviews: