Korean Accounting Review (KAR) is the official journal of the Korean Accounting Association. The Korean Accounting Association (KAA) is the largest and oldest academic organization of accounting scholars and practitioners in Korea. It aims to create a fertile environment for innovation and collaborative research, to foster and improve research for the development and the promotion of accounting, and to develop a powerful network among scholars, practitioners, and authorities concerned with political decision making in this field.
Implementation of IFRS 17 and Changes in the Usefulness of Korean Insurers’ Financial Information: Focusing on Value Relevance IFRS 17 시행과 보험사 재무정보 유용성 변화: 가치관련성을 중심으로
변승무 Seungmu Byun , 한승엽 Seung-youb Han
DOI:10.24056/KAR.2025.08.001 KAR Vol.50(No.4) 1-29, 2025
Abstract
IFRS 17, which became effective in 2023, introduces a fundamental overhaul in the accounting for insurance contracts, including fair value measurement of liabilities and accrual-based revenue recognition. While the new standard is theoretically expected to enhance the usefulness of insurers’ financial information, concerns have emerged regarding increased discretion and complexity. These concerns raise the possibility that financial reporting quality under IFRS 17 may not have improved, or could even have deteriorated, particularly in the Korean insurance market. This study investigates whether the value relevance of Korean listed insurers’ financial information has changed following the adoption of IFRS 17. Using stock prices as a benchmark, we compare the association between financial metrics―earnings per share (EPS) and book value per share (BVPS)―under IFRS 4 (2020-2022) and IFRS 17 (2023). Results show no significant improvement in the explanatory power of these metrics after the transition. Furthermore, insurance service profit, a key performance indicator under IFRS 17, lacks significant correlation with stock prices, while contractual service margin shows a negative relationship. These findings suggest that despite its conceptual advances, IFRS 17’s usefulness may be undermined by its complexity and the subjectivity inherent in actuarial assumptions. This study contributes rare empirical evidence on post-IFRS 17 financial reporting in Korea and offers implications for investors, regulators, and researchers.
An Examination of the Impact of Periodic Auditor Designation Using Benford’s Law 벤포드법칙을 이용한 주기적 지정감사제의 효과분석
정금아 Keumah Jung , 최재훈 Jaehun Choi , 백복현 Bok Baik
DOI:10.24056/KAR.2025.08.002 KAR Vol.50(No.4) 31-60, 2025
Abstract
This study examines the effect of a periodic auditor designation on accounting quality by using Benford’s Law. We analyze financial statements from Korean listed firms from 2017 to 2021, assessing audit quality through the frequency and chi-square statistics of Benford’s Law deviations. Our findings indicate that firms with periodic auditor designation in 2020 experience a significant reduction in Benford’s Law deviations in the year before the auditor change (2019). This result suggests that periodic auditor designation enhances the independence of the departing auditor and leads to preemptive improvement in accounting quality through peer review effects (Lennox et al. 2014). However, such improvement does not persist, during the initial audit with the designated auditor, deviation levels revert to those observed two years earlier (2018). We find similar patterns for firms with periodic designation in 2021. In addition, we find that periodic auditor designation leads to a shift from Big 4 to Non-Big 4 auditors. Although auditor size does not affect the preemptive improvement in accounting quality, Big 4 auditors exhibit a smaller increase in deviation during the initial audit, suggesting the potential for quality improvement during periodic designation. Overall, these findings suggest that periodic auditor designation reinforces auditor independence and improves audit quality through peer review effects while also raising concerns about the persistence of these improvements. The study offers important implications for academics, regulators, and audit practitioners.
Chairpersons’ Imprinting Experience and Internal Pay Disparities
Liyao Ally Zhang , Minjoo Lee , Hoyoung Lee
DOI:10.24056/KAR.2025.08.003 KAR Vol.50(No.4) 61-108, 2025
Abstract
The internal pay disparities between executives and employees have been the focus of both market and academic attention. To deeply explore the determinants of these disparities, this study draws on imprinting theory to examine whether and how chairpersons’ imprinting experiences influence internal p ay g aps, analyzing a s ample of Chinese companies f rom 2 011 to 2 02 0. We examine two key imprinting e xperiences, which are overseas exposure and childhood poverty. Our findings reveal that overseas experience is associated with wider internal pay disparities, whereas childhood poverty experience is related to narrower pay gaps, reflecting distinct cognitive imprints rooted in performance orientation and empathy sensitivity. Further analyses indicate these effects are more pronounced in non-state-owned enterprises and companies led by chairpersons with longer tenure. Mechanism analysis reveals that larger pay gaps arise primarily from higher compensation for top management. In comparison, smaller pay gaps result from higher compensation for average employees and reduced compensation for top management. Moreover, additional tests distinguishing types of overseas experience indicate that overseas work experience, rather than overseas education, plays a more critical role in shaping compensation style. Our study highlights the essential influence of formative experiences on shaping leadership behavior and corporate compensation strategies.
