Future Focus Report: South Korea’s Economic
The Korean Institute of Certified Public Accountants
recently entered the next phase of an ambitious programme to
prepare the nation’s accounting profession for the adoption of
IFRS. David Hayes reports on its education programmes and plans to
recruit more members.
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The Korean Institute of Certified Public Accountants (KICPA) has
carefully executed plans to ensure all members are trained for IFRS
and new international accounting standards.
KICPA is preparing training
materials covering new ISA standards, so the planned two-year
education programme can start later this year. This follows the
Institute’s countrywide training scheme to prepare CPA members for
IFRS, which has largely been completed.
Following the timetable set by the
Korean Financial Supervisory Commission (FSC) and the Korea
Accounting Standards Board, South Korea fully adopted IFRS on
January 1 2011, after voluntary adoption of IFRS started earlier in
2009. Voluntary adopters included Pohang Iron & Steel
Corporation along with most banks and companies listed in the US
and Europe such as Samsung Electronics, Korea Telecom and SK
Telecom.
IFRS adoption is mandatory for all listed companies.
However, not all companies are fully prepared, which will increase
the level of support some accounting firms will need to provide
clients.
Research fellow at the Korean
Institute of Certified Public Accountants, Tae Kyun Oh, says IFRS
is for all listed companies and is wider than just for companies
doing consolidated statements.
“We know that not every company is
ready; some small and medium listed companies are not fully
prepared for IFRS. They think it will be hard for them to adopt.
There are no legal sanctions for not adopting IFRS but if listed
companies do not adopt they should be delisted, that’s the most
powerful sanction,” Oh says.
KICPA has organised and funded
South Korea’s IFRS education programme for the accounting
profession while Korea Accounting Institute has run a more basic
IFRS training programme targeting South Korea’s corporate sector.
In addition, from 2009 all universities were required to change
their accounting courses to cover IFRS.
As expected, Big Four firms were
the first to set up IFRS training programmes for clients and others
seeking training prior to full adoption of IFRS. In fact, KICPA
itself has used around 300 Big Four CPAs as instructors for its
various courses to train the Institute’s accountant members.
“In mid-2009 about 65% of our
members were trained in IFRS, now the proportion is higher. The
main problem is now in the corporate sector as there are not many
accounting people knowledgeable in IFRS. That creates one of the
main difficulties in adopting IFRS,” Oh explains.
He also adds that medium and small
accounting firms have prepared for IFRS but sole practitioner CPAs
cannot do this alone.
Big Four firms are expected to
increase their share of the audit market following the full
adoption of IFRS. Prior to full adoption, around 840 of South
Korea’s 1,747 listed companies were audited by non-Big Four firms.
Companies expected to move for Big Four firms will be those seeking
greater support than smaller practices can provide.
Training
challenges
Meanwhile, KICPA is working on an
education and training programme for launch later this year to
prepare CPA members for the introduction of new ISA standards in
two years time.
Originally due for launch in 2011,
the introduction of new international audit standards has been put
back two years at KIPCA members’ request, as training for new ISA
standards would have coincided with training for the full adoption
of IFRS.
“We will start the education
programme around October as we think the Financial Supervisory
Commission will recognise the new ISA standards in June for
adoption in 2013,” Oh explains. “We decided to delay the new ISA
standards after our members requested the delay. FSC also thought
that 2011 was too early to adopt the new ISA standards.”
The new international audit
standards will apply to all companies including limited liability
companies requiring an external audit. About 20,000 companies with
assets exceeding 10bn won, including listed companies, will be
affected by the new ISDA standards.
Oh says after FSC accepts the new
ISA standards, the KICPA will start training. The institute’s
Auditing and Assurance Standards Board is preparing the new ISA
Korean translation. They began translating from English into Korean
in 2008, and finished in 2010. The translations are now being
reviewed.
Training KICPA’s practising members
in the new ISA standards will be a major education exercise, on a
similar scale to the IFRS training programme for practicing CPAs.
KICPA’s membership includes around 9,000 practising members of
which about half are employed by Big Four firms.
“We think there could be some
problems with teaching the new ISA standards as they are not easy
because they use a risk-based approach. There is a limitation with
cyber training so we should educate by offline methods, using
discussion and case studies,” Oh says.
