General

Economy

Business Environment

Legal & Regulatory Environment

Organization of the Professions

Accounting Principles & Auditing Standards

Financial Reporting

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 Population: South Korea is densely populated, the number of people per sq. km having risen from 351 in 1975 to 455 in 1996 as a result of the increase in population from 34.7m to 45.5m. The population is currently rising by 1% per year, about half the rate, which prevailed in 1970s. This rate of increase can be expected to continue to decline. South Korea is ethnically homogeneous and not particularly welcoming to the immigrants. It is also highly urbanized. More than half of South Korea’s total population now live in urban agglomerations of 1m people or more. The economically active population, the labor force, has been growing faster and the employed population even faster. Between 1992 and 1996, average annual growth in the labor force was 2.1%. The percentage of women in the labor force is currently 41%, up by only 2 percentage points since 1980.

 Education: Education has been a priority for South Korea. 100% primary school enrollment had already been achieved by 1970. The proportion of the relevant age group enrolled in secondary schools was then only 42%, but raised to 92% by 1993. Only 3.7% of the population aged over 15 were judged to be illiterate in 1995. However, it is that doubts are being expressed about the content of education. It argued that South Korean education places too much emphasis on rote learning and multiple choice questions to which the answers are either right or wrong, and as a consequence fails to develop analytical skills and independence of mind. Now, government is taking steps to address the problems for instance, by encouraging the writing of essays.

 Health: Average life expectancy at birth in South Korea was 71.3 years in 1994 while 57 years in 1965, just industrialization program had got under way. The reasons why Koreans live 14 years longer that a generation ago are rising living standards and wider availability of medical care.

 Natural resources: South Korea has a paucity of natural resources. The only metal once available in commercially significant amounts was tungsten and amounts of lead, zinc and copper mined supply only a fraction of South Korea’s own needs.

 Transport: car ownership has been increase from 500,000 in 1985 to 6miilion in 1995. This has meant the eclipse of public transport, however, in terms of passenger-km, rail transport grew by an average of 3.8% per year in the ten years to 1995. The growth of total domestic freight transport has been so great over the past five years. The tonnage carried more than doubling between 1990 and 1995, from 337m tones to 710m tones.

 Communication: There has been explosive growth in the telephone system. In 1973 there were only 763,200 telephone subscribes, or 22 per 1,000 inhabitants. This had risen to 4.81m(121 per 1,000) in 1983, and to 19.6m by 1996(430 per 1,000). Currently mobile telephones and pagers are expanding rapidly.

 Manufacturing: South Korea’s economy is very dependent on foreign trade. According, most major industries are export oriented ore are suppliers for export industries. With the appreciating value of the Korean won and increasing wage costs, labor-intensive industries, including the garment, textile, shoe, toy and sundry goods industries, are facing fierce competition from neighboring lower-cost countries.

 Steel industries: Pohang Iron and Steel Company (Posco), one of the world’s largest and most efficient steel producers, produced 23.2m tons of steel.

 Car industries: Unlike most new motor vehicle industries, South Korea’s started largely as an export operation, with the North American market as its primary target, but in recent years growing success in export markets has been complemented by as explosive growth in domestic sales.

 High-tech industries: In recent years the high-technology industries have experienced rapid growth. The major factors contributing to this growth include the plentiful supply of capable engineering graduates and the granting of a variety of tax and other investment incentives.

 Service industries: the service sector has represented approximately 40% of gross domestic product in recent years.

 Construction: The average annual growth in construction’s real value added between 1962 and 1995 was approximately 12%, with higher rates towards the beginning of this period and lower rates towards the end.

 Main commodities traded, 1996

 Main trading partners, 1996

 Company

 Joint Venture: Joint venture is generally established as a domestically incorporated company (joint Stock Company), whose shareholders have limited liability for the obligations of the company, under the Foreign Capital Inducement Act.

 Branch: A branch office is any office that is registered and maintained in South Korea for which ultimate responsibility is held by the company’s principal office.

 Representative office: A representative office is an anomalous entity without legal standing that South Korean authorities allow to exist but not to carry on business or earn income.

 Liaison office: A liaison office is an entity involved in indirect business activities that do not generate profits for the office. It is allowed only to conduct activities on behalf of its parent company.

 Partnerships and sole proprietorships are not legally recognized in South Korea.

 Financial Institutions: South Korean financial institutions are relatively undeveloped for several reasons. Pervasive government intervention has prevented the development of a market-driven financial sector. Bureaucracy and lack of experience with international standards have further hindered the development of independent service-oriented financial professionals. Recently, through a combination of international pressure coming mainly from the United States and a major shift in the domestic political situation, banks and other financial institutions began taking steps toward autonomous operations.

 Banking system: Central bank: established in 1950, the bank of Korea functions as the nation’s central bank. It ultimately regulates all financial activity in the country, issues currency, manages government debt issues, manages the money supply through open-market operations, manages foreign exchange, operates the discount window, sets reserve requirements, manages interest rates, and generally controls money and credit flows.