DOI:10.24056/KAR.2025.08.004 KAR Vol.50(No.4) 109-141, 2025
Abstract
This study uses data from Chinese A-share listed firms from 2015 to 2022 to explore how Environmental, Social, and Governance (ESG) rating divergence a ffects post-earnings announcement drift. We find that post-earnings announcement drift is prevalent in the Chinese A-share market and that ESG rating divergence significantly alleviates this drift in the short term. Particularly, this effect is more pronounced in firms with high security analyst attention and sound internal controls. Further analysis shows that ESG rating divergence influences post-earnings announcement drift by enhancing corporate information transparency and boosting investor confidence. This study enriches the understanding of ESG rating divergence by highlighting its impact on post-earnings announcement drift. Our findings are significant as they provide an accurate assessment of the effects of this divergence, helping to refine current ESG rating standards.
The Impact of Corporate Tax and Financial Costs on Capital Expenditures: A Tax Planning Perspective 법인세와 금융비용이 시설투자(CAPEX)에 미치는 영향: 세무계획의 관점에서
강나라 Na Ra Kang , 김현태 Hyun Tae Kim
DOI:10.24056/KAR.2025.08.005 KAR Vol.50(No.4) 143-181, 2025
Abstract
This study examines how corporate tax burdens and financial costs affect capital expenditures (CAPEX) from a tax planning perspective. Tax incentives, such as integrated investment tax credits, significantly reduce corporate tax liabilities when strategically combined with investment planning, thus encouraging firms to increase t heir CAPEX. Firms facing lower long-term corporate tax rates are expected to undertake higher levels of investment. However, financial costs critically influence this relationship. High financial costs can substantially limit firms’ ability to utilize tax incentives, whereas lower financial costs facilitate greater effectiveness in leveraging these incentives to enhance investment. Empirical results confirm that firms with lower corporate tax rates actively pursue higher CAPEX, particularly when financial costs are low. Conversely, firms burdened with higher financial costs experience diminished benefits from taxi ncentives, negatively affecting investment decisions. Furthermore, the study highlights differences across firm sizes, showing smaller firms exhibit weaker connections between tax planning and CAPEX due to greater financing constraints. This emphasizes firm size as a crucial factor influencing the effectiveness of tax planning strategies. Overall, the findings indicate that integrating tax incentives with financial support policies can effectively stimulate corporate investments. Thus, policymakers should consider coordinated approaches that address both tax benefits and financial constraints to promote sustained investment activity.
Does Excellence in Corporate Governance Restrain Audit Fee Discounting After the Termination of Mandatory Auditor Designation? 기업지배구조의 우수성은 감사인 지정제도 해제 직후 감사보수 할인현상을 억제하는가?
강민정 Minjung Kang , 이영한 Younghan Lee
DOI:10.24056/KAR.2025.08.006 KAR Vol.50(No.4) 183-223, 2025
Abstract
This study examines whether there exists an audit fee discount phenomenon after the termination of mandatory auditor assignment under the periodic designation system, and analyzes how corporate governance excellence indicators related to accounting and auditing, as proposed in the Financial Services Commission's corporate value enhancement plan, affect this audit fee discount. We investigate whether audit fees were discounted after the termination of the mandatory auditor designation period in 2023 for companies that had auditors assigned under the periodic designation system from 2020 to 2022. Additionally, we analyze whether this audit fee discount following the introduction of the periodic designation system is associated with corporate governance excellence indicators related to accounting and auditing, such as the presence of an audit committee, the accounting expertise of the audit committee chair, variables related to dedicated support organizations for the audit committee, and auditor appointment policy variables. Our analysis reveals that there is a significant audit fee discount phenomenon when companies appoint auditors under the free appointment system immediately after the termination of the periodic designation system. However, the magnitude of this discount is significantly smaller for companies with established audit committees. Furthermore, corporate governance excellence indicators related to accounting and auditing significantly mitigate the degree of audit fee reduction. These findings suggest that the auditor appointment system, whether periodic designation or free appointment, affects audit fee levels, and that excellence in corporate governance related to accounting and auditing can be a factor in restraining the audit fee dumping phenomenon.
