The newly introduced accounting standard IFRS 18 may cause confusion in investor decision-making compared to the existing K-IFRS.
Researcher Lee Sang-ho of the Capital Market Institute noted on the 29th during the 'KCMI Issue Briefing' held at the Capital Market Institute in Yeouido, Seoul, that 'the change in the concept of operating profit and institutional response tasks following the introduction of IFRS 18' was presented.
With the introduction of IFRS 18 established by the International Accounting Standards Board (IASB), the criteria for determining corporate performance regarding 'operating profit' will fundamentally change starting in 2027. The new accounting standard IFRS 18 categorizes profit and loss into operating, investment, and financing categories, defining residual items that do not fall under the investment or financing categories as operating profit.
Researcher Lee Sang-ho pointed out that if IFRS 18 is introduced directly into the country without reasonable adjustments, foreign exchange gains and one-time asset sale profits unrelated to the main business may also be included in operating profit, making it difficult for investors to grasp the actual operating performance of corporations.
The existing K-IFRS operating profit based on the judgment of primary operating activities will be entirely different in amount and nature, which may cause confusion in investor decision-making, this researcher explained. The existing K-IFRS operating profit concept is defined as the value obtained by subtracting the cost of sales and selling and administrative expenses from revenue.
Criticism was also raised that investor usefulness might decline. If IFRS 18 is implemented as originally drafted, it would include numerous one-time profit and loss items (e.g., gains or losses from disposal of tangible and intangible assets, impairment losses, foreign exchange gains and losses, donations, etc.) in operating profit, making it challenging for investors to intuitively grasp continuous and ordinary performance.
In this regard, he cited that even though Company H, which has a real estate development division, executed normal accounting treatment by including land sale profits in operating profit in the fourth quarter of last year, a 'fake earnings surprise' controversy arose in the market.
As various impairment losses are also reflected as 'operating' losses, corporations may have greater incentives to understate or delay the recognition of expected future losses. This researcher noted, 'In particular, there is a risk that aggressive financial reporting practices could spread, especially focusing on KOSDAQ and small-cap stocks where market and media monitoring is limited and the proportion of individual investors is high.'
Regarding the institutional challenges that arise from this, this researcher stated, 'Even after the application of IFRS 18, investors should be able to identify and provide information on regular operating performance clearly according to defined standards and methods.'
He also mentioned the need to structure and detail the disclosure format for exchange performance so that investors can identify non-recurring profit and loss items before the regular report disclosure, as well as the need for policy inducements to spread the disclosure of metrics defined by management (MPM).