Amendment of K-IFRS for Investment Entities

Standard

Recently the FSC concluded that investment entities are not necessary to follow reporting standard in terms of K-IFRS. According to the amendment of K-IFRS, investment entities which are granted as an ‘investment entity’ by definition (to be elaborated later) having subsidiaries as a result of series of investment activities are not necessary to prepare their financial statements in consolidated basis. Current rule strictly stipulates that every entity that has one or more subsidiaries should follow consolidated accounting standard, the aggregation of financial statements of a group of company as a consolidated financial statements. In order to be qualified as an investment entity, each firm should satisfy all following conditions: first, one should raise the fund for investment activities and its management service purposes. Second, taking marginal profit and proceedings from investment activities should be a sole purpose of business. Third, all investments should be estimated in terms of fair value evaluation. Upon the requirement, investment entities should assess the value of their investments based on fair value evaluation. Any difference risen from the evaluation should be included on fiscal profit assessment.

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Investment entities should make an official announcement how they are qualified as an investment entity. Also they should provide details on their investments in terms of fair value evaluation. Any change in status as an investment entity should be publicly noticed along with reasons of change.

As noted above, investment entities only need to prepare their own financial statements. Assessment of their investment entities (or subsidiaries) should be included as well.

The amendment is scheduled to be effective as of January 1st, 2014. However, early implementation may be possible accordingly. Mostly ship investment company and real estate investment company shall be eligible for the investment entities based on recent amendment. Other investment funds under the FSCMA(Financial Investment Services and Capital Markets Act) are not considered since the entities are governed by separate accounting standards.

writing by Kim Jin-mok

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