South Korea’s Finance Authorities To Set Accounting Measures To Improve Transparency Among Construction And Shipbuilding Companies
Finance officials in South Korea will come up with accounting measures that will improve the transparency on construction and shipbuilding companies to avoid huge revenue losses for delayed projects, Bloomberg reported on Wednesday.
A statement released by the Financial Services Commission (FSC) and the Financial Supervisory Service on the same day said the accounting measures are expected to be imposed on the fourth quarter of the current year.
It also stated that the measures oblige companies to present information every quarter on payments that the company has not received for delayed projects and how much of that quantity has been considered as possible losses.
"There have been too many uncertainties in the contract business because there was no transparent way to reflect construction works as they are built. The measures are aimed at helping more companies practice more transparency in their accounting," the agencies said.
South Korea' finance officials were compelled to draw up these measures after Daewoo Shipbuilding & Marine Engineering Co. disclosed its biggest loss due to terminated orders and delayed shipments earlier this year.
"While this could help in the short term, the fundamental problem is that clients aren't paying and projects are delayed," Hana Daetoo Securities Co. analyst Park Moo Hyun said.
"Shipyards and construction companies also need to do a better job of making sure the contracts they sign can be delivered and on time," he added.
Yonhap News Agency reported on the same day that Daewoo Shipbuilding & Marine Engineering Co. recorded a net loss of 2.39 trillion won in the second quarter of 2015.
Aside from Daewoo, Hyundai Heavy Industries Co. and Samsung Heavy Industries Co. also suffered net losses on the same period.
FSC reportedly said that the losses could be linked to suspicious accounting practices called "big bath."
"When they sign long-term projects, their quarterly net profit is measured by some vague terms. It gives imprecise information to investors," the agency said.
"We will force shipbuilding companies to disclose related accounting information and to have external audits."