The Financial Supervisory Service (FSS) disclosed four accounting issues to focus on during the audit of next year's financial statements. It warned that if violations are found during the key audit, strict measures including penalty surcharges will be imposed, and urged for the faithful preparation of financial statements and external audits.
On the 23rd, the FSS announced that it has identified four major items for focus during the audit of financial statements: "investor agreements," "issuance and investment of convertible bonds," "disclosure of supplier financing agreements," and "impairment of investment stocks in subsidiaries and related companies."
The FSS plans to conduct audits by accounting issue next year after the completion of this year's financial statement preparation and external audits. If violations are found in the audit results, measures such as penalty surcharges are planned. In the key audits of financial statements conducted until May of this year, 393 companies were inspected, and accounting violations were found in 87 of them (22.1%), leading to significant measures against 45 of these companies.
The FSS plans to prioritize the accounting treatment of investor agreements. If various agreements are imposed during investment contracts, they should be classified as financial liabilities if there are obligations on the part of the corporations, and the disclosure requirements for notes should be stated. For instance, if an option is imposed on convertible stock, it must be disclosed in the notes if it is a significant matter that could affect investors. In cases where a debt security with a borrowing agreement may be repaid early due to a breach of the agreement, it is required to disclose information such as book value.
The subjects of the audit will be selected by comprehensively considering the current status of issuing convertible stocks or debt securities across all industries.
In relation to convertible bonds (CB), whether notes disclosures comply with the guidelines for accounting treatment of derivatives will also be examined. Many instances of accounting violations have been detected during the process in which unfair trading forces exploit convertible bonds of listed companies for unjust profits, leading to their selection as a key inspection item.
If there are options included in a convertible bond, the separation from the main contract will be reviewed, and if separation criteria are met, it must be accounted for as a derivative. When conducting transactions with related parties involving convertible bonds or providing collateral, all notes disclosure requirements must be thoroughly stated.
In addition, the FSS will also closely examine cases where corporations use supplier financing agreements to purchase goods or invest in stocks of subsidiaries and related companies that have worsened performance.
The FSS stated, "We will provide guidance on related matters so that the key inspection issues for this year's financial statement preparation and external audit can be clearly recognized," and added, "We will implement measures such as sending guidance notices and conducting training for accounting personnel."