&#91EDITORIALS&#93Discounting our books

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[EDITORIALS]Discounting our books

The government has announced a plan to reform corporate accounting practices by forcing periodic changes of auditors and prohibiting companies from lending to shareholders and management. That will curb the personal use of firms’ money. Corporate malfeasance roils the stock markets and the economy as a whole, and has generated a widespread perception among foreign investors that Korean corporate management and the economy here are not transparent.
Cooking the books is harmful not only to investors but also to economic development. But Korean firms are so notorious for the practice that PriceWaterhouseCoopers, the international accounting firm, ranked Korea last among the 35 countries it surveyed last year in accounting transparency. Korean companies frequently dress up their results to attract loans, boost their share price and amass slush funds. This fraud was partly responsible for the economic crisis of 1997.
It is more effective to prevent malpractices in accounting than to have them appear in the headlines after the fact. That is why auditing is so important. But many accountants have been more interested in collaborating with a company’s management rather than assuring investors that the firms were indeed in the condition their accounts said they were. They were blinded by the huge audit fees they were able to command from the firms. The scandal at SK Global could have been prevented if its auditor had done its job properly.
But there are flaws in the reform plan. Periodic changes of accounting firms that audit a company will not be mandatory when two or more accounting firms are involved, so there is still a possibility of collusion. And auditors will have to look at more financial records than they do now. That will cost companies more, because auditors will take longer to do their job.
How long will we have to put up with these recurring scandals and foreign investors’ snickers about the “Korea discount”? We have enough economic problems without putting up with these scandals.
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