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South Korea plans accounting changes for shipyards, builders

Staff writer ▼ | October 31, 2015
South Korea will draw up measures to increase transparency to the accounting methods used by construction and shipbuilding companies to prevent them from running up huge losses when projects are delayed.
South Korea street
Asian economy   To prevent from running up huge losses
The changes will be implemented from the fourth quarter, according to a joint statement Wednesday by the Financial Services Commission and the Financial Supervisory Service.

The plan will require companies to provide details every quarter on payments they haven’t received for projects underway and how much of that amount has been written off as potential losses, they said.

The latest measures come after Daewoo Shipbuilding & Marine Engineering Co., the world’s second-largest shipbuilder, posted its biggest-ever quarterly loss earlier this year because of canceled orders and delays in delivering offshore rigs.

A slump in oil prices since last year has made it difficult for shipyards and builders to get paid for projects they’re working on.

“While this could help in the short term, the fundamental problem is that clients aren’t paying and projects are delayed,” said Park Moo Hyun, an analyst at Hana Daetoo Securities Co. in Seoul.

“Shipyards and construction companies also need to do a better job of making sure the contracts they sign can be delivered and on time.”

Companies will be required to disclose the progress of projects under way and use accounting methods reflecting that progress in their earnings, the regulators said.

“There have been too many uncertainties in the contract business because there was no transparent way to reflect construction works as they are built,” the agencies said in the statement.

“The measures are aimed at helping more companies practice more transparency in their accounting.”