Ahead of the introduction of the new International Financial Reporting Standard (IFRS 18, domestic K-IFRS No. 1118) starting in 2027, the Financial Supervisory Service said on the 14th it has prepared a "best practices for prior note disclosures."
This is to analyze the major impacts of K-IFRS No. 1118, which was established and announced in December last year, and to enable related corporations to disclose them faithfully. Corporations must disclose major impacts in advance before the new accounting standard takes effect.
The new standard broadly includes: ▲ defining all revenue and expense in the income statement into categories such as operating, investing, and financing, and mandating presentation of operating profit and loss, financing profit and loss, profit and loss before income tax expense, and net profit and loss for the period ▲ redefining the concept of operating profit and loss as the residual category among all revenue and expense that does not fall under investing or financing ▲ introducing disclosures related to management performance measures (MPMs) to enhance transparency of non-GAAP financial information.
First, regarding changes to the income statement, sufficient information related to the change in the concept of operating profit and loss must be provided to enhance users' understanding. The Financial Supervisory Service listed in the best practices the classification of profit and loss categories, the differences from the current operating profit and loss, and the point that the current operating profit and loss will also be disclosed in the notes.
For the assessment of major impacts that must be disclosed in the notes, it is necessary to specifically explain changes in operating profit and loss and their main causes as the classification of profit and loss is changed. If a corporation conducts certain primary business activities, some category classifications of profit and loss will change, so information related to the evaluation of business activities must also be included.
The definition of and disclosure requirements for newly introduced MPMs were also included in the examples. If a corporation has non-GAAP financial information reported externally that falls under MPMs, or if there are MPMs to be newly used, they must be explained in the notes related to the assessment of major impacts. If MPMs have not been finalized, it is necessary to describe the progress on the MPM assessment.
In addition, the examples include matters such as information on amendments to other standards, including K-IFRS No. 1007, statement of cash flows, due to the establishment of K-IFRS No. 1118. When assessing major impacts, an explanation is needed of changes in a corporation's cash flows from operating activities and their main causes due to changes in the accounting standard for the statement of cash flows. If specific impacts cannot be reasonably measured, key items expected to affect cash flow changes must be disclosed.
The Financial Supervisory Service plans to provide guidance on the "best practices for prior note disclosures" through related organizations such as the Korea Listed Companies Association, the KOSDAQ Association, and the Korean Institute of Certified Public Accountants. A Financial Supervisory Service official said, "We will support the smooth settlement of the new accounting standard in the market through continued publicity and education."