Harmonisation of International Accounting Standards

In an increasingly global business environment, issues such as how companies account for their relevant financial positions in different jurisdictions gain greater importance. Many companies are international in their scope with several different subsidiaries in multiple jurisdictions making the interpretation of accounts particularly difficult. Accounting standards in every country are developed with the background of that country’s individual social and economic circumstances, which results in a range of differing standards being developed across the globe[1].
As a result, it is very difficult for accounts to be read accurately and to make suitable financial decisions on investment by entities from other jurisdictions. Comparing performances and consolidating accounts without at least a degree of international harmonisation would prove very difficult, if not impossible.
The Importance of Harmonisation
As a result of the problems mentioned above, a uniform set of International Financial Reporting Standards (IFRS) have been developed with the view to mitigating or, in some cases, eliminating divergences in the way that accounts are reported in different jurisdictions. It is recognised that a blanket standardisation is simply impossible; countries need the flexibility and freedom to allow influences from their own social and economic backgrounds to come into play. For this reason, a process of harmonisation has been established.

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By having a guideline for the ways in which companies from different countries must deal with certain corporate issues, it makes the position of managers and investors much easier. Having a foundation of standards allows allocation choices in terms of resources and time to be made across jurisdictions. In order to do this, a like for like comparison must be possible and this can only be achieved with a degree of harmonisation.
In particular, the area of taxation has gained a great deal of attention from international accounting standard setters. For example, Financial Reporting Standard 19 states how a company should deal with deferred taxation situations, i.e. where the point of realising the asset and the corresponding liability are different and how this can be accounted for in the company accounts. By ensuring companies across the globe are broadly following the same principles, it is much easier to ascertain the true financial position of the company in question.
The International Accounting Standards Board
The International Accounting Standards Board (IASB) is a wide group of people who are independent and are involved in the development and management of the International Financial Reporting Standards. The work of the IASB is supervised by the International Accounting Standards Committee and has additional support from external advisory committees.
In total, there are fourteen board members, representing nine different countries, thus ensuring geographical diversity and representation during the standard setting process. The main work of the IASB is to work with the various different national accounting standard setters in a bid to ensure that there is a worldwide convergence of accounting standards being put in place. As mentioned previously, the aim is not to force nations into following one set of distinct rules, but rather to encourage a union of standards.
The work of the IASB has been widely recognised, with more than 100 countries across the world either requiring or at least allowing the use of international accounting standards. This substantially increases the freedom of trade and investment on an international scale. International companies are able to ensure that consolidated accounts are prepared to produce useful and accurate accounts of the way in which the company is performing. This ability to draw accurate comparison is vital for the truly international scope of modern business[2].
Structure and Processes of the IASB
Gaining harmonisation and convergence of accounting standards is clearly an important and useful element of international business. Achieving this is, however, a particularly difficult task. No international financial reporting standard can be passed and agreed on without the due process being followed. International agreement is vital, if such convergence is going to be efficiently attained across the globe.
The process is carried out in six stages, each of which is open to debate and is overseen by the executive committees. Firstly, the agenda is set. During this process, the IASB will look at the issue being raised, the current approaches being taken by the various different countries and the realistic possibility of achieving greater harmonisation. On the assumption that further harmonisation is thought possible, the IASB will then consider and set out the scope of the international standard that is envisaged.
Secondly, the project of establishing the accounting standard is planned fully to ensure the maximum possible buy-in from the various countries. Crucially, at this point, the IASB will decide if it is going to act alone in establishing the standard or whether it requires the assistance of other standard setting bodies[3].
Thirdly, once the project is fully understood, a discussion paper is published. This will state the issues as the IASB sees it and the possible solutions that exist for the problem. This is absolutely crucial. The work of the IASB relies almost entirely upon the agreement of the participating countries and, therefore, opening the discussion up to these countries is vital.
