Number of accounting firms more than triples in 10 years as demand grows
The nation’s accounting transparency is approaching international standards after years of effort by financial regulators and businesses.
Shoddy bookkeeping by large companies has been partly blamed for the economic crisis that hit the nation in the late 1990s and for the so-called Korea Discount ― referring to undervaluation of Korean stocks.
Following scandals involving WorldCom and Enron in the U.S. in 2002, governments have stepped up measures to reform accounting and enhance scrutiny of fraudulent practices.
In the following years, some of Korea’s biggest industrial and financial companies were punished for accounting fraud that tarnished the reputation of Korean businesses and dealt a blow to the nation’s efforts to draw foreign investment.
“The accounting skills and transparency of Korean companies has been upgraded drastically to the levels of European nations and the United States and most conglomerates have almost cleaned up their irregular bookkeeping records,” a Financial Supervisory Service official said.
Starting this year, accounting firms and listed companies have been urged to adopt a new set of accounting standards to improve management transparency and attract more foreign investment into the country.
FSS officials say that how companies prepare for changes to be brought about by the International Financial Reporting Standards will change the global status of Korea and Korean companies forever.
Created by the International Accounting Standards Board to encourage different countries around the world to use a uniform set of accounting standards, IFRS is being introduced among Korean companies.
By embracing IFRS, the country is expected to see more cases of cross-listing, as managerial burdens on domestic and foreign companies wishing to list on bourses here and abroad will be significantly reduced.
Major accounting firms have played a great role in improving the transparency of corporate bookkeeping by introducing ethical standards.
Over the past 10 years, the number of accounting firms and certified public accountants continued to increase.
The number of accounting firms came to 121 at the end of 2010 while it stood at 34 as of March 2001, according to the FSS.
Samil PricewaterhouseCoopers, the Korean member of the world’s largest accounting firm PwC, has secured the No. 1 position in the local market. Three others ― Deloitte Anjin, Samjong KPMG, and Ernst & Young ― are vying for the second position.
Samil PwC has been the most active agent providing accounting and consulting services for Korean companies seeking to list their shares on the U.S. stock markets.
Seven Korean companies listed their shares on the New York Stock Exchange or the Nasdaq from 2000-2005, and Samil PwC has provided audit and related assurance services for six out of the seven.
Samil arranged the U.S. listings of Kookmin Bank, Shinhan Financial Group, Hanaro Telecom, LG Philips LCD, and online game providers such as Webzen and Gravity.
It provides all necessary consulting and audit services to the Korean companies for them to meet the stringent requirements of the U.S. Securities and Exchange Commission.
The enhancement in accounting was prompted by a series of massive fraud scandals in the 2000s.
In the wake of the U.S. accounting scandals in 2002, financial regulators gave stronger penalties for perpetrators of accounting fraud.
In 2003, the regulator had ordered then SK Group chairman Sohn Kil-seung to step down from the chairmanship of troubled SK Networks (formerly SK Global) and issued a warning against three executives of the trading company implicated in rigging accounting books.
One accounting firm, which is now-defunct and was auditor of the SK Group unit, was slapped with fines of 319.6 million won ($285,000). The amount was twice the fees SK Networks paid to the accounting firm for its auditing services.
Since then, a series of improper accounting practices were revealed after the FSS launched a full-scale investigation into financial statements of around 100 companies listed on the stock market in 2004 and 2005.
In 2005, the financial regulator uncovered irregular accounting practices at large-sized enterprises such as Kia Motors, Korean Air and KT Corp.
Kia Motors and Korean Air were issued a caution or warning for misstatement while the FSS chose not to make public wrongdoings of KT Corp.
Appropriate sanctions on big companies, such as LG Industrial Systems, SK Shipping, Hynix Semiconductor and Kookmin Bank, for their past irregularities might ultimately have attracted more foreign capital by giving investors confidence market, observers say.
By Kim Yon-se (email@example.com)