Korea wants G20 to delay accounting standard consolidation

By Cho Jin-seo

Korea is requesting G20 nations delay the consolidation process of global accounting standards, its top financial regulator said Thursday.

The move is a rare objection by Korea, the host of the November G20 Seoul Summit. Korea has defined its role at the G20 mainly as an arbiter and a consensus builder among the world’s largest economies.

Chin Dong-soo, the chairman of the Financial Supervisory Commission (FSC), said at a press conference that the country will face serious disorder in the financial reporting system if the G20 pushes ahead with its reform plan of accounting standards as planned.
It was a plea made to the Financial Stability Board (FSB), which reports to the G20 on financial regulatory issues.

The FSB chairman Mario Draghi said at the same press conference that the board will push the world’s two dominant accounting rules ― the U.S. GAAP and Europe’s IFRS ― to create a converged standard by June 2011.

This G20 initiative for a new, consolidated rule may bring about a big headache for Korean firms, and a bonanza for global accounting service organizations. Many large Korean companies have already spent a lot of money in setting up accounting and IT systems based on the IFRS method over the past few years.

“The accounting issue is the gravest for Korea. Since the convergence process is already underway, there will be some effects on countries like us, which were moving toward the IFRS,” Chin said after Draghi’s remark. “In that sense, I asked the FSB to take more time (in converging the accounting rules), and to create a channel through which emerging countries such as Korea can present their opinions.”

The IFRS is often dubbed as fair-value accounting. It is generally more accurate in evaluating the present market value of assets a firm holds than the U.S. GAAP, so Korea was trying to fully implement it from next year. But since the financial crisis, the time-relevance of the IFRS has been blamed for aggravating volatility in the financial market.

Accounting firms say that the FSB’s move could cost Korean firms tens of billions of won, after they have just spent a huge amount of money in shifting from the GAAP-based standard to the IFRS-oriented one. The government is forcing them to use the IFRS for every listed company from next year.

“It’s possible that the this could cost Korean firms a lot of money, depending on what changes the FSB wants to make,” A Korean spokesman of a major global accounting firms told The Korea Times Thursday. “Frankly speaking, this is a good business opportunity for accounting firms.”

The FSB is a gathering of financial regulators and central bank governors from 24 countries, and it reports to the G20 summit. The group on Wednesday agreed to present a set of policy suggestions to the G20, which will be endorsed at the Seoul summit next month.

The FSB’s recommendation to the G20 wants countries to strengthen supervision on their own too-big-to-fail financial institutions, and reduce reliance on credit-rating agencies such as Moody’s.

Other suggestions include creating a central clearing house for complex financial derivatives products, which are now traded “over-the-counter” between sellers and buyers ― without the involvement of a third party such as a stock exchange or regulators.

Kim Choong-soo, governor of the Bank of Korea, told The Korea Times that it will take some time for the G20 to come up with details of the proposed rules.

“We need to see the general trend of financial regulations. It shows that we have now agreed on which way we should go,” he told The Korea Times.

Early on Tuesday, the Basel Committee of Banking Supervision, another group of central bankers, agreed to fix the rules on the too-big-to-fail banks by mid-2011. However, the rules will not be implemented for a few years.

The issues will be discussed at the G20 Ministerial Meeting to be held this Friday and Saturday in Gyeongju, South Korea.

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