Question

The Korean Discount

If you think that accounting standards don’t matter, consider recent events in South Korea. For many years, international investors complained that the financial reports of South Korean companies were inadequate and inaccurate.

Accounting practices there often resulted in huge differences between stated revenues and actual revenues. Because investors did not have faith in the accuracy of the numbers, they were unwilling to pay as much for the shares of these companies relative to shares of comparable companies in different countries. This difference in share price was often referred to as the “Korean discount.”

In response, Korean regulators decided that companies would have to comply with international accounting standards. This change was motivated by a desire to “make the country’s businesses more transparent” in order to build investor confidence and spur economic growth.

Many other Asian countries, including China, India, Japan, and Hong Kong, have also decided either to adopt international standards or to create standards that are based on the international standards.

Source: Evan Ramstad, “End to ‘Korea Discount’?” Wall Street Journal (March 16, 2007).

Please give your comments on (In basic English )

1. The importance of making the business of the country so transparent.

2. Why increased transparency will stimulate economic growth of the country?

Answer 1

1. Transparency is the utmost important pillar which leads to path to success for any organisation. There are numerous benefits of transparency out of which some are described below:

1. Transparency increases Trust- When the stakeholders are made fully aware of the whereabouts of the organisation, it boosts their confidence and helps to build trust amongst them.
2. Transparency helps in innovation- When the employees have all the details about the organisation, they also are able to give different ideas which leads to innovation and more diverse ideas coming from the team members.
3. Transparency helps in building relationships- Transparency helps in building good relationships as the company policy is known to every employee and they are able to deliver better without hesitation.

2. Increase transparency will stimulate economic growth in the country by:

1. Increased Investment: If the organisation has gained trust by transparency, it will definitely attract investment, whether from outside the country or domestic which is certainly a major factor for the economic growth.
2. Good Governance: Increased transparency leads to good governance. Disclosure of critical information and transparent decision making enables stakeholders to scrutinise actions and thus increasing confidence.