This article was displayed on the ChosunBiz MoneyMove (MM) website at 5:55 p.m. on Dec. 30, 2025.
The Korea Accounting Standards Board decided to seek the judgment of the IFRS Interpretations Committee (IFRS IC, IFRIC) on how to account for price return swaps (PRS). Determining that it was difficult to decide the matter internally, the board handed decision-making to a more authoritative committee.
The Interpretations Committee is discussing whether to take it up as a formal agenda item. A result could come as early as the first half of 2026. If the committee says PRS should be treated as a liability rather than equity, it could become harder for domestic corporations to raise funds in the trillion-won range using PRS.
According to the investment banking (IB) industry, the accounting board submitted an official inquiry to the IFRS Interpretations Committee on the 11th, based on a key PRS transaction inquiry received from the Korea Financial Investment Association on Dec. 1.
The accounting board said it "determined that a more thorough review is needed for international consistency," explaining the reason for the decision.
PRS is a transaction that allows corporations to raise cash without selling the shares they hold. A securities firm provides funds and, in return, receives revenue from the underlying shares and fees of an interest nature. Because a total return swap (TRS) is generally not recognized as a "true sale" since voting and dividend rights remain with the issuer, making it hard to lower the liability ratio, PRS has emerged as an alternative.
Until now, domestic corporations have raised from hundreds of billions to trillions of won through PRS without increasing liabilities on their books, but PRS is not free from "liability controversy." That is because, in most structures, the issuer continues to bear the risks and rewards from stock price fluctuations. In other words, the crux of the debate is whether to view a PRS transaction as a share disposal and reflect it in equity, or to deem its substance closer to borrowing and leave the proceeds as a liability.
Previously, major domestic accounting firms asked the accounting board to determine the direction of PRS-related accounting. The Financial Services Commission and the accounting board have since gathered industry opinions and discussed the issue internally, but no conclusion has been reached.
Currently, international accounting standards do not provide clear criteria on whether PRS is equity or a liability. However, in a fast-track inquiry disclosed by the accounting board, it indicated that "if the transferor continues to retain risks and rewards, the derecognition criteria for financial assets are not met," suggesting in effect that the proceeds should be recognized as a liability.
Cases where the accounting board has formally passed the ball to the IFRS Interpretations Committee, as now, are very rare. In recent years, matters the committee has handled at the request of the accounting board include accounting for warrants (stock purchase rights) in a special purpose acquisition company (SPAC) merger (agenda decision in Oct. 2022); how to account in separate financial statements for a merger between a parent and a wholly owned subsidiary (agenda decision in Jan. 2024); and whether compliance with fair presentation and the conceptual framework is still required when applying the International Accounting Standards (IAS 1) "departure" provision (tentative agenda decision in Nov. 2025).
An official at a major accounting firm said, "My understanding is that the accounting board sent an inquiry on a specific case this time," adding, "Even if the committee adopts this case as a formal agenda item and reaches a conclusion, it will not be immediately applied uniformly to every case."
The market has viewed PRS as having a stronger nature of liability when it takes on the characteristics of a financial instrument. That is, in the case of a PRS secured by less than a 20% equity stake with no significant influence, the liability nature is considered strong. In addition, PRS tends to have stronger liability characteristics when investors can hedge price fluctuations of the asset.
If the committee concludes that the "substance is borrowing" for PRS, domestic corporations will likely find it realistically difficult to attract large-scale funds through PRS going forward. While it is unlikely that corporations that have already classified PRS as equity in their accounts will be retroactively told to "reclassify as a liability," corporations that planned to raise funds in 2026 are expected to find it hard to choose PRS due to the burden of a sharp increase in liabilities.
An IB industry official said, "There is a considerable chance the committee will conclude it is a liability in this case, but the market will eventually find yet another way around it."