Fourthly, once the discussion stage has been duly undertaken, an exposure draft is issued with details of the proposed solution. This is essential as it will be at this point that many countries will raise objections or make further suggestions.
Fifthly, all of these processes are put together and the standard itself is drafted and published. It takes into account all comments and issues raised during the discussion paper and exposure draft.
Finally, after the standard has been issued, the IASB will review the uptake and the way it has been applied by the various countries. It may be that further amendments or new standards are needed and the process will then restart.
The entire process is based on discussion and co-operation, which is vital if any form of harmonisation can be truly efficient[4].
Challenges to Harmonisation
Harmonisation is clearly beneficial for international trade and businesses. However, such large scale convergence is going to be difficult to manage and achieve; firstly, as the standards have to be incorporated into the national standards set by every individual country. This requires the relevant countries to be on board and prepared to support the various international standards being developed. Naturally, the support that is being shown for this is different between the various countries, with the more affluent countries being able to comply more readily because of their advanced accounting structure[5].
Secondly, the changing of the way in which accounts are presented is not always a quick or cheap process, which can cause difficulties for some smaller companies. In some cases, the adoption of certain international standards will result in the reported profits of the company falsely appearing substantially lower than the previous year. For this reason, some companies will naturally be slower or more hesitant to adopt the new standards. Where there is resistance, the IASB does not have the power or teeth to enforce the standards. This lack of ability to enforce can ultimately make the process of ensuring total international harmonisation extremely difficult and potentially impossible.
The IASB plays an absolutely vital role in the move towards gaining an internationally harmonised set of accounting standards. All of the work undertaken by the IASB is mindful of the need to achieve co-operation between all countries and, as such, has been structured in the way that it establishes standards through the process of discussion and explanatory documents, encouraging the accession of all relevant parties, at every step of the way. In doing so, the chances of international harmonisation are much greater and this will bring with it all of the benefits of internationally usable accounts.
Bazaz, Mohammed S., International Accounting: A Global Perspective, Issues in Accounting Education, Vol. 20, 2005
Collins, Katherine, International Accounting Rate Reform: The Role of International Organizations and Implications for Developing Countries, Law and Policy in International Business, Vol. 31, 2000
Fleming, Peter D., The Growing Importance of International Accounting Standards; Arthur R. Wyatt, Chairman of the International Accounting Standards Committee, Heralds International Harmonization, Journal of Accountancy, Vol. 172, 1991
Gornik-Tomaszewski, Sylwia, Mccarthy, Irene N., Cooperation between FASB and IASB to Achieve Convergence of Accounting Standards, Review of Business, Vol. 24, 2003
Heely, James A., Nersesian, Roy L. Global Management Accounting: A Guide for Executives of International Corporations, Quorum Books, 1993
Holmes, Geoffrey Andrew, Sugden, Alan, Holmes, Geoffrey, Gee, Paul, Interpreting Company Reports and Accounts, Pearson Education, 2004
Larson, Robert K., An Empirical Investigation of the Relationships between International Accounting Standards, Equity Markets and Economic Growth in Developing Countries, Journal of International Business Studies, Vol. 25, 1994
Nobes, Christopher, Parker, Robert, Comparative International Accounting, Pearson Education, 2006
Rider, Barry, in Villiers, Charlotte (ed.), Corporate Reporting and Company Law, Cambridge University Press, 2006
Rodgers, Paul, International Accounting Standards: From UK Standards to IAS, an Accelerated Route to Understanding the Key Principles of International Accounting Rules, Butterworth-Heinemann, 2007
Sale, J. Timothy, Salter, Stephen B, Sharp, David J., Advances in International Accounting, Elsevier, 2004
Schipper, Katherine, Principles-Based Accounting Standards, Accounting Horizons, Vol. 17, 2003
Schwartz, Donald, The Future of Financial Accounting: Universal Standards, Journal of Accountancy, Vol. 181, 1996
van Greuning, Hennie, Koen, Marius, International Accounting Standards: A Practical Guide, World Bank Publications, 2001

[1] Holmes, Geoffrey Andrew, Sugden, Alan, Holmes, Geoffrey, Gee, Paul, Interpreting Company Reports and Accounts, Pearson Education, 2004
[2] van Greuning, Hennie, Koen, Marius, International Accounting Standards: A Practical Guide, World Bank Publications, 2001
[3] Collins, Katherine, International Accounting Rate Reform: The Role of International Organizations and Implications for Developing Countries, Law and Policy in International Business, Vol. 31, 2000
[4] Rider, Barry in, Villiers, Charlotte (ed.), Corporate Reporting and Company Law, Cambridge University Press, 2006
[5] Rodgers, Paul, International Accounting Standards: From UK Standards to IAS, an Accelerated Route to Understanding the Key Principles of International Accounting Rules, Butterworth-Heinemann, 2007

