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South Korea’s Journey towards IFRS A study from historical perspective By Qiong Qin 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 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 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$) A poor country just after Korea war (1950~53) 1960 GDP per capita (in US$) 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 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. 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 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 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 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 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 Korean’s commitment to R&D

Success Story of IT in Korean Population : 48 Million No. 1 GNP : 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 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 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 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 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 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 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 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”

Acknowledgment Acknowledgment