This presentation was made by Kwang Moon, Korea, at the 17th Annual Meeting of OECD Senior Management Officials held at the OECD, Paris, on 2-3 March 2017

1. 1
Accrual accounting in Korea:
its present and future
17th Annual OECD Accruals Symposium
Accrual Development in Individual Countries:
Korea’s Experience
MAR 2, 2017
Kwangmoon So(kwangmoon@korea.kr)
Deputy Director
Ministry of Strategy and Finance
Republic of Korea

2. 2
Ⅰ. Background/procedures of accrual accounting adoption in Korea

3. 3
I. Background/procedures of accrual accounting adoption in Korea
Rise of New Public
Management (NPM)
A wave of accounting
reforms in major
economies
(accrual accounting)
Accrual accounting
adopted in the Korea
government
(FY2011 National Financial
Statements submitted to
the legislature)
∙Jump in government’s
fiscal expenditure since the
1980s, facing criticism over
inefficiency
∙ Accumulated fiscal deficit
& slow economic growth →
Call for efficient PFM
∙OECD-led initiative to
enhance efficiency in the
public sector
No. Country Year
1 Spain 1989
2 New Zealand 1993
3 Sweden 1993
4 Austrailia 1994
5 USA 1998
6 Iceland 1998
7 Finland 1998
8 GBR 2002
9 Canada 2003
10 Estonia 2004
11 Turkey 2006
12 France 2006
13 Swiss 2007
14 Slovakia 2008
15 Korea 2009
16 Denmark 2010
17 Poland 2011
18 Austria 2013
: : :
Year Event
1997
Rising voice for accounting
transparency and fiscal reforms
2004
Initiation of budget and
accounting system reforms
2009 Adoption of accrual accounting
2012
Submission of 1st
accrual-based
National Financial Statements
in FY2011 to the NA
2014
Shake-up of national accounting
framework
(Publication of National
Accounting Manual)
2016
Seminar on the 5-year anniversary
(submission) of the adoption of
accrualaccounting
▌Background ▌Countries using accrual
accounting
▌Historical timeline

4. 4
Ⅱ. What’s been achieved from the adoption of accrual accounting?

5. 5
 Individual laws and regulations required separate
reporting and bookkeeping by type of national property,
goods, debt, etc
 The value of government assets and liabilities is unclear
 Preparation of the 1st National Financial
Statements based on accrual accounting
 Government assets and liabilities at a glance
▌Pre-accrual accounting
▌Data Analysis
1. PFM(Public Financial Mgt) in a comprehensive and systemic manner
① National financial statements prepared Easier measure of fiscal status
(assets and liabilities) Informed decision making
Ⅱ. What’s been achieved?
▌Post- accrual accounting
National
Property Goods
Receivables
Debt
A
s
s
e
t
Current Asset
Investment
Tangible Asset
Infrastructure
Intangible Asset
Other Noncurrent
Asset
L
i
a
b
i
l
i
t
y
Current Liability
Long-term Liability
Long-term Provision
Other Noncurrent
Liability
N
e
t
A
s
s
e
t
Basic Net Asset
Retained Earnings
Reconciliation

6. 6
178 183
190
730
749 757
771 791
100
300
500
700
900
2008 2009 2010 2011 2012 2013 2014 2015
(Unit: trillion won)
 Infrastructure facilities excluded in
financial reporting
 Market valuation of property by revaluation
▌Changes in national property (securities not included)
 All government resources, incl. infrastructure
facilities reported in financial statements
Infrastructure facilities
added, market valuation
of property, etc.
 Jump in the value of national property from
190 trill. won (2010) from 730 trill. won (2011)
② Hidden assets unearthed Recording of government assets without omission
Tight management of government resources
▌Before AA
▌After AA
1. PFM in a comprehensive and systemic manner
Source: Open Fiscal Data (dBrain)
Ⅱ. What’s been achieved? ▌Data Analysis

