Accounting Standards for Derivatives in Korea: A Comparison with U.S. GAAP and International Accounting Standards

By Jin, Jongdae; Huh, Sung K. | Journal of International Business Research, Annual 2003 | Go to article overview

Accounting Standards for Derivatives in Korea: A Comparison with U.S. GAAP and International Accounting Standards


Jin, Jongdae, Huh, Sung K., Journal of International Business Research


ABSTRACT

The rapid changes during last several years in size and diversity of the Korean derivative market may warrant the introduction of new accounting standards for derivatives in Korea. One feasible and effective way to obtain ideas for new standards fitting into Korea derivative market is to compare Korean, US, and international accounting standards for derivatives. Thus, the objectives of this paper are two-fold. The first is to make a comparison between Korean, US, and international accounting standards for derivatives. The second is to make a recommendation for new accounting standards for derivatives in Korea. To achieve these objectives, the following steps were taken. First, compare current Korean, US, and international accounting standards for derivatives. Secondly, a literature survey on this issue of derivative accounting and examination on current trading practice of derivatives in Korea were conducted to draw an insightful inference for derivative accounting standards setting process. Finally, make a recommendation for new accounting standards for derivatives in Korea. Potential contributions of this study would be to setting new accounting standards for derivatives in Korea and to developing a general body of knowledge that provides meaning insights to accounting standards for derivatives.

INTRODUCTION

Derivative instruments (derivatives in short, hereafter) are instruments whose value depends on the values of other more basic underlying variables. In spite of relatively short trading history, derivatives become increasingly important in the Korean capital market (1). The derivative market in Korea has grown dramatically in terms of trading volume, trading value, the number of products, and their diversity. 17 derivatives, eight different types, are currently traded in two security exchanges: i.e., 8 derivatives in Korean Futures Exchange (KOFEX) and 9 derivatives in Korean Security Exchange (KSE).

Ever since its opening in 1999, KOFEX has been growing so much that the trading volume for the year 2001 surpassed 10 million contracts and the trading value exceeded 1,000 trillion Korean won (i.e., equivalent to approximately US$ 860 billion). The trading value of derivatives in KSE also increased dramatically that it reached about 1,176 trillion Korea won (i.e., equivalent to US$ 1,022,billion) in 2001. The growth of Korean derivative market has been significantly pronounced during the last two-year period starting late 2000. Korean derivative market increased more than 400% and ten new derivatives were listed in KOFEX or KSE during the period (2).

Accounting and reporting of derivatives are standardized in Korean Financial Accounting Standards (KFAS), Accounting Standards (AS) for security industry, & Accounting Standards for banking industry. KFAS were originally issued in April 1998 and revised in August 2000 by Korean Financial Accounting Standards Board, which is a Korean counterpart of FASB in US, while AS were originally issued in December 1998 and revised in December 1999 by Financial Supervisory Service of Korea, which is a Korean counterpart of SEC in US. Therefore, the above- mentioned significant changes in Korean derivative market during 2001 and 2002 were not incorporated in these standards. These standards require an entity to recognize derivatives as assets or liabilities at their fair value. Any gains or losses on derivatives due to fair value changes should be recognized as current income items unless the purpose of holding derivatives is hedging. There are brief disclosure requirements for derivatives in the standards, too. But, in general, the current standards are not articulate and specific enough to capture the diverse nature of derivatives traded in Korea. The rapid changes in size and product diversity of the Korean derivative market may warrant the introduction of more advanced accounting and reporting standards for derivatives in Korea. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Accounting Standards for Derivatives in Korea: A Comparison with U.S. GAAP and International Accounting Standards
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.