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[Alpha Biz=(Chicago) Reporter Paul Lee] The Financial Supervisory Service will focus on accounting for construction and shipbuilding this year. It will also crack down on contingent liabilities, including poor real estate project financing (PF).
On the 28th, the Financial Supervisory Service (FSS) came up with 'cautions for settlement of accounts and external audits of construction and other order industries' and announced as follows. Ordering industries such as construction and shipbuilding have been accounting for a project for years. It is a structure that recognizes profits and costs in financial statements by considering the progress rate of projects every year. The Financial Supervisory Service points out that some construction and shipbuilders have abused it to make accounting tricks. A case in point is accounting fraud, which does not reflect the increase in costs, including rising costs, in books on time and reflects them late at the end of construction. Accounting profits are much higher than the substance until the completion of the construction. In fact, you can decorate a project that you are losing as if it were profitable. However, at the end of the construction, a huge loss is reflected in the book, resulting in an 'accounting cliff' phenomenon.
The Financial Supervisory Service also pointed out the case of temporarily overestimating profits by arbitrarily calculating the construction progress rate. In fact, it is a case of recognizing profits ahead of time by assuming that only 10% of the projects have been completed 30%. Since the total revenue and total cost incurred during the entire construction period are the same, the loss on the accounting book will increase significantly at the end of the construction.
The Financial Supervisory Service also pointed out cases in which it omits important contingent liabilities, such as the amount of PF loan payment guarantees for workplaces with low sales rates, or discloses the expected amount of debt repayment required for its rehabilitation procedures only in the notes and does not recognize them as provisions.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