Harmonisation Problems in South Korea

Table of contents

1 Introduction……………………………………………………….3

2 History of South Korea’s Accounting System……………………………….4

3 Cultural Factors of South Korea’s Accounting System………………………..5

3.1 Hofstede Model in South Korea’s Cultural Context……………………..5

3.2 Cultural Influences on South Korea’s Accounting System…………………5

4 Reasons for a Shift from K-GAAP to K-IFRS………………………………6

4.1 Korea Discount………………………………………….6

4.2 Importance to Global Trading to Korea’s Economic Growth………………..6

5 Harmonisation Problems……………………………………………..7

5.1 Lack of Comparability among Unlisted Companies…………………….7

5.2 Complex Ownership Structure of Chaebols………………………….7

5.3 Temporary Cultural Mismatch between K-IFRS and K-GAAP………………8

5.4 Opportunities for Earnings Management……………………………8

5.5 Translation Issue from IASB IFRS to KASB K-IFRS……………………8

6 Recommendations………………………………………………….10

6.1 Enhancing auditing practices and standards…………………………10

6.2 Timeline to gradually adopt K-IFRS in entirety………………………10

7 Conclusion……………………………………………………….11



Appendix A: Extract of Approaches to Convergences and Harmonisation…………..

Appendix B: Extract of Hofstede’s five cultural dimensions…………………..

Appendix C: Extract of Hofstede’s Insights about South Korea…………………

Appendix D: Extract of Expanded Hypothesized Hofstede-Gray Relationship………..

Appendix E: Gray’s Accounting Values………………………………

Appendix F: Comparison between K-GAAP and K-IFRS…………………….


1 Introduction


South Korea currently has a two-tier accounting system of local Korea Generally Accepted Accounting Principles (K-GAAP) and the Korea International Financial Reporting Standards (K-IFRS). 

Accounting harmonisation is an international process of converging different accounting standards and rules that form the foundation of financial reporting (Parmod, Chris & Ronald, 2008, p. 114).  Broadly, there are five different approaches for accounting harmonisation and convergence (Appendix A), ranging from an adoption of IFRSs in their entirety in the highest form to a continuation of local accounting standards with no IFRS adoption in the lowest form.

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Till today, South Korea is still within the fourth stage, short of reaching the highest form of accounting harmonisation due to its two-tier accounting system. On one hand, it mandates the use of K-IFRS for listed companies, financial institutions and state-owned enterprises with greater exposure to public accountability.  On the other hand, it allows the continuation of local K-GAAP by other unlisted companies with little or no exposure to public accountability.  


2 History of South Korea’s Accounting System


When the Asian Financial Crisis struck South Korea in 1997, its financial market quickly suffered a continued loss of investor confidence, resulting in a fall of the Korean won by 50% and a real GDP decline of around 6% in 1998 (Jeon, 2010, pp. 105-108).  This infamous financial crisis prompted the South Korean government to accept the IMF bailout package  (Korean Culture and Information Service & Korea.net, 2018). 

In return of the IMF bailout package, South Korea agreed to carry out financial and corporate reforms to regain market confidence (Jeon, 2010, pp. 105-108).  Consequently, it established the Korea Accounting Institute (KAI), now known as Korea Accounting Standards Board (KASB) in 1999 entrusted with the responsibility of developing the K-GAAPs for corporate financial reporting (KASB, 2017). 

To conform to international standards, KAI subsequently decided in 2017 to commence with the voluntary adoption of IFRS from 2009 to 2011 (KASB & AASB, 2015, pp. 9-10).  By 2011, it is mandatory for all listed companies, financial institutions, and state-owned enterprises to prepare their audited financial reports in accordance with K-IFRSs whereas other unlisted companies are given a choice of whether to use K-IFRS or K-GAAP in their financial reporting (Deloitte Anjin LLC, 2018).

