The Financial Supervisory Service will focus on accounting for investment real estate, targeting cas..

The Financial Supervisory Service will focus on accounting for investment real estate, targeting cases in which the Financial Supervisory Service incorrectly classifies rental real estate as tangible assets or omits comments on fair value.

The Financial Supervisory Service said on the 21st that it has selected four key review accounting issues for 2026 financial statements: accounting for overseas sales and sales receivables, appropriateness of recognizing inventory valuation losses, accounting for investment real estate, recognizing and measuring provisions, and disclosing contingent liabilities.

In particular, investment real estate has repeatedly violated accounting standards, but has not been selected as a key review issue. Real estate held for the purpose of rental income or market margin should be classified as investment real estate, and there have been many cases of mishandling it as tangible assets that are self-used real estate or neglecting disclosures related to fair value.

The Financial Supervisory Service plans to select the subject of the review for all industries in consideration of the size of investment real estate and tangible assets. An entity should clearly distinguish between investment real estate and self-used real estate, and faithfully state relevant information such as fair value and book value changes in the annotation.

Manufacturing and information and communication industries, which account for a high proportion of overseas sales, are checked to see if they properly recognize sales by reflecting geopolitical risks, restrictions on imports and exports, and fluctuations in exchange rates. We will also look into whether the provision for loss of accounts receivable has been accumulated to reflect changes in credit risk of overseas clients.

Manufacturing and wholesale and retail businesses are mainly subject to inspections whether the valuation loss reflected the rise in raw material prices, a decrease in demand, and a decline in the value of inventory assets due to discontinuation. Disclosure of provisions and contingent liabilities related to litigation, guarantees, and loss-bearing contracts is also examined in all industries.

Since the introduction of the intensive screening system in 2013, the Financial Supervisory Service has reviewed 452 companies and detected 101 companies (22.3%) violating accounting standards. Among them, 45 companies were given heavy measures, including fines.

When the financial statements are disclosed in 2026, the Financial Supervisory Service plans to select and inspect companies subject to accounting issues, and take strict measures if violations are found.

The Financial Supervisory Service added, “We plan to promote the company and auditors to fully recognize and pay attention to key audit accounting issues so that they can perform their work, and to provide training for accounting managers.”