Korea adopted IFRS in full in 2011 to enhance accounting transparency of Korean entities and usefulness of their financial information as well as to maximize the value of domestic entities by improving their accessibility to global capital markets. While there have been numerous cases of analyses carried out on the costs and benefits of Korea’s IFRS adoption, they were conducted exclusively from the users’ point of view. The costs and benefits have not been analysed from the preparers’ perspective, despite the fact that they are the ones directly exposed to the effects the transition to IFRS.

This led the KASB to consider examining the costs and benefits of adopting IFRS from the view point of preparers of financial statements, the very providers of financial information. We believe that now is the right time to look into the costs and benefits of Korea’s IFRS adoption in order to identify any issues or room for improvements in better implementing IFRS.

EXECUTIVE SUMMARY

I. SURVEY RESULTS

OVERALL COSTS AND BENEFITS

1.  According to the survey result, approximately one-half of the respondents replied that the costs of IFRS adoption exceed the benefits, and only around 10% of the respondents replied that the benefits exceed the costs.

BENEFITS

2.  Most respondents stated that they did not recognise any change of increase or decrease in the level of accounting transparency or creditworthiness, cost of capital and credit ratings, or any improvement in the level of usefulness of the entity’s own accounting information.

3.  According to the survey, increase in the level of expertise of accounting staff was the most recognizable benefit brought about by the IFRS adoption. Enhanced management of, or control over, overseas subsidiaries was also recognized as a benefit.

COSTS

Costs before and after IFRS adoption
4.  The analysis of the costs relating to the transition to IFRS showed that most entities noticed that their costs increased overall both before and after the adoption.

5.  Examination of the detailed items of the costs relating to the IFRS adoption indicated that entities felt that costs that were incurred after the adoption posed a relatively greater burden than the costs before the adoption.

6.  The types of the increased costs significantly vary among industries. For example, the costs before the adoption increased far more in the construction industry and financial industry than other industries. As for the costs after the adoption, there are considerable differences from one industry to another depending on the detailed types of the cost.

Costs incurred before IFRS adoption
7.  Of the six items of cost that were incurred before the IFRS adoption, the respondents answered that they spent most on education, with the cost of accounting consultation, other costs, costs for developing and establishing accounting systems, costs relating to the preparation period, and staff addition. (listed in the order of incurrence)

Costs incurred after IFRS adoption
8.  As for the costs incurred after the IFRS adoption, the respondents’ costs for accountancy workload increased the most, followed by time spent to prepare notes to the financial statements. On the other hand, costs of fair value measurement for assets and liabilities and impairment tests for assets did not seem to have increased very much according to the responses.

II. RESULTS OF IN-DEPTH INTERVIEWS

DIFFICULTIES ARISEN AFTER THE IFRS ADOPTION

9.  Both entities and accounting professionals noted the complexity of accounting for financial assets and financial liabilities as a difficulty they experienced after the standards were adopted. Entities also pointed to certain difficulties related to accounting issues they faced after the adoption, such as preparation of notes to the financial statements (citing excessiveness and complexity), complexity of accounting treatments, and preparation of consolidated financial statements (citing excessively wide scope of consolidation and lack of preparation time).

BENEFITS

Entities
10.  Entities referred to the cost savings by consolidated financial statements in managing subsidiaries and entering into overseas markets (i.e., costs relating to double preparation of financial statements, contracting overseas, etc.) as the benefits from the transition to IFRS.

Accounting professionals
11.  Accounting professionals responded that they saw an increase in comparability and international creditworthiness, and greater ease in managing the entities of consolidation group as the benefits of adoption.

COSTS

12.  Both entities and accounting professionals stated that both the costs of implementation and interpretation of IFRS (consulting fees) and the costs of fair value measurement and actuarial valuation increased.