Financial Authorities Enhance Accounting Predictability... "Principled Responses to Inquiries on Accounting Treatment Appropriateness"

[Asia Economy Reporter Ji-hwan Park] On the 20th, the Financial Services Commission and the Financial Supervisory Service announced plans to provide principled responses to inquiries regarding the appropriateness of accounting treatment judgments, which companies have pointed out as difficulties in applying the principle-based International Financial Reporting Standards (IFRS).

Until now, there have been continuous criticisms from auditees (companies) and auditors (accounting firms) that the financial authorities focus only on post-penalties without providing answers even when pre-inquiries are made on accounting treatment issues.

The IFRS adopts a principle-based approach that sets only broad principles. Because of this, companies sometimes faced situations where, despite having thoroughly considered and reviewed their accounting treatments, the financial authorities later pointed out these treatments as incorrect due to the lack of specific examples for individual regulations.

A Financial Services Commission official said, "Until now, the financial authorities have not responded to inquiries requesting judgments on whether accounting treatment methods based on specific facts and circumstances surrounding transactions are appropriate, citing difficulties in judging individual cases."

The financial authorities have decided, in principle, to respond to issues that frequently occur in accounting practice or are significant. They plan to provide as detailed guidance as possible on considerations related to accounting treatment to offer substantial help in companies' application and decision-making of accounting standards. However, inquirers are required to clarify the facts and submit relevant materials necessary for judgment thoroughly.

There are also exclusions. In principle, they do not plan to make judgments that determine accounting treatment methods. Inquiries related to cases under investigation or audit after accounting treatment completion are also excluded from responses.

Furthermore, for inquiries about the contents of the standards, to strengthen support for companies' accounting capabilities, the disclosure of inquiry responses will be significantly expanded, and materials summarizing issues discussed during the process will be provided.

In principle, inquiry response cases will be disclosed, with cases from the first half of the year released by the end of that year, and cases from the second half released by the end of June the following year. If the inquiry response content is no longer valid due to subsequent IFRS amendments and disclosure is deemed ineffective, it will be excluded from disclosure.

The financial authorities plan to develop educational materials based on inquiry response cases to support the cultivation of accounting standard competencies for companies and auditors. They also plan to regularize related training courses annually.

A financial authority official stated, "By significantly reducing the number of inquiries that go unanswered, this will help resolve companies' difficulties related to IFRS," adding, "It is expected to contribute to reducing market uncertainty by supporting companies to correctly apply the principle-based IFRS."

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