South Korea’s Journey towards IFRS

A study from historical perspective

By Qiong Qin

Map of Korea Today

Area - Total 99,646 km² (108th) Capital: Seoul Population: 49,024,737   (25th) GDP: $1.180 trillion (11th) Per capita: $24,200 (34th) Currency: South Korean won

From Nobody to a World Leader

Korea was one of the least developed countries in terms of industrial development in early 60s.

It has been transformed into one of leading industrial countries in the world during the last 40 years.

A poor country just after Korea war (1950~53)

1960

GDP per capita (in US$) 82

Share of Manufacturing (in GDP(%)) 14.4

Major Industries

Wigs

Eyelashes

Clothes

Plywood

5

Korea’s Economic Miracle

Average Nominal Growth Rate: 20%!!!

1960’s : 26% 1970’s : 31%

1980’s : 17%

1990’s : 13%

• US$79 (1960) US$ 24,200 (2006)

0

2000

4000

6000

8000

10000

12000

14000

16000

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

Financial crisis

Miracle that make Korea an Asian Tiger

2006

Per Capital: 24,200$

Shipbuilding (world no.1)

Automobile (world no.5)

Semiconductor (world no.3)

Steel (world no. 5)

Overview of the talk

Three Milestones towards Miracle Export-Oriented Economy IT Flattener through Globalization IFRS: Opportunities and Challenges

Implication on current translation Prospective and Challenges Conclusion

Export-Oriented Economy

Korea's industrial development has been achieved through export-oriented strategies.

During 1960s and 1970s, the period when Korea accomplished the development of major industries, export growth outpaced GDP growth.

South Korea's GNP vs. Export Growth Rates

-20

0

20

40

60

80

100

1962 1964 1966 1968 1970 1972 1974 1976 1978 1980

GNP Growth

Export Growth

A clear indication of export-oriented economy

IT Flattener through Globalization

At the start of the 21st century, South Korea predicted that the IT industry would boom and become very important in the 21st century.

Surf CommunicationRunn com(Israel)

Telstra (AU)

PTIT(Vietnam)

CPqD (Brazil)

NotelSimon Fraser U.(Canada)

CRL

JSAT

NTT RITE

Yokosuka Park

(Japan)

ZNISS

Radiophzika

(Russia)

Ericsson

(Sweden)

• HHI• Siemens• Fhg-IIS (Germany)Univ.of LondonTNOI

• Tsinghna U.• Sountheast U.• Beijing U. Posts &

Telecommunications• Peking U.• NRSC• HIT (China)

• Wi-LAN• Motorola• SCO• Syracuse U.• NCGIA

(USA)

• INRIA• CNRS• INSA

Korean’s commitment to R&DTotal R&D Expenditure (PPP, 1996)

Russia

Japan

USAustraliaDenmark

CanadaUK

NetherlandKorea

SpainItalyPoland

Austria

Sw itzerland

FinlandFrance

Germany

Turkey

China

IndiaBrazil

0

1000

2000

3000

4000

5000

6000

0 0.5 1 1.5 2 2.5 3 3.5R&D expenditure as % of GNP

Sci

enti

sts

& E

ng

inee

rs (

per

mill

ion

p

eop

le)

Success Story of IT in Korean

No.1

No.4

No.7 No.7

No.15

No.1

Internet penetration

Mobile Internet (ITU)

on-line stockInternet subscriber

IT industry competitive(OECD)

e-government

1.3 Million

70% of total household

2.4 Million

5.1%

68%

Population : 48 Million

GNP : 9,700$ (No. 13)

IFRS: Opportunities and Challenges

Exported-Oriented

Economy IT Globalization as

a flattener

International Financial Reporting Standards

Two Driven Forces Towards

Brief introduction of IFRS in Korea

Korea Accounting Standards Board (KASB) is largely consistent with IFRS.

The Korean Financial Accounting Standards (KFAS) are largely consistent with IFRS.

The accounting standard-setters need to make further efforts to remove discrepancies between the local accounting standards and the IFRS.

Efforts towards IFRS (briefly)

In light of the 1997 Asian financial crisis, South Korea's corporate culture increases the transparency

The government is realizing that partial adoption of the IFRS standard is inadequate to ensure confidence in South Korea’s system

Financial reporting under IFRS will be made mandatory for all listed companies, annouced on March 15, 2007

Implication on Currency Translation

Money is called Won Exchange rate is about

1000 to 1

Exported-Oriented

Economy IT Globalization

Currency Translation impose high influence

Implication of Appreciation

Won appreciated 15% against the USD in 2004, followed by 2.3 percent in 2005

Appreciation in currency is a good sign of competitiveness and strength.

The appreciation of Won hurts the exports from South Korea. A sharp deceleration in export growth (31% to 12% in 2005)

Discourages the investment from South Korean to foreign countries .

However

Prospects for Harmonization

To embrace the globally accepted accounting standard, South Korea should establish comparable, reliable and the transparent corporate financial reporting.

The IFRS also requires fully-aligned, harmonized and consistent rules for consolidated financial reporting accounting.

Final Remark

Korea emerges as a “tiger” of Asia Three milestones cultivate the need for IFRS

adoption in Korean. Influence of current translation amplifies with

globalization and flattening

“History is the driving force of the future”

Acknowledgment