The Korean Institute of Certified Public Accountants (KICPA) announced on the 24th that it has preemptively advised on accounting issues to focus on when reviewing the financial statements for the 2025 fiscal year. KICPA announces these details annually in June as part of a proactive supervision policy for unlisted companies.
The accounting issues identified by KICPA are ▲the appropriateness of the accounting treatment for accounts receivable impairment provisions ▲the appropriateness of the accounting treatment for consolidated financial statements ▲the appropriateness of the accounting treatment for deferred corporate taxes ▲and the appropriateness of the accounting treatment for overseas sales, among four major areas.
First, KICPA noted that due to concerns over increasing accounts receivable arrears from recent economic downturns, there is an incentive for corporations to arbitrarily underestimate impairment provisions for accounts receivable to present a healthier financial condition without objective and reasonable standards for assessing impairment. Accordingly, KICPA plans to establish reasonable and objective criteria for accounts receivable impairment provisions and closely examine accounts receivable aging analysis and reasons for long-term uncollectibility (such as the financial situation of clients facing bankruptcy or closure, elapsed collection periods, and whether collateral is held) to evaluate collectibility.
Next, there is a frequent occurrence of accounting treatment errors related to the preparation of consolidated financial statements due to issues such as the failure to prepare consolidated financial statements, errors in the consolidation scope, discrepancies in accounting policies within the consolidated entity, and failure to eliminate internal transactions. In this regard, KICPA urged corporations to review whether newly acquired equities or significant equity investments not included in the consolidation scope are applicable to the consolidation scope at the end of each reporting period, and to ensure that no subsidiaries are omitted when identifying the consolidated entity.
Additionally, some corporations are making errors such as recognizing or failing to recognize deferred corporate tax assets or misapplying expected tax rates to lower their debt ratios due to concerns about deteriorating financial structures. In such cases, it is crucial to be thoroughly familiar with the corporate tax accounting standards and to account appropriately, as well as to reexamine the realizability of deferred corporate tax assets at the settlement of account period and reflect that impact through changes in accounting estimates.
Furthermore, KICPA demanded that when recognizing and measuring overseas sales, corporations reflect the terms of contracts and the substance of transactions in their accounting treatment, and fully disclose any contingencies related to transactions, claims, penalties, and other revenue-related matters with overseas subsidiaries or affiliated companies, as well as the requirements for notes.
KICPA plans to conduct focused reviews of financial statements in the second half of the year after selecting and announcing issues for mid-term inspection this month and determining review subjects following corporations' settlements of accounts and external audits at the beginning of 2026. Previously, KICPA conducted focused reviews of 20 pre-announced issues for 295 corporations from 2019 to May of this year, leading to corrective actions for 32 cases (11%) where accounting treatment violations were found.
A KICPA official said, "For matters that are contentious regarding the application and interpretation of standards, we will carry out supervision in a direction that focuses more on guidance rather than penalties in cooperation with the Financial Services Commission and other relevant agencies."