FSC Press Release of October 24, 1998

FSC Holds a Public Hearing on Accounting Standard Revisions

The Financial Supervisory Commission (FSC) in collaboration with the Securities Supervisory Board (SSB) held a public hearing on Thursday, October 22nd for the purposes of gathering public opinion with regards to Exposure Draft of Revisions to Accounting Standards, which was deliberated at the Korea Financial Accounting Standards Board. Such standards will be presented at the Securities and Futures Commission and there after will be officially enacted by the Financial Supervisory Commission.

By incorporating intended revisions, the new accounting standards is expected to become more consistent and conform better with international standards, thereby enhancing transparency of accounting information and improving reliability of financial statements as well.

Major Features

  1. Recognition of gain/loss arising from foreign currency translations

- Gain/loss arising from foreign currency translations relating to long-term monetary foreign currency assets and liabilities may not be deferred and instead shall be recognized as expense/profit for the corresponding period. Some have been expressing the need for a 2-3 year deferral of portions of such provisions.

  1. Expansion of scope of assets/liabilities subject to present value method

- Present value method (calculation of present value of expected future cash flow discounted at effective rate) shall be applied either when claims are made against long-term loan and borrowing transactions or debt restructuring is effected under court receivership. It has been suggested that this method should only be applied in cases where the difference in valuation is material.

  1. Mandatory application of equity method for investment in associates

- Equity method shall be mandated for investment which hold significant influence.

  1. Elimination of asset revaluation

- Provisions relating to asset revaluation will be removed from standards and instead will be recognized until December 31, 2000 under supplementary provisions.

  1. Valuation of securities

- A fair value concept will be introduced whereas the scope for impairment losses will be expanded.

  1. Accounting treatment of intangible assets

- As for development costs, only for cases where prescribed criteria are satisfied may it be capitalized, whereas intangible assets will be eligible for amortization for a period in which economic benefits may be realized.

  1. Changes in accounting principles and error correction

- Changes in accounting principles will be made in accordance to current-period recognition method and error correction will made on a retroactive basis. There are those that stress the need to strengthen the criteria for making changes.

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