From Next Year, Refixing Financial Liabilities' Fair Value Gains and Losses Must Be Disclosed in Notes... Reduction of Consolidation Scope for Unlisted Companies

[Asia Economy Reporter Lee Jung-yoon] Starting next year, listed companies must separately disclose evaluation gains and losses related to refinancing (conversion price adjustment) conditional financial liabilities in the notes. For unlisted companies, the scope of subsidiaries subject to consolidation requirements will also be reduced.

The Financial Services Commission announced on the 21st that, as a follow-up measure to rationalize accounting burdens for small and medium-sized enterprises, it has amended parts of the Korean International Financial Reporting Standards (K-IFRS) and the Korean Generally Accepted Accounting Principles (K-GAAP).

With this amendment, listed companies must separately disclose evaluation gain and loss information in the notes for financial liabilities such as Redeemable Convertible Preferred Shares (RCPS), whose exercise price is adjusted according to stock price fluctuations, to enhance the understanding of information users.

Refinancing conditional financial liabilities are classified as liabilities under K-IFRS, which has raised concerns that the profits and losses of listed companies are distorted. When the stock price rises due to improved business performance, liabilities increase, acting as a factor worsening current profit and loss. This will be applied from the accounting periods beginning on or after January 1 of next year, with early application also permitted.

Additionally, for small unlisted companies, the scope of consolidated financial statements preparation has been adjusted to include only subsidiaries subject to the External Audit Act. Previously, the scope for unlisted companies was expanded from subsidiaries subject to the External Audit Act to all subsidiaries, but opinions were raised that relief measures for consolidation burdens on unlisted companies were necessary. The Financial Services Commission will implement this amendment from December 31 of this year and apply it from the accounting periods including the implementation date. The amendment will remain effective until the accounting periods including December 31, 2027.

Furthermore, in response to opinions that classifying customer deposits-related cash flows of financial companies as financing activities fails to properly present operating cash flows, the classification of customer deposits-related cash flows will be changed to operating cash flows. Also, although the presentation method of revenue-related subsidies is distinguished, practical difficulties in judgment were pointed out, so the presentation of revenue-related subsidies will be allowed to be selected between revenue or deduction from related expenses according to substance. These amendments will be applied from the accounting periods beginning on or after January 1 of next year, with early application also permitted.

A Financial Services Commission official stated, "We plan to promote smooth application through continuous publicity and education regarding the amended standards."

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