Harmonization of Accounting Standards for Un－listed Companies with the Tax Law under K－IFRS Environment
Asian Tax Journal Vol. 10 No. 3 (2009), pp. 173-209
Abstract
With the introduction of IFRS, the development of accounting standards for un－listed companies in Korea has progressed in the direction of establishing more simplified, reference－based accounting standards through certain modifications or improvements to existing Korean Generally Accepted Accounting Principles (KGAAP). In this sense, the current development of accounting standards for un－listed companies in Korea appears to be headed in the right direction, as it aims to improve the convenience of preparers and reduce unnecessary additional costs due to changes in the existing accounting standards that un－listed companies are already familiar with and currently apply. Unfortunately, the current developments in accounting standards for un－listed companies do not provide adequate suggestions on specific alternatives to satisfy the need for more simplified accounting standards and reduce unnecessary accounting burdens for un－listed companies. In this context, this study intends to suggest a theoretical basis and practical alternatives with respect to the simplification of accounting treatments for un－listed companies through certain reconciliation with existing tax laws. The Corporate Income Tax Law (CITL) and existing KGAAP were comparatively reviewed and key differences were identified in 46 areas. Within these 46 areas, certain items were selected which addressed the purpose and intent of the CITL and KGAAP, respectively, and could be considered to reconcile differences between them. As a result, a total of 12 items from the KGAAP and six items from the CITL were selected and analyzed to provide alternatives to mutually narrow differences in treatments between the CITL and the KGAAP. In addition, using a questionnaire with responses provided on a scale of one－to－five, a group of tax and accounting professionals were surveyed to understand their general perspectives on issues related to the establishment of specific accounting standards for un－listed companies, the practical necessity and reasonableness in accepting certain tax treatments to reconcile associated differences, and the practical necessity and reasonableness of amending existing tax laws. The following is a summary of the survey results. First, survey results indicated that the most important factors to be considered in establishing accounting standards for un－listed companies in Korea are the increased usefulness in assessing creditworthiness as well as the comprehensibility and convenience of preparers. Second, with respect to the incorporation of the CITL to KGAAP, survey results indicated there is a real practical need for the establishment of recognition provisions for depreciation expense, construction capital interest, recognition period for capital gains and losses and gains and losses on short－term construction contracts. Third, with respect to the incorporation of KGAAP to the CITL, survey results indicated that recognition for evaluation of foreign currency－denominated assets and liabilities and marketable securities as well as recognition of impairment losses are necessary in practice and theoretically reasonable. When specific regulations are designed to reconcile certain differences between tax laws and accounting standards for the benefit of un－listed companies, consideration must be given to the scope of coverage as un－listed companies come in a variety of scale and characteristics. For instance, the application of specific regulations designed for un－listed companies may need to be limited to small and medium－scale un－listed companies, while large scale un－listed companies are required to adopt the Korean international financial reported standards applicable to public companies.
Keywords
- accounting standards for un－listed companies
- accepting certain tax treatments
- necessity of amending existing tax laws.
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