Roadmap toward IFRS Adoption in Korea 2007 3

Roadmap toward IFRS Adoption in Korea 2007. 3. 15. IFRS Adoption Task Force And Korea Accounting Standards Board

International Financial Reporting Standards Welcome Speech Lee, Hyoik Chairman of KASB IFRS Adoption Task

International Financial Reporting Standards Kim, Yong-Hwan l Chairman, IFRS Adoption Task Force l Standing Commissioner of Securities & Futures Commission, FSC

International Financial Reporting Standards Progress Main Next Needplan for report feature IFRS of l Task of Adoption l Force adoption l Convergence status and evaluation Major differences (IFRSs vs Korean Standards) Need for IFRS adoption and expected impact Contents Overall approach for IFRS adoption l Scope of application and starting period l Phased transition to consolidation-based disclosure l Operation of accounting standards l Work plan for IFRS adoption l Financial contribution to IASCF l Next project / Phased plan l

Convergence Status and Evaluation Convergence Status Has gradually converged with IFRSs since the establishment of KASB in 1999 l 23 Statements (SKASs) based on IFRSs issued as of March 2007 (All major SKASs converged to IFRSs) l IASB # of IAS(IFRS) Evaluation 37 KASB # of issued SKAS ED and others Total 23 14 37 Phased convergence approach (not one-time complete adoption) l Certain items amended as adopted § Korea is viewed as a country non-compliant with IFRSs l IFRS Adoption Task

Major differences (IFRSs vs Korean Standards) Difference IFRS Disclosure Consolidated F/S based Individual F/S based Scope of consolidation Equity method Interim consolidated F/S Valuation Fair value (in principle) Cost (when objective Valuation is impractical) Investment property Contingent liability Financial liability PPE and etc. Legal and policy objective Accounting treatment based on substance of transaction Special treatment for certain items for the purpose of legal and policy objective Loan loss reserve Individual F/S based disclosure Criteria for sale of assets through ABS IFRS Adoption Task Korean standard Related items

Need for IFRS Adoption and Expected Impact Need for IFRS Adoption l IFRS recognized as global norm of accounting standards §Approximately 100 countries adopt or permit IFRSs l Use of current Korean standards leads to reduced reliability l Convergence with globally recognized standards enhances reliability of Korean accounting standards Expected Impact l Proactively cope with the trend of single global standard l Enhance reliability of accounting transparency l Relieve burden of converting financial statements based on Korean standards to those based on IFRS for globally listed companies IFRS Adoption Task

Progress Report of Task Force l IFRS Adoption Task Force organized in February 2006 § 16 representatives from Financial Supervisory Commission/Financial Supervisory Service, Ministry of Finance and Economy, Korea Accounting Institute, Korea Listed Companies Association, Korea Federation of Small and Medium Business, Korea Accounting Association, Korea Exchange, Korean Institute of Certified Public Accountants, and major accounting firms l Operated three working groups l Held official Task Force conference more than once a month l Discussed issues at the public forum (21 November 2006) l Consulted with related government parties IFRS Adoption Task

Overall Approach for IFRS Adoption of complete set of IFRSs l 60 IFRSs and interpretations l Follow the current enactment procedure for Korean accounting standards l Restrict modifications to minimum l Pursue amendments to laws that are in conflict with IFRS l Consider deletion of certain alternative accounting treatments IFRS Adoption Task

Scope of Application and Starting Period Scope of Application l Mandatory for listed companies l Optional for non-listed companies (Once IFRS applied, not allowed to revert) Starting Period l Any company (excluding financial institutions) From 2009 l Financial institutions not permitted to apply from 2009 l All listed financial institutions required to apply from 2011 l All listed companies From 2011 l 1 year prior to application, note disclosures about IFRS effect on F/S required to protect investors and enhance comparability IFRS Adoption Task

