The Financial Supervisory Service (FSS) will focus on four major accounting issues during the review of financial statements next year: overseas sales, inventory assets, investment properties, and provisions for liabilities. This initiative aims to encourage companies and external auditors to ensure proper accounting practices in light of increased risks from geopolitical tensions, currency fluctuations, and rising commodity prices.
On June 21, the FSS announced key areas of focus for the 2026 financial statement review in a pre-announcement of major accounting issues. The core areas include accounting treatment for overseas sales and accounts receivable, the appropriateness of recognizing inventory valuation losses, accounting for investment properties, and the recognition, measurement, and disclosure of provisions and contingent liabilities.
The focused review system was introduced in 2013 to prevent investor losses due to inaccurate financial information. As of last year, the FSS had identified 52 accounting issues and inspected 452 companies, uncovering violations of accounting standards in 101 of these cases (22.3%). Among the violators, 45 companies faced severe penalties, including fines.
The first area to be examined this year will be the accounting treatment of overseas sales and accounts receivable. The FSS has determined that accounting risks related to overseas transactions have increased due to prolonged geopolitical conflicts, export-import regulations, and currency volatility. The review will focus on whether companies accurately apply revenue recognition based on the terms of overseas transactions and appropriately reflect credit risks and expected credit losses from foreign clients. Industries with high export ratios, such as manufacturing, information and communication, and professional, scientific, and technical services, are expected to be the primary targets.
Inventory valuation will also be a key focus. Due to fluctuations in exchange rates and commodity prices, the likelihood of the net realizable value of inventory falling below cost has increased. The FSS will verify whether companies have adequately reflected valuation losses according to the lower of cost or market rule, particularly examining whether inventory has been evaluated by item and whether slow-moving or obsolete inventory has been appropriately accounted for.
For the first time, accounting for investment properties will be included in the focused review. The FSS has noted recurring issues where investment properties are misclassified as tangible assets or where disclosures related to fair value are omitted. The review will assess whether properties held for rental income or capital appreciation are properly classified and whether the obligations for fair value or cost model disclosures are being met.
Additionally, provisions and contingent liabilities will be closely examined. The FSS plans to check whether obligations arising from loss contracts, guarantees, and lawsuits are accurately reflected in financial statements and whether disclosures of contingent liabilities are not overlooked. The FSS explained that there is an incentive for companies to minimize provisions and that instances of neglecting contingent liability disclosures are frequent.
The FSS intends to conduct training and provide guidance in collaboration with relevant associations to ensure that companies and auditors adequately incorporate these focused review accounting issues into the financial statement preparation and external audit processes this year. Following the disclosure of the 2026 financial statements, the FSS will select subjects for review by accounting issue and conduct focused reviews in 2027, with strict measures to be taken in cases of confirmed violations of accounting standards.
* This article has been translated by AI.
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