International Financial Reporting Standards: South Korea
The International Financial Reporting Standards (IFRS) are internationally recognized systematically approach of accounting and issuing financial reports of a business or an individual. These standards, which are developed by the International Accounting Standards Board, have been adopted by almost all countries in the world.
Adoption Process of IFRS Standards
South Korea chose to have an instantaneous and full adoption of the IFRS Standards at a specified time, instead of having a phased-in or convergence method. In addition, it changed from using one accounting method, which was the Korean GAAP, to using two accounting methods. In the new structure, it used both the IFRS and the Korea Accounting Standards for Non-Public Entities. In February 2006, the Korean government organized a task force to assess and prepare a roadmap for the country to enable it adopt the IFRS standards. In March 2007, the task force recommended for a mandatory adoption of IFRS standards by all listed companies in Korea from January 2011. It also permitted for voluntary early adoption of these policies in 2009 and 2010. The task force also set out that non-listed companies could use a simplified set of accounting standards based on Korean GAAP (Korea Accounting Standards Board Financial Supervisory Service, 2013). Nonetheless, they still had the leeway to use IFRS if they elected to use this method.
The Manner in Which South Korea Adopted IFRS Standards
South Korea did not make changes to the IFRS. Instead, it adopted the IFRS standards as they were. South Korea believed that the direct and full implementation of the IFRS standards would demonstrate the county’s willingness to adopt high-quality accounting standards (Korea Accounting Standards Board Financial Supervisory Service, 2013). In effect, this global view would improve the international assessment of the country’s financial statements transparency.
IFRS Adoption and Improvement in the Access of Capital
The adoption of IFRS standards has enabled companies in South Korea to access more capital. In fact, although the country allows non-listed companies to use IFRS or a simplified set of accounting standards based on Korean GAAP, most of them have adopted IFRS standards in order to access more capital when they have an IPO. For example, as of 2011, there were 1142 voluntary applications for IFRS. The voluntary applications were estimated to have risen by 22.9% to 1403 in 2012.
Adoption of IFRS in US
The US Sec should mandate the adoption of IFRS. In particular, the adoption of IFRS standards will enable international businesses in US to align their accounting statements and policies with those of their international subsidiaries or parent companies. The policy will also enable non-listed companies to access capital in public offering. In addition, it will ease the burden of preparing dual financial statements (Korea Accounting Standards Board Financial Supervisory Service, 2013). Finally, it will improve the accounting transparency of companies in US. Generally, South Korean companies enjoyed these benefits after adopting IFRS standards. As a result, it is likely that similar gains will occur in US.
Personal Opinion on Whether US Sec Should Mandate Adoption of IFRS Standards
The US Sec should mandate the adoption of the IFRA. To begin with, the IFRS standards have been adopted by most countries in the world, therefore, it is highly unlikely that the entire world will shift from using this system and adopt the US accounting standard. In addition, the US has made significant contributions in the developments of the IFRS, therefore, it would be promoting part of its global agenda of having a streamlined accounting standards when it adopts this system (Lamoreaux, 2011). Finally, the adoption of IFRS standards will enable US businesses to align their accounts with those of their international partners and increase transparency.
Korea Accounting Standards Board Financial Supervisory Service. (2013). IFRS adoption and implementation in Korea, and the lessons learned. Agenda Paper 4, Trustee Meeting. 1-42.
Lamoreaux, M. (2011). New IASB leader embraces challenges: An interview with Chairman Hans Hoogervorst. Journal of Accountancy, 1(1), 28-33.