Accounting principles

Accounting principles (회계원칙/會計原則, 회계기준/會計基準) shall mean the accounting standards to be observed by a stock company under the Commercial Act.

Article 446-2 of the Commercial Act provides:
 * A stock company is required to abide by the generally fair and proper accounting practices except as otherwise provided by the Act and the Enforcement Decree.

This Amendment, by referring to Japanese Corporation Act, is believed to eliminate the confusion which may arise out of the difference between the accounting practices and accounting rule prescribed by the Commercial Act.

In the United States, generally accepted accounting principles (GAAP) is not written in law, in the belief that the private sector has better knowledge and resources.

Key words
accounting principles, GAAP, stock company, fair and proper accounting practice

Principles
Since Article 446-2 is applied only to sock companies, this provision is assumed to be superior to Article 29 (2) in providing legal basis for corporate accounting standards. The Act on External Audit of Stock Companies (주식회사 외부감사에 관한 법률/株式會社外部監査法) mandates a stock company with total assets of at least 10 billion Korean won to prepare the financial statements in accordance with K-GAAP or K-IFRS.

K-IFRS is prepared by the Korea Accounting Standards Board (KASB, 회계기준위원회) under the Korea Accounting Institute (KAI, 한국회계기준원). Actually K-IFRS is a word-to-word translation of IFRS. Article 446-2 applies to small and medium enterprises (SMEs) of which accounting purpose is usually to file tax return or prepare tax declaration.

International Financial Reporting Standards (IFRS)
IFRS was established and modified from time to time by the International Accounting Standards Committee (IASC) to enhance the universal applicablity of corporate accounting and financial statements.

Publicly listed corporations and unlisted financial institutions of Korea are required to observe IFRS gradually from 2009 not later than 2011. As IFRS falls within the generally fair and proper accounting practices, SMEs may voluntarily adopt K-IFRS.