The introduction of new ISA
standards is one of the South Korean government’s top-ten projects
which are accorded high national importance.
As part of the top-ten programme,
the KICPA has signed an MOU with the government’s Anti Corruption
and Civil Rights Commission to implement the new international
audit standards project under the Korea Brand Commission,
constituted to promote South Korea as a global brand.
“The MOU we signed is to promote
transparency of accounting information so we are going to promote
the quality of KICPA members’ work; for example, audit quality”, Oh
says. “We are targeting high audit quality and high audit fees. We
think that high quality audit is high price work.”
Three CPA practitioners are
required to carry out an audit in South Korea. Currently the South
Korean audit market is served by about 250 three-person audit teams
while almost 110 audit firms operate practices with more than 10
CPAs each.
The new ISA standards to be adopted
in 2013 will involve a number of important changes. Auditor
independence will be strengthened, for example, while penalties for
fraud will increase.
Among other changes, auditors will
be required to renew their auditor licence every three years
instead of five years at present. Another new requirement is that
auditors will be expected to complete 120 hours of continuing
professional education during each three-year licence period.
Meanwhile, current changes in
public sector accounting methods are expected to result in
additional work for KICPA’s practising members. Double entry
accounting is being adopted for central government accounts this
year after municipal governments earlier adopted double entry
accounting in 2009.
“The government is adopting double
entry accounting for central and local government because it wants
to evaluate state bodies’ performances,” Oh says. “This is extra
work for our CPA members as accounting firms are reviewing
municipal bodies’ financial statements from 2009.
“The government has not decided
when to review central government financial statements though some
are being reviewed by our members in a pilot test this year.”
Attracting
accountants
KICPA plans to increase efforts to
recruit more accountant members, especially among those employed by
private companies or who work in the public sector.
“We will reduce our membership fees
and make revenue from other activities such as publishing and
educational training. The fee reduction will encourage more CPAs to
register with us,” Oh says.
More young people have been
attracted to accountancy as a career during the past few years due
to the tougher economic climate in South Korea. Each year around
600 to 700 CPAs join Big Four firms, of which more than half leave
after three to four years. Big Four firms are therefore not growing
so quickly. In addition, around 100 CPAs join medium-size practices
each year. This number is expected to grow.
However, with less Big Four
recruitment taking place than a few years ago due to previous rapid
expansion to cope with IFRS, around 300 CPAs a year cannot find
places with big firms. Instead these join the government or public
entities which absorb around 20% to 30% of newly qualified
CPAs.
“Nowadays young people face
difficulties getting jobs so they apply to become CPAs, and
applicants for trainee CPA posts are increasing. But being a CPA is
not the most attractive job. The public image of accountants is
worse than in the past as each year CPAs get relatively less salary
and benefits as audit fees are declining compared to the rate of
inflation,” Oh says.
Although the government is pleased
with the rise in qualified accountant numbers, no official targets
have been set for future practising CPA numbers.
“The government wants more CPAs
every year as it believes more CPAs will increase accounting
services to the public,” Oh says, adding that the government
expects the quality of accounting services to be higher and fees
lower if the number of qualified accountants rises.
KICPA, meanwhile, is keen to see
fees levels increase, one reason being that accountants’ fees in
South Korea are considerably lower than those in major markets such
as the US and Japan.
Oh explains that the institute will
prevent audit fee slashing among members, adding that it repeatedly
tells members about ethical business standards. One government plan
that could increase accountants’ earnings is the creation of
one-stop joint service centres for accounting and legal
services.
“Lawyers are opposing this idea,
while CPAs want to set up one-stop service centres,” Oh says,
before explaining that under this idea accounting firms could
provide accounting and legal services.
Meanwhile, the government’s
interest in expanding the size of the accounting profession and
raising the quality of services provided to listed companies could
create unwelcome challenges for small accounting firms and sole
practitioner accountants in future.
The institute has also called on
members of the country’s National Assembly to propose revising laws
for proportionate liability, similar to the US.
“Currently, auditors are responsible for all losses. When a
fraud happens there is no one to take the investors’ loss. We want
to revise this law to create proportionate liability. We have
requested this and the proposed revised law, now in the National
Assembly. There are many difficulties involved but if we overcome
them the law will be revised in February 2012. All KICPA members
support this change to the law,” Oh says.