 Banking market:

 Investment institutions:

 Insurance companies: The insurance industry is relatively undeveloped in South Korea. The industry is split between life insurance and property and casualty insurance business lines, and no company may engage in both areas.

 The securities industry: Direct corporate financing through the securities market has traditionally not been popular in the South Korea because of limited equity markets and a general unwillingness of corporate owners to share ownership with outsiders. Since its establishment in 1956 the Korea Stock Exchange (KSE) has experienced slow but steady growth. The KSE is now the fourth largest in Asia and represents roughly 1 percent of global stock value with 692 companies listed and a total capitalization about US$118.8 billion.

 Hyndai Group: The group currently has more than 40 subsidiary in diversified industries including automobile, shipping & industrial plants, engineering & construction, electronics & electricity, petrochemical & oil refinery, mechanical metal & other manufacturing, and finance, trade, & security.

 Samsung Co., LTD: Main businesses are chemicals, steel, plant, overseas resource development, heavy chemicals, semiconductors, automobile sales, information and telecommunication services, clothing, and distribution.

 Daewoo Corp.: The principal activities of the Group are finance trading, heavy industry, chemicals and electronics including the manufacture of semiconductors, civil engineering and construction, fabrics and light industry.

 LG Electronics Co., LTD: The principal activities are manufacture of home appliances and the company expanded into the computer and telecommunications markets.

 Pohang Iron & Steel Co., LTD: Co. was established by government and owned until 1988 and sold common stocks to the public in Korea. Co. is engaged in the manufacture, sale, and export of steel products.

 Government: Various incentives and guarantees have been granted for the active attraction of foreign investment and to protect foreign-invested enterprises.

 Local competitor: Generally, local companies are tolerant of foreign competitors and recognize that foreign investment can bring in new and advanced technology. They are willing to enter into joint ventures in cases of mutual interest.

 Labor: The labor force and management have generally maintained a positive attitude toward foreign investment as a factor in economic growth and s a source of employment.

 Korea Electronic Power Corporation

 SK Telecom Co., Ltd.

 Pohang Iron & Steel Co., Ltd.

 General contract requirements

 Sales transactions

 Principal-agency relationships

 Provisions for commercial transactions

 The areas covered by the commercial code are followings

 Requirements for standard commercial contracts and commission agents

 Financial and shipping documents

 Acknowledgment of article of incorporation and commercial documents

 Formation and operation of legal entities

 Separate protection for trade names

 Securities and Exchange Law: Enforcement Decree and various regulations thereunder regulate securities business.

 Capital Market Development Law (CMDL): It encourages financially healthy enterprises to go public, mobilize funds directly from the capital market and initiate an employee stockholding system.

 Administrative functions are given to the following organizations

 The Korean Labor Standards Law: Provides legal minimum labor standards.

 The Labor Union Law: Provides employees rights to form, join, or assist labor unions.

 The Labor Disputes Mediation Law: Provides matters necessary to settle disputes between employer and employees.

 The Labor Management Council Law: Labor Management Council is organized within each business for purpose of improving welfare of employees and to help sound development of business.

 Administrative functions are given to the Ministry of Labor

 Formation

 Capital structure

 Relationship of shareholders, directors and officers

 Liquidation

 Books and Records

 The central organization of certified public accountants in Korea

 Established in 1954

 Administers peer reviews

 Provides continuing education

 Takes actions necessary with respect to any matters affecting the professional interest of he members

 Consults with SEC and SSB concerning the promulgation of accounting and auditing standards

 Has about 4,000 members

 The KICPA is headed by General Assembly

 Board of Delegates and Board of Directors are set op under the General Assembly in order.

 Board of Directors consists of Advisors, President, Ethics Committee and Auditors.

 Under the President, Dispute Mediation Comm., Vice President, and Steering Comm.

 Steering Committee has seven small committees, which carry research work for Accounting principles, auditing Standards, international affairs, and taxation.

 Ethics Committee is a set of supervisory committees for tax reconciliation, business analysis, auditing and review committees of ethic investigation and auditing.

 Ahn Kwon & Co.

 Anjin Accounting Corporation:

 Daesung Accounting Firm

 Seihwa Accounting Corporation

 Samduk Accounting Corporation

 Samil Accounting Corporation

 Shinhan Accounting Corporation

 Issued by the securities Supervisory Board and approved by the Ministry of Finance and Economy.

 Designed ensure uniformity and objectivity in the accounting for and auditing of companies whose financial statements are subjected to independent audit.

 Similar audit procedures to those in English-speaking countries.

 The form of the auditor’s opinion resembles the U.S standard short-form opinion

 Reports can be qualified for reasons similar to those acceptable in U.S. practice.

 Historical cost bases of measurements

 Going concern assumption

 Accrual basis

 Balance sheet

 Statement of income

 Statement of changes in financial position

 Statement of appropriation of retained earnings

 Clear and concise format, description of account titles and notes

 Materiality basis of accounts and amounts disclosed

 Disclosure of Accounting Policies

 Consolidated financial statements: prepared by a controlling company including the accounts of controlled companies, as supplementary financial information.

