The Financial Supervisory Service urged corporations to make systematic preparations ahead of the introduction of Korea International Financial Reporting Standards (K-IFRS) No. 1118, which takes effect next year.
The Financial Supervisory Service (FSS) said on the 13th in guidance on preparing for the introduction of K-IFRS No. 1118, “With implementation about three months away, there is a need to carry out preparations for adoption in a systematic and concrete manner so that financial statements can actually be prepared under the new standard.”
K-IFRS No. 1118 primarily divides revenue and expense on the income statement into operating, investing, financing, income taxes, and discontinued operations, and introduces new subtotal line items that show profit or loss by category. Investors will be able to distinguish profit or loss from corporations’ core operations from those arising from managing investment assets and from funding activities.
The concept of operating profit or loss also changes. Previously, operating profit or loss was calculated around profit or loss related to a corporation’s main operating activities, but under the new standard, profit or loss that does not fall into other categories such as investing or financing is included in the operating category.
Disclosure of performance indicators used internally by corporations will also be strengthened. If the performance measure used by management in external communications such as investor presentation materials is a “management-defined performance measure (MPM),” the corporation must disclose it along with the calculation method and reconcile it to similar profit or loss items under accounting standards, such as operating profit or loss.
Operating expenses should be presented in ways useful to information users, such as by nature or by function, and necessary additional information should be provided in the notes. Principles to appropriately disaggregate financial statement line items are also reinforced so that important information is not excessively aggregated and obscured.
The cash flow statement will also change. When deriving cash flows from operating activities using the indirect method, operating profit or loss is used as the starting point, and the classification criteria for cash flows related to interest and dividends are also revised.
The Financial Supervisory Service (FSS) guided corporations to prepare for adoption in five stages: ▲ analyzing the impact of the new standard on financial statements ▲ detailing key accounting policies and judgment criteria ▲ overhauling related systems and the settlement of account procedures ▲ preparing and verifying financial statements using actual data ▲ remedying identified deficiencies.
Because the new standard is applied retrospectively, not only the financial statements first applied in 2027 but also past financial information presented for comparison must be restated in line with the new standard. Corporations should check in advance whether they can sufficiently secure historical data, whether systems classify profit or loss accurately, and whether they can explain the differences in amounts under the existing and new standards.
The Financial Supervisory Service (FSS) plans to work with related institutions, including the Korea Listed Companies Association, the KOSDAQ Association, and The Korean Institute of Certified Public Accountants, to encourage corporations to prepare for adoption and to continue outreach and training on major accounting issues.
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