Tougher Regulations on Reporting

From as early as next year, CEOs will have to approve that information in the documents are appropriate and they are well aware of it.

As to the method of recording financial information, the current system based on individual statements will be replaced with one based on consolidated financial statements. In addition, the decision-making authority on financial statements will change hands from the general meeting of shareholders to the board of directors.

Based on these, the Minister of Finance and Economy announced a ‘plan for a more advanced accounting system’ on March 24.

The ministry plans to establish revisions through a public hearing on March 25 and submit a draft revision of related laws including stock exchange laws in the second half of this year.

Under the plan, corporations have to get approval for their annual reports from their CEOs and CFOs (Chief Financial Officers).

As signing of CEOs has been reduced to just a perfunctory task, and even though false information has been recorded on the financial statements, CEOs can deny their responsibilities, saying that they didn’t know it and it was beyond their responsibility and thus it is hard to punish them. This measure is designed to prevent this situation.

The ministry also decided to include some items in the stock exchange law to file a lawsuit against those who actually order to record the false information.

Under the plan, the due date of submitting the consolidated financial statements would be shortened from the current 4 months to 3 months after the business year and consolidated financial statements must be included even when they submit quarterly reports and semi-annual reports as well as annual reports.

This move came after some pointed out that individual investors are short-changed because they cannot know in time the financial state of holding companies and subsidiaries.

In addition, the ministry also set to come up with measures to protect whistle-blowers under which whistle-blowers can be protected from severe punishment even if they are involved in the case and from revenge by the companies, including getting fired.

And the ministry also decided to ban accounting companies from being engaged in consulting businesses including writing accounting records and financial statements in order to more strongly hold the outer inspectors accountable.

Kwang-Hyun Kim kkh@donga.com