In short, South Korea has reformed its pre-crisis local accounting standards due to its bitter lessons learnt from the 1997 Asian Financial Crisis, giving birth to its two-tier accounting system of both the rules-based K-GAAP and the principles-based K-IFRS.

3 Cultural Factors of South Korea’s Accounting System


3.1 Hofstede Model in South Korea’s Cultural Context

Along with legal and economic systems, culture has a great impact on developing the accounting system of a country (Parmod, Chris & Patel, 2008, pp. 112-113). Hofstede’s relevant data suggest that South Korea is a hierarchical society with a medium power distance score of 60, meaning that people are likely to accept hierarchical orders with no question (Appendix C).  The low individualism score of 18 reflects South Korea as a collectivistic society where people have a preference for a tight-knit society and are willing to take responsibility for their family (Appendix C).  With a perfect score of 100 in long-term orientation, South Korea maintains the highest level of pragmatism, thus focusing on the long-term outcomes of their decisions (Appendix C).  With a high score of 85 in uncertainty avoidance, South Korea is highly intolerant of uncertainty and ambiguity, indicating that they are not willing to accept the risks (Appendix C).


3.2 Cultural Influences on South Korea’s Accounting Standards

Based on the hypothetical Hofstede-Gray relationship (Appendix D), we expect to find a statutory-control model of authority and enforcement in South Korea’s accounting system with a more uniform and rules-based K-GAAP, a more conservative measurement of profits and assets, and limited disclosure of financial information. 

In reality, we found that South Korea, being a code law country, uses statutory control to mandate the use of the more principle-based K-IFRS for listed firms and exercise a considerable degree of flexibility in allowing a choice of either K-GAAP or K-IFRS for other unlisted firms.  As such, listed firms tend to use the more optimistic fair value accounting to measure assets and profits based on K-IFRSs whereas the unlisted firms tend to use the more conservative historical cost accounting based on K-GAAPs (Appendix F).  As K-IFRS requires more extensive disclosure than K-GAAP, listed firms using K-IFRS tend to exhibit a greater transparency of accounting information than unlisted firms using K-GAAP.  

In short, Hofstede model prescribes the suitability of rules-based K-GAAP in South Korea’s cultural context through Gray’s accounting values, but South Korea uses statutory control to implement the principles-based K-IFRS for the financial reporting of listed firms.

4 Reasons for a Shift from K-GAAP to K-IFRS


There are two main reasons behind the shift from K-GAAP to K-IFRS.


4.1 Korea Discount

South Korea needed to address the phenomenon issue of “Korea Discount” whereby the Korean stock market received lower investor ratings than most Asian financial markets (Henderson, 2015, pp. 4-5).  As financial reports prepared under K-GAAP lacked transparency, investors refused to invest in Korean listed companies, forcing many Korean companies to use debt-financing to raise capital instead of equity-financing.  This obstructed South Korea from attracting foreign investments much needed for its economic growth. As such, its shift to K-IFRSs gave South Korea the opportunity to improve the transparency of its accounting system and thus enhance its accounting credibility among investors.


4.2 Importance of Global Trading to Korea’s Economic Growth 

IFRS adoption has become an international trend in the convergence of accounting standards whereby more than 100 countries in 2007 were shifting from their respectively local accounting standards to a single set of IFRSs (Jang J.I. et al., 2016, p. 1650).  As South Korea significantly relies on global trade, it faces a major task of implementing the international accounting standards in order to align itself with the accounting practices of other countries. South Korean companies used to prepare dual sets of financial reports based on both K-GAAP and IFRS for worldwide trading (Henderson, 2015, p. 5).  The IFRS adoption has enabled Korean firms to save the time and costs of dual financial reporting by preparing a single set of financial reports under K-IFRS when they expand their markets overseas.

The shift from K-GAAP to K-IFRS enabled South Korea to eliminate the “Korea Discount” issue and compete with other countries in the global market.  The strong push of Korea adoption is through the Big-Bang approach by mandating the entire use of IFRS for all listed companies and financial institutions at one specific time instead of in different phases or in convergence approach (Jang J.I. et al., 2016, p. 1651).  In short, South Korea believed that the implementation of IFRS would resolve the above problems in its complex accounting system.

