This paper examines whether changes in the arbitrary account classification of related party transactions occur according to changes in the accounting environment. In essence, there is an asymmetry of information in related party transactions, and wit...
This paper examines whether changes in the arbitrary account classification of related party transactions occur according to changes in the accounting environment. In essence, there is an asymmetry of information in related party transactions, and with the introduction of IFRS in 2011, discretion in the detailed classification of related party transactions disclosure has increased. In addition, the introduction of articles 45-3 in the inheritance tax and gift tax law in 2011(hereafter, the regulation) were introduced, and in order to be excluded from the taxable requirements or to reduce the tax burden, it is more likely to classify revenues as other revenues instead of sales. In 2013, disclosure recommendations for related party transactions were published, which on the contrary, makes it less likely to classify revenues as other revenues instead of sales.
When examining the trend of transactions with related parties from 2001 to 2016, the proportion of sales decreased significantly in 2011 and 2012 and increased after 2013. Total related party transactions showed a pattern of steadily increasing throughout the sample period, with sales and purchases significantly decreasing and other revenues and other expenses increasing significantly after the adoption of IFRS. On the other hand, after the announcement of disclosure recommendations, sales and purchases increased, and other revenues and other expenses decreased.
It shows that the classification behavior of sales of related parties changes with changes in the accounting environment. In the case of chaebol companies, they responded more sensitively to changes in the accounting environment, decreased significantly than non-chaebol companies after the introduction of IFRS, and increased significantly after the announcement of disclosure recommendations. Chaebol companies are more likely to be subject to the regulation, so they are more likely to classify sales into other accounts, but it can be interpreted as taking full advantage of cases where there are no specific guidelines due to severe monitoring by stakeholders. When making a policy, tax authorities are expected to quickly come up with specific standards and guidelines to respond to them.
This study is meaningful in that it provided the justification to consider all changes in the accounting environment in preparing regulations to achieve policy objectives and conducting the research that serves as the basis.