K-IFRS 도입 이후의 상환주식 회계처리에 관한 연구

Listed companies in Korea are required to apply K-IFRS in the preparation of their financial statements from 2011. With the full adoption of principle-based accounting standards, the users of accounting information in Korea tend to experience confusions and difficulties in interpreting financial statement information with regard to several accounting areas, one of which includes the classification of redeemable stocks. Redeemable stocks provide a means with which companies can raise external funds at lower costs owing to the right to redeem the original investments from the investee companies. From a legal point of view, redeemable stocks constitute owners’ equity, and the revised Commercial Act in Korea stipulates them as such. However, redeemable stocks are similar to liabilities from an economic substance perspective, in the sense that they are expected to be redeemed at predetermined amount in the future. In this paper, we suggest that the inconsistencies in the accounting rules on redeemable stocks as stipulated in K-IFRS versus Accounting Standards for Non-Public Entities in Korea is likely to cause adverse effect not only on the comparability of financial statements but on the financial health of the firms implementing specific rules. We discuss the likelihood of distorting accounting information provided in the consolidated financial statements owing to the inconsistent treatment of redeemable stocks. Redeemable stocks are allowed to be classified either as equity or liability in accordance with the underlying economic substance under the K-IFRS. Non-public entities, in contrast, are required to account for redeemable stocks exclusively as equities as prescribed by the Accounting Standards for Non-Public Entities in Korea. We contrast two cases of accounting treatments by a public construction company, D Inc. vis-a-vis a non-public counterpart, S Inc., focusing on the differential aspects of accounting procedures applied to the redeemable stocks. The comparative case study demonstrates that the differences in the accounting procedures between the two companies affect the capital structures in a significantly different manner, thereby resulting in differential effects on the financial stabilities of both companies. In addition, the two construction companies are likely to suffer from the lack of comparability in their financial reporting, which may lead to declining quality of industry accounting information. We also note that the parent company of S Inc. omitted the note disclosure informing that a consistent accounting policy was adopted for redeemable stocks of liability nature by the subsidiary company to be in alignment with the consolidated entity policy. The parent company of S Inc. may have provided misleading information to the users of financial statements by recognizing the redeemable stock items as preferred stocks and capital surplus rather than as liability and interest expenses. Consequently, as per the consolidated financial statements prepared by the S Inc., minority shareholders' equity is understated, whereas the liability of the consolidated entity is overstated, which leads to the overstatement of the net income of parent company. More specifically, as redeemable stocks are classified as liability rather than as owners’ equity, the latter tends to be replaced by the former, resulting in a significant increase in the leverage ratio to deteriorate the financial stability of the entity. Moreover, when dividend payment for redeemable stocks is not accounted for as interest expense, the profitability ratios such as ROA and ROE tend to be overstated in a significant manner to exacerbate poor interest coverage ratio. In preparing consolidated financial statements, parent companies are likely to include redeemable stocks and the dividend payments as majority shareholders’ equity and the parent companies’ retained earnings on a proportionate basis without disclosing the accounting policies employed by subsidiaries, thereby obfuscating the true ownership relationship between the parent and subsidiaries. We discussed the issues of comparability and the potential difficulties likely to be encountered in preparing consolidated financial statements associated with the redeemable stocks with liability nature. We suggest that it is likely to mislead the users of financial statement users mainly because of the differential accounting procedures as applied to redeemable stocks by different entities and possible omissions of relevant footnote disclosures. The caveat is that the above discussions are based on anecdotal case evidences only, and in order to arrive at more general conclusions, it might be necessary to conduct additional round of analyses based on augmented sample data. This paper is expected to provide the opportunity for accounting students and practitioners alike to learn about specific accounting knowledge and skills on redeemable stocks. It is also expected to remind the regulatory authority that the lack of uniform disclosure regime for an economic event or phenomenon may result in the insufficient comparability as well as increased chances of distorting accounting information, which is detrimental to the rational allocation of scarce resources in the capital market.