The Korean Institute of Certified Public Accountants said on the 18th that the "2nd Korea Investor Forum Academic Debate" was held on the 17th on the 3rd floor of the FKI Tower in Yeouido, hosted by the Korea Investor Forum.
At the debate, participants noted that the current External Audit Act, which makes violations of accounting standards a constituent element for criminal punishment, needs to be overhauled. They said that under principles-based accounting standards (IFRS), there is room for reasonable interpretation and judgment, but the current system, which criminalizes them after the fact, undermines predictability and legal stability.
They also addressed criminal penalties for violations of accounting standards and accounting and tax issues surrounding mandatory cancellation of treasury shares, pointing out consistency problems between systems.
At the forum, Song Chang-young, an attorney at Sehan, said, "The current system that links violations of accounting standards directly to criminal punishment structurally conflicts with the IFRS framework," adding, "IFRS allows multiple reasonable judgments depending on the economic substance of a transaction, but punishing by presupposing only a particular interpretation as the 'right answer' after the fact is highly likely to run afoul of the principle of clarity and the rule of law on crimes and penalties."
Song added, "Intentional and serious accounting fraud requires a stern response, but exposing even normal judgment and discretion to criminal risk is excessive," emphasizing, "Step-by-step regulation such as administrative sanctions and a penalty surcharge should be applied first, and criminal punishment should be limited as a last resort."
The next presentation focused on accounting and tax issues in mandating the cancellation of treasury shares. Kim Ki-young, a professor at Myongji University, said, "I agree with the policy intent to clarify cancellation of treasury shares as a means of returning profits to shareholders, but the current Commercial Act, accounting, and tax systems do not sufficiently support it," and added, "Under the current system, when profits are canceled, the number of shares outstanding decreases but the legal capital remains, which can create a gap between capital and the number of shares on the financial statements, and that is a representative problem."
He further noted, "Cancellation of treasury shares goes beyond a simple disposition of profits and also has the nature of a capital refund," adding, "There are limits to adjusting only the accounting standards, and the system should be revamped to allow capital adjustments through revisions to the Commercial Act."
In the panel discussion that followed, directions for supplementing each issue were presented. Yoon Jae-won, a professor at Hongik University, said, "If mandatory cancellation of treasury shares is introduced, the problem of distorted capital representation could become more pronounced," and suggested, "Like in the United States, a method of reverting treasury shares to unissued shares to automatically adjust capital could serve as a reference case."
Park Jong-sung, a professor at Sookmyung Women's University, said in relation to discussions on accounting penalties, "In principles-based accounting, a method of determining criminality based only on outcomes without recognizing diversity in judgment tends to fuel controversy over the system," and emphasized, "The requirements for applying criminal punishment should be clearly distinguished with a focus on intent and materiality."
Kang Kyung-jin, Deputy Minister at the Korea Listed Companies Association, said, "A structure in which accounting judgments lead directly to criminal risk could discourage normal managerial decisions by corporations," adding, "A step-by-step regulatory framework centered on administrative sanctions needs to be established."
Yoo Gwang-yeol, a research fellow at the Accounting Policy Research Institute, said, "Mandatory cancellation of treasury shares could enhance trust in shareholder returns, but if exceptions are poorly designed, corporations may avoid buying back their own shares altogether, causing side effects."
Son Chang-wan, a professor at Yonsei University Law School, said, "From the perspective of legal stability, if a blanket obligation to cancel is imposed even on treasury shares already held, it could spark controversy over the principle of protection of legitimate expectations and retroactive legislation," adding, "A sufficient grace period and phased implementation are necessary."
Meanwhile, at this forum held with support from the Korea Listed Companies Association, participants agreed that the issue of criminal penalties for violations of accounting standards and the debate over mandatory cancellation of treasury shares are core tasks that determine trust in the capital market and the predictability of corporate decision-making. They suggested that beyond tweaking individual rules, a comprehensive overhaul encompassing accounting, the Commercial Act, and tax law is needed.