[EDITORIALS]Bad books, Korea discountFinancial authorities have sanctioned 13 companies for tampering with their financial books by either reducing the amount of debt they held or inflating profits during their 1999-2000 fiscal year. The action by the financial watchdog, although controversial, illustrates that Korean firms still do not meet international financial accounting standards.
According to the charges, some of the companies entered false bank accounts on their books. To validate those phony accounts, the companies fabricated photocopies of bank account documents. That reminds us of the account-tampering by Daewoo and Saehan Groups, once icons of the economic miracle of Korea that collapsed in the wake of the 1997 financial crisis.
When major companies in a market economy falsify their books, they undermine the foundations of the national economy and the market system. We witnessed the devastating effects of such "window dressing" during the financial crisis. Korea is still categorized as untrusted by international firms. According to country competitiveness rankings announced by the Swiss International Institute for Management Development, Korea ranked 48th out of the 49 countries surveyed in terms of protection for shareholders.The main reason for that ranking is poor accounting standards.
The Financial Supervisory Commission is correct in its emphasis on financial recordkeeping, considering our business reality and international trends. But the commission should also be more transparent in its oversight, because murky standards can hurt corporations. The business and accounting firms sanctioned this time are protesting how the government applied the standards on equity and depreciation of goodwill. They also say that since firms are allowed to reinvest gains from investments "within a rational time frame over 20 years," that their accounting methods can be construed as "rationally" reflecting their business activities. Seoul should make its evaluation criteria more clear but also work hard to widen the pool of accountants equipped with skills that fit international standards and expectations.
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