 Purchase method

 Pooling of interests method

 Recording of purchased goodwill only

 Treating negative goodwill as a gain on business combination

 Reported in the balance sheet as an intangible asset and amortized using the straight-line method over no more than five years.

 Minority Interests-presented as a minority interest in the consolidated balance sheet.

 Consolidation policies

 Accounting policies

 The method used to values the investment account

 Summary of the business combination

 Combination policy

 Combination accounting treatment

 Assets and liabilities: at the exchange rate as of the balance sheet date.

 Income and expense: at the average exchange rate during the reporting period.

 Gains or losses from translation offset each other and the difference is reported in the equity section in the balance sheet.

 Changes are applied only prospectively.

 The description of the change, reasons for the change and effect on the financial statement.

 Any gain or losses arising from the correction of errors attributable to prior years’ financial statements should be classified separately and recorded as an adjustment of unappropriated retained earning at the end of the prior year.

 The case and description of the prior period adjustment and the adjusted net income of each adjusted preceding period.

 There are no standards for measurement and accounting treatment of related party transactions.

 Transactions with related parties should be recorded and reported separately.

 The name of related parties and significant transactions with the parties.

 Schedule of assets and liabilities related parties.

 Schedule of receivables from and payables to shareholders, directors and employees.

 There are no prescribed accounting standards for segmental information.

 Accounting principles for specific items-Balance Sheet.

 Fixed assets should be stated at acquisition cost, except for assets appraised in accordance with the Asset Revaluation Law, which should be stated at their appraisal value.

 Computed by Straight-line, declining balance, unit-of -production method or another reasonable method over the estimated useful lives of the assets set out in the Service life of fixed assets stipulated by the Tax Law.

 Historical cost

 Net of amortization

 Based on the straight-line or unit-of-production method.

 Goodwill Organization costs and certain defined research and development costs are amortized using a straight-line method over no more than five.

 Preoperating costs, new stock issuance costs, debenture issue costs, and are amortized by a straight-line method over no more than three years.

 Generally. Investments are carried at acquisition cost computed using either the weighed-average or moving-average method.

 Current investments are usually carried at the lower of aggregate cost or market value.

 Investments in stock of as affiliated company where the investing company exercises significant influence over the investee may be valued at cost, even though the market value has fallen below the cost.

 Inventory should be value at cost and may be stated at the balance sheet at the production cost computed using specific identification, first-in first-out, last-in first-out, weighted-average, or retail pricing.

 The inventory should be valued at market, when the market value of any inventory items has declined below the cost.

 Capital stock is shown at par value.

 Amount is excess of par value are shown as capital reserves.

 Stock dividends are permitted within a limit of 50% of total dividends.

 Stock splits are rare and are disclosed in the notes.

 Acquisition of treasury stock is prohibited, except in very special situations.

 Accounting principles for specific items-Income statement.

 Revenue is recognized when performance has occurred and reasonable assurance exist regarding measurement and collectibility of the consideration to be received.

 Long-term Contract sale, revenue may be realized based on the percentage of completion method.

 Long-term installment sale may be recognized each installment becomes due.

 Gain or loss disposition of investments.

 Gain or loss disposition of fixed assets.

 Casualty losses.

 Special depreciation

 No deferred income taxes are provided for temporary differences between accounting income a taxable income.

 EPS information is required to be calculated on the basis of the weighted-average number of common shares issued and outstanding.

 Adjusted or diluted EPS is not required to be disclosed.

 Jinro Co. Ltd.

 Frederick Brewing Co.

 Jinro: financial statements of (10/1/1996-9/30/1997) was prepared in accordance with Korean GAAP.

 Frederick: the preparation of financial statements (1/1/1997-12/31/1997) is in conformity with U.S. GAAP.

 Jinro: Straight-line method is used to depreciated fixed assets.

 Frederick: Straight-line and accelerated methods are used over the estimated useful lives of the assets.

 Jinro: No deferred income taxes.

 Frederick: Deferred income taxes are recognized.

 Coopers & Lybrand. International Accounting Summaries-A guide for Interpretation and Comparison. Canada: John Wiley & Sons, Inc., 1991.

 Price Waterhouse. Doing Business in the Republic of Korea. New York: Price Waterhouse, 1996.

 The Economist Intelligence Unit. Country Profile, South Korea, North Korea. London: The Unit, 1996.

 San Rafel & Christine A. Genzberger. The Portable Encyclopedia for Doing Business with Korea. California: World Trade Press, 1994.

 Gale Research. Craighead’s International Business, Travel, and Relocation Guide to 81 Countries. Detroit: Gale Research Inc., 1998.

 Moody's Investors Service, Moody's International Manual. New York: The Service, 1997.

 New York Stock Exchange

 Korea Stock Exchange

 Korean Institute of Certified Public Accountants

 Samil Accounting Corporation

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