Seokwoo Jeong, President of the Korean Accounting Association, "Reducing Anxiety of Companies with Divergent Accounting Practices Will Improve Transparency"

If Sufficient Discussion Has Taken Place, a Clean Bill of Health
Disclosure of Regulatory Sanctions Basis Needed

Enhancing the Role of the Accounting Standards Board's Commentary
Can Reduce Confusion in Practical Fields

Jung Seok-woo, President of the Korean Accounting Association, is being interviewed by Asia Economy. Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Park Jihwan] "To further enhance accounting transparency, it is urgent to create an environment where the auditees (companies) and auditors (accounting firms) can have confidence in the accounting treatments carried out in practice. Some companies are struggling because they fear that even accounting treatments they have thoroughly considered might later be criticized as incorrect by financial authorities. All accounting stakeholders inevitably prioritize the stance of the financial authorities."

Jung Seok-woo, President of the Korean Accounting Association (Professor of Business Administration at Korea University), said in an interview with Asia Economy on the 6th, "Companies have always expressed anxiety that their accounting treatments might differ from the judgments made by supervisory authorities." The Korean-adopted International Financial Reporting Standards (K-IFRS) set only broad principles. Unlike the previous accounting standards (K-GAPP), they do not specify accounting regulations for every issue, leading to differences in interpretation and application among companies and accounting firms. From the companies' perspective, it is natural to choose accounting treatments that are not disadvantageous to them as long as auditors do not raise issues.

The problem is that these differences in interpretation and application may later be perceived as outright errors. If there is a disagreement with the supervisory authorities over a particular accounting treatment, the company's view may ultimately be deemed incorrect. Jung said, "New accounting standards are continuously being introduced, and even for existing accounting treatments, there are many disagreements among experts," adding, "Companies and auditors feel a strong need for clear and specific guidelines from financial authorities to eliminate uncertainties in pre-applied accounting treatments." Especially under principle-based accounting standards, not only 'interpretation of accounting standards' but also 'differences in opinions due to factual judgments' necessary in the actual application process frequently occur.

He emphasized, "There needs to be a channel at the supervisory authority level even for factual judgments related to accounting treatment application," and added, "If this is difficult, a measure should be considered to grant immunity for any accounting treatment applied to matters that companies have sufficiently discussed with experts in advance and disclosed various accounting treatment results for investors to fully utilize."

Jung believes that when financial authorities impose sanctions on specific matters, the rationale supporting these sanctions should also be disclosed. He pointed out, "Greater disclosure of supervisory authorities' audit or review results is very important," and said, "Sanctions without detailed explanations cause confusion about how to handle similar cases in the future." Simply revealing the basis for the supervisory authorities' decisions can greatly improve accounting transparency.

He also called for strengthening the role of the Accounting Standards Board. Jung explained, "The Accounting Standards Board needs to be more proactive in providing opinions not only on issues related to standard interpretations but also on factual judgments," and added, "If the supervisory authorities grant related authority to the Board, confusion in accounting practice will be significantly reduced."

With audit price normalization beginning through accounting reforms, securing audit quality is expected to become crucial. He stated, "The responsibilities of stakeholders involved in the accounting information production process have also become clearer," and argued, "Measures to expand practical responsibilities, such as the auditor real-name system, should be considered." He expressed regret over the introduction of the 'Standard Audit Time System,' which links audit quality to input hours. Jung said, "With the introduction of innovative technologies, audit quality has improved while requiring less time," but warned, "If audit prices drop because input hours decrease, auditors may lose motivation for innovation."

He also spoke about Korea's accounting transparency ranking, which has remained among the lowest globally for several years. As of 2018, Korea ranked 61st out of 63 countries in the accounting transparency evaluation by the International Institute for Management Development (IMD) in Switzerland. Jung defended, "The domestic accounting level is not that low," and said, "In terms of institutional level and implementation efforts, Korea is recognized at a global level by organizations such as the International Accounting Standards Board."

He added, "The IMD evaluation is based on responses from companies preparing accounting information," explaining, "This means that companies do not place enough importance on or pursue accounting information transparency."

He also proposed expanding accounting-related organizations within the supervisory authorities. Jung stated, "Just as the Financial Supervisory Service recently established a separate Consumer Protection Division, considering that accounting infrastructure accounts for over 70% of the capital market, a management organization exclusively overseeing accounting is necessary."

He emphasized that for Korea's accounting system to take a leap forward, concessions from all stakeholders in the accounting industry are essential. Through accounting market reforms such as periodic auditor designation and the standard audit time system, the accounting market has grown by more than 50% compared to before. However, the accounting industry complains that since the auditor designation system mainly targets large firms, small and medium-sized firms have lost their footing. Companies also complain that audit fees have risen unreasonably due to accounting reforms. Jung urged, "Auditors should lead efforts to improve audit quality rather than demanding excessively high audit fees or unreasonable requests from companies."

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