Phased Transition to Consolidation-based Disclosure Starting Period of Full Disclosure on the basis of Consolidation l Transition for "large listed companies" from 2011 § l Total assets ≥ KRW 2 trillion Transition for "all other companies" from 2013 § Total assets ＜ KRW 2 trillion (*) "early adopted companies" from early adopted year Scope of Consolidation l Requires consolidation-based disclosure of non-financial information l Scope of subsidiary for consolidation in accordance with IFRS (parent holding more than 30% share of the investee over 50% share and control over the investee) IFRS Adoption Task

Operation of Accounting Standards l Manage 2 Tier System to enhance practicability and comparability and to reduce user's confusion l IFRS for listed companies and separate standards for non -listed companies Scope ~2008 2009~2010 2011~ Early adopted company Listed company Non-listed company IFRSs Current Korean Standards (*) Standards for non-listed companies [*] consider early application of standards for non-listed companies IFRS Adoption Task

Work Plan for IFRS Adoption Initial procedure l Cooperation with IASCF regarding copyright contract l Finalized and published by 2 nd half of 2007 Main body § 60 IFRSs and IFRICs in total (Bare, numbered IFRSs) Application guidance IFRS Adoption Task l Due process for adoption by the KASB l Scheduled to be published by 2008, to help users understand the main body (Bare, numbered IFRSs) and facilitate the application

Financial Contribution to IASCF Need for contribution to the standard-setting activities of IASB l Request from chairman of IASCF l 'User pays' principle Organization of private sector-driven sponsor committee l Promote contribution as early as possible l Contribution size commensurate with national GDP level l Ensure stable fund-raising i. e. legislation in the long term IFRS Adoption Task 13

Next Project for IFRS Implementation l Organize "Roadmap Implementation T/F" to successfully adopt IFRS in Korea Main Agenda l l l Monitor the progress of the Roadmap implementation Review amendment demand to laws and regulations Assess public monitoring policy for accounting and audit practices Promote IFRS education Ensure professional quality of valuation institutions Strengthen cooperation with IASB and IASCF regarding copyright contract IFRS Adoption Task 14

Phased Plan Phases Agenda § § Preparatory § (2007 -2008) § Cooperation with IASCF regarding copyright contract Complete due process for IFRS adoption Pursue amendments to laws and regulations Assess public monitoring policy for accounting and audit practices § § Optional (2009 -2010) § § IFRS application permitted for any companies Publish standards for non-listed companies Note disclosures about IFRS effect on F/S required(2010) Promote IFRS education Mandatory (2011 -2013) § IFRS application required for listed companies § Application of standards for non-listed companies § Consolidation-based disclosure for listed companies(2011): (Total assets ≥ KRW 2 trillion) § Analyze impact of IFRS application § Consolidation-based disclosure for all listed companies(2013) IFRS Adoption Task 15

Conclusions IFRS adoption will underpin enhancement of accounting transparency and reliability in Korea l Rigorous preparation required from all related parties including Investors, companies, regulators, auditors and educational institutions l Active and harmonized cooperation necessary for smooth transition to IFRS environments IFRS Adoption Task

International Financial Reporting Standards Introduction Yoon, Jeung-Hyun Chairman of FSC IFRS Adoption Task

International Financial Reporting Standards Congratulatory Speech Lim, Young-Rok Deputy Minister of Finance and Economy IFRS Adoption Task

International Financial Reporting Standards Congratulatory Speech Park, Seung-Bok Chairman of Korea Listed Companies Association IFRS Adoption Task

International Financial Reporting Standards Congratulatory Speech Sir David Tweedie Chairman of IASB IFRS Adoption Task

International Financial Reporting Standards Congratulatory Speech Shizuki Saito Chairman of ASBJ IFRS Adoption Task

International Financial Reporting Standards Q&A Suh, Chungwoo Vice-Chairman of IFRS Adoption Task Force Vice-Chairman of KASB Choi, Sang-Mok Director of Securities Policy Division, Ministry of Finance and Economy Chung, Wan-Kyu Director of Market Supervision Policy Division, FSC Ryu, Jae-Gyu IFRS Adoption Task Head of Corporate Accounting System Office, FSS