Unlisted Company Shares Under 12 Billion KRW in Assets Are Valued at Cost

[Asia Economy Reporter Eunmo Koo] Financial authorities have established guidelines for unlisted stocks, where uncertainties arise regarding fair value assessment.

On the 21st, the Financial Services Commission announced guidelines related to the fair value assessment of unlisted stocks. Earlier, in March, the authorities provided supervisory guidelines focusing on cases where cost could be used as fair value to alleviate corporate burdens. Following feedback from the field requesting clarification on situations where cost can be used instead of fair value, the existing supervisory guidelines were detailed further to prepare these new guidelines.

The authorities presented cases where cost can be an appropriate estimate of fair value and stated that, when fair value assessment is required, they prepared methods for assessing the fair value of unlisted stocks issued by early-stage startups, referencing global best practices.

According to the new guidelines, unlisted stocks should be assessed at fair value in principle; however, if it is not a case where fair value measurement is required, or if sufficient information for fair value measurement cannot be obtained from the investee company, or if there is no clear evidence of value changes in the past or current period, cost can be used for measurement.

Specifically, cost can be used as fair value in cases where ▲the investee company’s total assets at the end of the previous fiscal year are less than 12 billion KRW ▲the investee company has not passed five years since establishment ▲less than two years have passed since the investor acquired the unlisted stocks. However, if unlisted stocks are acquired from third parties or others through non-normal investment methods, cost cannot be used as fair value.

Meanwhile, when a company judges that cost is an appropriate estimate of fair value, it must document for internal management and external audit purposes the ▲methods and grounds for confirming whether the value of unlisted stocks has changed ▲details and reasons for information that could not be obtained from the investee company for fair value assessment when applying asset total (less than 12 billion KRW) and period (within 5 years since establishment, within 2 years since acquisition) criteria ▲explanations of the grounds for judgment if the investment amount falls below the materiality threshold of the financial statements.

The financial authorities stated, “With the establishment of these guidelines, uncertainties in accounting treatment related to the valuation of unlisted stocks will be alleviated, which is expected to activate investments by institutional investors such as venture capital and investee companies in unlisted early-stage startups, contributing to innovative finance.”

They also announced plans to conduct supervisory duties based on the existing supervisory guidelines and these new guidelines, and to actively resolve market uncertainties by preparing and publishing guidelines within the reasonable interpretation scope of accounting standards for any difficulties in interpreting and applying accounting standards in the future.

This content was produced with the assistance of AI translation services.