Corporate Accounting System

Fourteen companies have introduced an accounting system meeting international standards at the government’s request. Twenty-seven companies, including Samsung Electronics and LG Electronics, plan to prepare consolidated financial statements under the new system and file taxes accordingly from this year’s first half. The government, however, sent an official letter to the companies asking them to prepare new financial statements, saying “The standard accounting system complying with corporate tax law is the conventional accounting system.” Companies had been preparing to pay taxes under the new accounting system ahead of the closing of their books, and were taken aback by the government’s move. Staff at those companies are scrambling to prepare financial statements all over again by working day and night to meet the deadline for corporate tax filing in late March.

The Financial Supervisory Service has been urging companies since last year to use an accounting system meeting global standards from next year. Companies complained over the possibility of a higher tax burden due to a revision to the accounting system. Business organizations, including the Korea Chamber of Commerce and Industry, the Federation of Korean Industries and the Korea Listed Companies Association, and the Korea Institute of Certified Public Accountants have repeatedly demand reform of tax laws. They warn that failure to do so despite the introduction of international accounting standards will incur a bigger cost burden on companies. Draft bills have yet to be prepared, however.

The Strategy and Finance Ministry says everything will be okay as long as tax laws are revised by year’s end, adding the new accounting system will be applied to listed companies and financial institutions from next year. Financial authorities seek to hold companies accountable, saying corporations that introduced the new system last year and this year chose to do so. Companies that complied with government policy and invested tens of thousands to hundreds of thousands of dollars to change their accounting systems have effectively been rendered idiots. The business sector requested tax exemptions on part of the costs they spent to receive consulting from accounting firms and to change their computer systems late last year. But this plea fell on deaf ears.

The accounting system significantly affects business management. An abrupt change causes major confusion in business operations. Critics say the smaller a company, the bigger burden it shoulders due to the introduction of a new accounting system. Of course, the new system is advantageous in that it helps increase the credibility of companies through financial statements that meet international standards. The government should finalize revision bills to related laws and gather opinions from companies. A bureaucratic action for the sake of administrative convenience has led the government to claim that it is okay as long as relevant laws are revised by year’s end ahead of the implementation of the new financial system next year.

Tomorrow marks the second anniversary of the Lee Myung-bak administration’s inauguration, which assumed power under the slogan of a “government of service.” The administration has spurred civil servants to follow the slogan and put it into practice. Companies are having difficulty because they followed the government’s recommendation, and could consider the administration a “government of control.” A government saddled by a bureaucracy that frustrates business is far from a “government of service.”