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South Korea’s Journey towards IFRS A study from historical perspective By Qiong Qin
Map of Korea Today n Area - Total 99, 646 km² (108 th) n Capital: Seoul n Population: 49, 024, 737 (25 th) n GDP: $1. 180 trillion (11 th) n Per capita: $24, 200 (34 th) n Currency: South Korean won
From Nobody to a World Leader n Korea was one of the least developed countries in terms of industrial development in early 60 s. n It has been transformed into one of leading industrial countries in the world during the last 40 years.
A poor country just after Korea war (1950~53) 1960 GDP per capita (in US$) 82 Share of Manufacturing (in GDP(%)) 14. 4 Major Industries Wigs Eyelashes Clothes Plywood
Korea’s Economic Miracle q Average Nominal Growth Rate: 20%!!! n 1960’s : 26% n 1970’s : 31% Financial crisis n 1980’s : 17% n 1990’s : 13% • US$79 (1960) US$ 24, 200 (2006) 5
Miracle that make Korea an Asian Tiger 2006 Per Capital: 24, 200$ Shipbuilding no. 1) Automobile no. 5) Semiconductor no. 3) Steel no. 5) (world
Overview of the talk n Three Milestones towards Miracle n Export-Oriented Economy n IT Flattener through Globalization n IFRS: Opportunities and Challenges n Implication on current translation n Prospective and Challenges n Conclusion
Export-Oriented Economy n Korea's industrial development has been achieved through export-oriented strategies. n During 1960 s and 1970 s, the period when Korea accomplished the development of major industries, export growth outpaced GDP growth.
South Korea's GNP vs. Export Growth Rates A clear indication of export-oriented economy
IT Flattener through Globalization n At the start of the 21 st century, South Korea predicted that the IT industry would boom and become very important in the 21 st century. ZNISS • Wi-LAN • Motorol a • SCO • Syracus e U. • NCGIA (USA) Notel Ericsso • HHI n Simon Fraser U. (Swede • Siemen (Canada) s n) • Fhg-IIS (Germa ny) Univ. of London TNOI CPq. D (Brazil) Radiophz ika • INRIA • CNRS • INSA Surf Communication Runn com • Tsinghna U. (Israel) • Sountheast U. • Beijing U. Posts Telstra & (AU) Telecommunica tions • Peking U. • NRSC • HIT (China) (Russia) CRL JSAT NTT RITE PTIT Yokosuka Park (Vietn am) (Japan)
Korean’s commitment to R&D
Success Story of IT in Korean Population : 48 Million No. 1 GNP : 9, 700$ (No. 13) No. 1 No. 4 1. 3 Million 70% of total household Internet penetration 2. 4 Million 5. 1% Internet subscriber No. 7 No. 15 68% IT industry Mobile Internet e-government on-line stock competitive (ITU) (OECD)
IFRS: Opportunities and Challenges Exported-Oriented Economy IT Globalization as a flattener Two Driven Forces Towards International Financial Reporting Standards
Brief introduction of IFRS in Korea Accounting Standards Board (KASB) is largely consistent with IFRS. n The Korean Financial Accounting Standards (KFAS) are largely consistent with IFRS. n The accounting standard-setters need to make further efforts to remove discrepancies between the local accounting standards and the IFRS.
Efforts towards IFRS (briefly) n In light of the 1997 Asian financial crisis, South Korea's corporate culture increases the transparency n The government is realizing that partial adoption of the IFRS standard is inadequate to ensure confidence in South Korea’s system n Financial reporting under IFRS will be made mandatory for all listed companies, annouced on March 15, 2007
Implication on Currency Translation n Money is called Won n Exchange rate is about 1000 to 1 Exported-Oriented Economy IT Globalization Currency Translation impose high influence
Implication of Appreciation n Won appreciated 15% against the USD in 2004, followed by 2. 3 percent in 2005 n Appreciation in currency is a good sign of competitiveness and strength. However n The appreciation of Won hurts the exports from South Korea. A sharp deceleration in export growth (31% to 12% in 2005) n Discourages the investment from South Korean to foreign countries.
Prospects for Harmonization n To embrace the globally accepted accounting standard, South Korea should establish comparable, reliable and the transparent corporate financial reporting. n The IFRS also requires fully-aligned, harmonized and consistent rules for consolidated financial reporting accounting.
Final Remark n Korea emerges as a “tiger” of Asia n Three milestones cultivate the need for IFRS adoption in Korean. n Influence of current translation amplifies with globalization and flattening “History is the driving force of the future”