7. 7
▌Difference b/w liabilities(accrual) and debt(cash)
▌Impact of pension reform
 Recognition of pension provisions triggered pension
reforms
 As of FY2015 end, pension provision down by 53 trillion
won and government employees pension deficit likely to
decrease by 497 trillion won over the next 70 years
Pension provisions fell by 53 trill. won in 2015
33 trill. won down
Source: Blue House Website
① Recognition of provisions Estimation
of future fiscal obligations
② Pension reform triggered Pension
fund’s fiscal deficit declined
Pension funds frozen for 5
years
10 trill. won down
down
Raising the age of payment
10 trill. won down
Decrease in a survivor’s
pension benefits
Pension deficit declined -> Public burden relieved
 (Pre-AA) Management of cash related obligations
resulting from past events only
 (After-AA) Monitoring of fiscal sustainability by
recognizing provision as a liability with future
expected expenses
Source: FY15 Pension report attached to National Financial Report
2. Fiscal soundness monitoring
Source: Open Fiscal Data & national financial statements
Ⅱ. What’s been achieved? ▌Data Analysis
773.5
902.1
1,117.9
1,212.7
1,285.2
346.1 373.8
402.8 425.1
464.0
503.0
556.5
200
600
1000
1400
2009 2010 2011 2012 2013 2014 2015
Unit : KRW Trillion

8. 8
• Calculation of debt by central government,
local government, public institutions and
public corporations
• Lack of comprehensive public debt
information
③ PSDS(Public Sector Debt Statistics) Management of the public sector’s debt
• Compilation of public sector debt statistics
with broader coverage - encompassing the
general government
• Improved fiscal soundness by monitoring risk
factors in the public sector
▌ Post-AA
2. Fiscal soundness monitoring
▌Pre-AA
Central
gov’t debt
Public
institutions
debt
Public
corporation
s debt
Local
gov’t debt
(D1, D2, D3 coverage)
Ⅱ. What’s been achieved? ▌Data Analysis
D2 General Government Debt
D1 Debt
GovernmentDebt
(Cash)
D3 Public Sector Debt
Government
Debt
(Accrual)
+
Non-profit
Public
Institution
Debt
General
Government
Debt
(Accrual)
+
Non-
financial
Public
corporation
Debt

9. 9
Compliance with GFSM 2001 International comparison available Greater
credibility with international stakeholders
▌Pre-accrual accounting ▌Post-accrual accounting
• Better international comparability with
international standard
• Preparation of government finance
statistics improved international credibility
• Not comparable with countries using accrual
accounting method
• Fiscal condition also not comparable across
countries
▌ Fiscal balances in the OECD (2014) ▌ Gross debt in the OECD
3. Better comparability with international standard
Ⅱ. What’s been achieved? ▌Data Analysis

10. 10
Automatic verification in the stage of budget execution
성과
4. Greater reliability and transparency in government accounting
▌FGI Analysis
Outcome
① National financial statements prepared
in accordance with the National Accounting
Act and audited by the national audit office
▌ Financial statement errors in decline
412
48 24 67 11
-
100
200
300
400
500
Unit : KRW 100 billion
② Easier to detect errors by audit office
(noticeable drop in errors since 2011)
『Error occurrence minimized』 (quoted by
accountingofficer)
Financial management information system: dBrain & Open Fiscal Data → Provision of useful
information to decision makers
성과
5. Easier accessibility to government accounting data
Outcome
① dBrain supports the overall PFM
processes, including budget formulation,
execution, accounting/reporting and
performance management. Well
recognized for its solidity
『dBrain is a well-functioning
advanced system』 (quoted by
central agencies’ financial
reporting officers)
② MoSF discloses public finance
statistics, reports and legal
frameworks on Open Fiscal Data
『Open Fiscal Data serving as a
channel for prompt delivery of
fiscal information to the public』
(quoted by research
institutions’ researchers)
Ⅱ. What’s been achieved?
2011 2012 2013 2014 2015

11. 11
Ⅲ. Accrual accounting going forward in Korea

12. 12
Ⅲ. Accrual accounting going forward in Korea
Utilization of accrual accounting information
Five years of hard work came to fruition with a new and well-functioning
accounting framework (accounting data production)
 Exploring ways to apply accounting data and analyze their feasibility (underway)
- ① Flow into budget formulation ② Performance evaluation informed by accrual data ③
Use of accrual indicators, etc.
Time to launch an initiative to enhance the application of accounting data
under the new accounting framework (accounting data application)
Research project with OECD of international cases on application of public
financial data (underway)
 Required to research how to better use accrual financial information with reference to
international practices
▌
▌
▌

13. 13
Thank you