Korean GAAP vs. US GAAP

Attribute	Korean GAAP	US GAAP
Financial Statements	Consolidated financial statements are required for listed companies	Consolidated financial statements are required for public companies
Revenue Recognition	Recognizes revenue when it is realized or realizable and earned	Recognizes revenue when it is realized or realizable and earned
Inventory Valuation	Uses lower of cost or market value	Uses lower of cost or market value or net realizable value
Goodwill Impairment	Tested for impairment annually	Tested for impairment annually or when events indicate impairment

Introduction

Generally Accepted Accounting Principles (GAAP) are a set of accounting standards used by companies to prepare financial statements. While there are many similarities between Korean GAAP and US GAAP, there are also some key differences that companies need to be aware of when operating in these two countries.

Regulatory Bodies

In Korea, the Financial Services Commission (FSC) is responsible for setting accounting standards and overseeing financial reporting. Korean GAAP is heavily influenced by the International Financial Reporting Standards (IFRS), which are used in many countries around the world. On the other hand, the Financial Accounting Standards Board (FASB) is the regulatory body responsible for setting accounting standards in the United States. US GAAP is considered to be more rules-based compared to the principles-based approach of IFRS.

Revenue Recognition

One of the key differences between Korean GAAP and US GAAP is in the area of revenue recognition. Under Korean GAAP, revenue recognition is generally more conservative compared to US GAAP. Korean companies are required to meet stricter criteria before recognizing revenue, which can result in lower reported revenues compared to US companies following US GAAP.

Inventory Valuation

Another area where Korean GAAP and US GAAP differ is in the valuation of inventory. Korean GAAP allows for the use of the Last In, First Out (LIFO) method for valuing inventory, while US GAAP does not permit the use of LIFO. This can result in differences in reported inventory values between companies following Korean GAAP and US GAAP.

Consolidation of Financial Statements

When it comes to the consolidation of financial statements, Korean GAAP and US GAAP have some differences in the treatment of subsidiaries. Under Korean GAAP, the equity method is used to account for investments in subsidiaries, while US GAAP allows for the use of either the equity method or the consolidation method. This can result in differences in the reported financial position and performance of companies following Korean GAAP and US GAAP.

Lease Accounting

Lease accounting is another area where Korean GAAP and US GAAP differ. Under Korean GAAP, operating leases are generally treated as off-balance sheet items, while under US GAAP, operating leases are required to be recognized on the balance sheet. This can result in differences in reported financial ratios and performance metrics between companies following Korean GAAP and US GAAP.

Disclosure Requirements

Both Korean GAAP and US GAAP have specific disclosure requirements that companies must adhere to when preparing financial statements. However, the level of detail and specific requirements can vary between the two sets of standards. Korean companies may be required to disclose additional information compared to US companies following US GAAP, which can impact the transparency and comparability of financial statements.

Conclusion

While there are many similarities between Korean GAAP and US GAAP, there are also some key differences that companies need to be aware of when operating in these two countries. Understanding these differences can help companies ensure compliance with the relevant accounting standards and provide users of financial statements with accurate and reliable information for decision-making purposes.