5 Harmonisation Problems


Despite the long-term benefits brought about by K-IFRS, South Korea still encounters several problems in its process of harmonizing its local K-GAAP with IFRS.


5.1 Lack of Comparability among Unlisted Companies

Survey results have shown the costs of IFRS adoption outweighing its benefits because its costs are easily quantifiable whereas the benefits are questionable (KAI, 2016, p. 49). 

The perceived benefits of IFRS adoption are mainly enterprise value improvement, improved quality of accounting information, reduction in cost of capital, and reduced financial reporting costs of cross-listed firms (KAI, 2016, pp. 50-51).  However, such benefits can only be perceived by listed firms because they are required to prepare financial reports in accordance with K-IFRS.  Furthermore, more than 85% of the firms surveyed do not experience a significant decline in the cost of capital.  The decrease in costs for dual financial reporting is offset by an increase in costs of preparing consolidated financial statements in accordance with new standards.

On the contrary, the costs of pre-IFRS adoption are incurred for training staff with IFRS knowledge, developing new accounting system and advisory services whereas the costs of post-IFRS adoption are fair value measurement costs such as hiring external appraisers, increased time costs in preparation of financial reports and disclosures and costs of making professional judgments (KAI, 2016, pp. 51-52).  All these costs can be easily perceived by many firms, be it listed or unlisted.

As the costs of IFRS adoption can be more easily quantifiable than its benefits, it is natural for many firms to perceive the costs outweighing its benefits in the short term.  As a result, many unlisted firms would more likely to remain using K-GAAP in their financial reporting.  This could lead to the lack of comparability among unlisted firms in the long run where some unlisted firms, particular the Chaebol-affiliated ones adopt K-IFRS for consistency group reporting while many other unlisted firms remain using K-GAAP.         


5.2 Complex Ownership Structure of Chaebols

Researches have highlighted the lack of comparability in the case of family-owned Chaebols in South Korea. Among the family business groups in Korea comprising subsidiaries (Lee & Gaur, 2013, p. 444), Chaebols continue to make significant contributions to the Korean economy, accounting for greater than 50% of the market shares in Korean stock market (Baik et al., 2016, p. 338). In addition, Chaebols have pyramidal ownership structures in which family-owned companies are the biggest shareholders of a few key parent companies, which operate as the largest shareholders of other subsidiaries (Lee & Gaur, 2013, p. 448). Due to the complex ties between the parent company and its subsidiaries, this raises the question of whether comparability can be achieved through the adoption of IFRS (Zeff, 2007, p. 291). This problem can be observed in the case in which a single parent company whose listed subsidiaries mandatorily complying IFRS in the preparation of the financial statements whereas its unlisted subsidiaries choose to adopt K-GAAP. Also, a study points out that Chaebols do not have strong corporate governance and high transparency between entities (Baik et al., 2016, p. 338).  As a result, the hierarchical ties between a parent and its subsidiaries motivates companies to involve in earnings management (Jang J.I. et al., 2016, p. 1654).

5.3 Temporary Cultural Mismatch between K-GAAP and K-IFRS

The mandatory of adopting IFRS in entirety is quite challenging for all listed companies and unlisted financial institutions in South Korea where the culture is built on a rules-based society. Similarly, South Korea is a code law country with a two-tier accounting system of the local rules-based K-GAAP and the principles-based K-IFRS.  This may cause confusion for accountants who are familiar with rule-based accounting standard as IFRS allows them to choose various accounting methods and measurements. Based on Gray’s accounting values, the characteristics of K-GAAP are statutory control, uniformity, conservativism, and secrecy. In reality, those of K-IFRS are professionalism, flexibility, optimism, and transparency.

However, the idea of professional judgment required in K-IFRS places many Koreans in a difficult position due to their customs of following rules (Henderson, 2015, p. 15).  Due to the lack of preparation, around 25% of companies failed to meet the IFRS implementation deadline (Henderson, 2015, p. 17).  All these suggest a temporary cultural mismatch between K-GAAP and K-IFRS. 


