New Accounting Rules Due to Promote Transparency

Regulators in Korea plan to order big companies with many subsidiaries to publish consolidated financial statements quarterly and semiannually.

Listed companies would also be required to file consolidated financial statements within three months of the end of the fiscal year, rather than four months as is currently allowed.

Large domestic companies controlling a number of affiliates currently make disclosures of their combined financial status only once a year.

Financial Supervisory Commission (FSC) chairman Lee Jung-jae said the revision of the disclosure rules was partly due to foreign investors raising questions over Korean firms transparency.

In a meeting with accountants and financiers in Yoido, Seoul, Lee attributed foreigners concerns to frequent differences between individual financial statements and consolidated ones on the books of domestic conglomerates.

He said the reform bill also contains provisions to subject more companies to review by independent audits of their quarterly reports.

“As a way to steer away corporate insiders from the moral hazards associated with stock options, the reform bill would require the exercise of stock options at a fair market value and the public notice of details on stock options.” Lee added.

Ensuring the independence of outside auditors is also key to strengthening the integrity of corporate accounting, he said, “The reform bill calls for a number of new measures designed to add new layers of checks and balances to outside auditors.

Mentioning the role of auditors, Lee said one important measure to accomplish this goal is to impose a mandatory rotation of outside auditors after six consecutive years of audit engagement. “This is to prevent the outside auditors from compromising their duty or independence because of financial interests or a long relationship with the same client,” Lee added.

“The reform proposals also call for establishing strict fire walls between audit and non-audit services for outside auditors and barring them from engaging in non-audit services if doing so is likely to create a potential for conflicts of interest or otherwise compromise their independence,” Lee said.

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