Authoritative Interpretations on Accounting Controversies
The Korea Institute of Certified Public Accountants (KICPA) will form a task force (TF) in cooperation with the nation’s top four accounting companies, including Samil PricewaterhouseCoopers Korea and Deloitte Anjin, to determine whether the accounting and auditing practices of corporations and their accounting firms are valid. The task force will make authoritative interpretations when controversies arise over accounting.
The institute said the four major accounting firms have embraced its idea. When the KICPA, which consists of the nation’s best accounting experts, provides authoritative interpretations on accounting issues, domestic companies’ accounting risks are expected to be greatly reduced.
According to accounting industry sources on Sept. 16, the KICPA has decided to establish the task force to ease the risks that domestic businesses and accounting firms face due to controversies over their accounting and auditing practices. For instance, Samsung BioLogics Co. recently faced punishment from the authorities due to a different accounting interpretation.
Choi Joong-kyung, chairman of the KICPA, said that the four large accounting companies agreed to form the task force, adding that it would be launched in the near future.
The KICPA is seeking to strengthen its research function because it thinks that the international financial reporting standards (IFRS) introduced in 2011 put a considerable burden on companies. There is still controversy over principle based accounting methods, the key point of the IFRS, as we have seen in the Samsung BioLogics case, though it was introduced seven years ago. The financial authorities and some civic groups say that it is a clear violation of accounting, while Samsung BioLogics say that it complied with the international accounting standard. With the conflicting statements, there is a still controversy over the IFRS’ principle based accounting methods.
In this regard, experts point out that the financial authorities still haven’t gotten out of regulation based supervision methods from the previous K-GAAP, instead of principle based methods. An accounting expert said, “As the existing accounting standards cannot be applied to some cases due to various new economic phenomenon, the principle based IFRS has been introduced. The precondition was to respect experts’ decisions. However, the experts’ decision regions have disappeared as the financial authorities take a disciplinary action on Samsung BioLogics.”
To be sure, the KICPA’s authoritative interpretation cannot have an absolute influence on the financial authorities’ accounting methods in terms of interpretation. However, it would be the interpretation by the nation’s best accounting group so the financial authorities will not be able to completely ignore it. Therefore, companies will have a minimum safety device.