5.4 Opportunities for Earnings Management

The principles-based K-IFRS has given companies more discretion over the use of accounting methods and measurements, paving the opportunities for potential fraud or earnings management (Henderson, 2015, p. 15).  For instance, a shift from separate financial statements to consolidated financial statements after the IFRS implementation may give group companies more incentives to manage their earnings through its unlisted subsidiaries (Jang J.I. et al., 2016, p. 1653).  For another instance, the IFRS adoption gives managers considerable discretion over the categorisation of interest payments in the cash flow.  This enables financially troubled firms, firms with greater debt-financing and Chaebol-related entities to categorise their interest payments as financing cash flows instead of operating cash flows (OCF), thereby increasing the total amounts of OCF (Baik et al., 2016, pp. 331-332).  These two examples illustrate that the principles-based K-IFRS would give managers greater leeway and incentives to manage their earnings to paint a more optimistic picture of their financial reports to their concerned stakeholders such as investors and banks or top management.


5.5 Translation Issue from IASB IFRS to KASB K-IFRS

When IFRS changes, K-IFRS must be updated to account for newly published IFRS and some additional disclosure requirements. However, the translation issue arises as it needs to be translated from English into Korean language in terms of timeliness and accuracy. This is a common problem in many non-English-speaking countries such as Korea. Word-for-word translation method is not truly translated specific terminologies in IFRS, which could result in the misinterpretation and inconsistency of accounting standard (KAI, 2016, pp. 111-112). 

However, the limitation of the assist from IFRS interpretation committee makes Korea difficult to obtain timely advice as there are only four face-to-face and two online meeting annually standard (KAI, 2016, pp. 107-108).

6 Recommendations


Currently, the South Korean government has created awareness of IFRS through education by mandating all universities to teach IFRS from 2009 onwards and including IFRS in its uniform KICPA syllabus from 2010 onwards (Henderson, 2015, p. 16).  To alleviate the recent harmonisation problems, our group has come up with the following recommendations. 

6.1 Enhancing auditing practices and standards

Due to the principle nature of IFRS, consistent professional judgement is required to overcome earnings management. According to the survey, 59.5% of CPAs acknowledged the growing importance of the role of global auditing firms such as big 4 in the IFRS compliance (KAI, 2016, p. 95).  This suggests that South Korea needs to enhance its monitoring and auditing system relating to consolidated financial reporting for the purpose of evaluation, inspection, and regulatory views. Hence, we recommend policy suggestions such as increased penalties for poor auditing work and development of several IFRS case studies to ensure strong compliance with IFRS (KAI, 2016, pp. 96-97).

6.2 Timeline to gradually adopt K-IFRSs in entirety

As South Korea still has a rules-based mindset, we recommend for the gradual step-by-step shift from K-GAAP to K-IFRS for all unlisted entities.

Following the current two-tier accounting system, entities with foreign operations should adopt K-IFRSs.  This helps investors at large to compare such firms with other global entities as well as assists domestic firms in complying with international standards when they expand business overseas in the future.  In the further stage, parents with control over one or more subsidiaries should adopt K-IFRSs for consistency purposes. At the final stage, all other unlisted firms should use K-IFRSs where all future trained accountants would have been equipped with the IFRS knowledge by their university education and KICPA profession.

7 Conclusion

With the planting of IFRS seeds in its education system, our group is confident that South Korea will one day reach the highest point where all Korean firms will adopt IFRS in entirety in their financial reporting.  This would eliminate most of the harmonisation problems such as lack of comparability, cultural mismatch, and translation issues.



Baik et al., 2016. Who classifies interest payments as financing activities? An analysis of classification shifting in the statement of cash flows at the adoption of IFRS. Journal of Accounting and Public Policy, 35(4), pp. 331-351.

Borker, D. R., 2013. Is There A Favorable Cultural Profile For IFRS?: An Examination And Extension Of Gray’s Accounting Value Hypotheses. International Business & Economics Research Journal, 12(2), pp. 167-177.

Chand, Parmod, Patel, Chris & Macquarie University. Department of Accounting Corporate Governance, 2011. Achieving Global Convergence of Financial Reporting Standards: Implications from the South Pacific Region. Bingley, UK: Emerald Publishing Group.

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Gray, S.J., 1988. Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally. Abacus, 24(1), pp. 1-15.

Henderson, R., 2015. South Korea’s Transition from K-GAAP to IFRS. [Online] Available at: https://digitalcommons.georgiasouthern.edu/cgi/viewcontent.cgi?article=1162&context=honors-theses[Accessed 27 October 2018].

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Jang, J.I. et al., 2016. Economic Consequences Of IFRS Adoption In Korea: A Literature Review. The Journal of Applied Business Research, 32(6), pp. 1649-1662.

Jeon, B. N., 2010. From the 1997-98 Asian Financial Crisis to the 2008-09 Global Economic Crisis: Lessons from Korea’s Experience. East Asia Law Review, 5(1), pp. 103-159.

KASB & AASB, 2015. Accounting Judgments on Terms of Likelihood in IFRS: Korea and Australia. [Online] Available at: https://www.ifrs.org/-/media/feature/meetings/2015/december/asaf/aasb-kasb-joint-research-project/ap1a-preliminary-results-accounting-judgments-on-terms-of-likelihood-in-ifrs-korea-and-australia.pdf[Accessed 27 October 2018].

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Zeff, S.A., 2007. Some obstacles to global financial reporting comparability and convergence at a high level of quality. The British Accounting Review, 39(4), pp. 290-302.











Appendix A: Extract of Approaches to Convergences and Harmonisation

Five forms of Accounting harmonisation

“Complete Adoption of IFRSs (HIGHEST)”

“Selective or Phased-in Adoption of IFRSs”

“Adoption of IFRSs with revisions in line with local accounting standards”

“Retention of local accounting standards, but in harmony with the IFRSs”

“Retention of local accounting standards (LOWEST)”

(Source: Chand & Patel, 2011, p. 15)


Appendix B: Extract of Hofstede’s five cultural dimensions

Five Cultural Dimensions


Power Distance

“This dimension measures the degree of acceptance of unequal distribution of power by members within a country.”


“This dimension measures the degree of interdependence among members within a society.  In individualistic society, people tend to take care of themselves and their immediate relatives only.  In collectivistic societies, people tend to rely on group affiliations to look after their well-being in return for unquestioned loyalty.” 


“A high score in masculinity indicates the importance of competition, achievement and success in a society whereas a low score in masculinity (high in feminism) indicates the importance of a caring society with high quality of life.” 

Uncertainty Avoidance

“Uncertainty avoidance measures the degree of acceptance of unprecedented change by members within a society.” 

Long-term Confucian Dynamism

“This dimension measures the ability of its society to cope with the challenges of the present and future while retaining its traditions.” 

(Source: Hofstede Insights, 2018)












Appendix C: Extract of Hofstede’s Insights about South Korea


(Source: Hofstede Insights, 2018)


Appendix D: Extract of Expanded Hypothesized Hofstede-Gray Relationship

Gray’s Accounting Values

Hofstede’s Cultural Dimensions

Power Distance


Uncertainty Avoidance


Long-term Orientation

















 (Source: Borker, D.R., 2013, p. 173)


Appendix E: Gray’s Accounting Values

Accounting Values


Professionalism versus statutory control

“Tendency for professional judgment as compared to following rules.”

Uniformity versus flexibility

“Tendency for similar accounting practices between companies and the consistent use of such practices over time, as compared to flexibility based on the perceived situations of individual firms.” 

Conservatism versus optimism

“Tendency for a prudent approach to measurement so as compared to a more positive, liberal, and risk-taking approach.” 

Secrecy versus transparency

“Tendency for limited disclosure of information about the business only to top management, as compared to a more transparent, open and publicly accountable approach.”

(Source: Gray, S.J. 1988, p. 8)


Appendix F: Comparison between K-GAAP and K-IFRS

Accounting System



Accounting Standards



Key Financial Statements

Separate financial statements

Consolidated financial statements

Measurement Basis

Historical cost accounting

Fair value accounting

Disclosure Requirements

Relatively less extensive disclosures in notes

Extensive disclosures in notes

(Source: Jang J.I. et al., 2016, p. 1652)






Australian Accounting Standards Board


Gross Domestic Product


International Accounting Standards Board


International Monetary Fund


Korea Accounting Institute


Korea Accounting Standards Board


Korean Institute of Certified Public Accountants