New Accounting Pronouncements for Mirae (MRAE)

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Mirae (MRAE)

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MRAE » Topics » New Accounting Pronouncements

This excerpt taken from the MRAE 20-F filed Jul 16, 2007.

New Accounting Pronouncements

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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value and establishes a framework for measuring fair value. Additionally, this statement expands disclosure requirements for fair value with a particular focus on measurement inputs. SFAS No. 157 is effective for the Company’s annual reporting period ending December 31, 2008. The Company has not completed the evaluation of the effect of the application of SFAS No. 157.

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In June 2006, the EITF reached a consensus on Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation). EITF Issue No. 06-3 requires that companies disclose their accounting policy regarding the gross or net presentation of certain taxes. Taxes within the scope of EITF Issue No. 06-3 are any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added and some excise taxes. EITF Issue No. 06-3 is effective for the Company’s annual reporting period ending December 31, 2007. The Company has not completed the evaluation of the effect of the application of EITF No. 06-3.

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In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for the company’s annual reporting period ending December 31, 2007. The cumulative effect of adopting FIN 48 generally will be recorded directly to retained earnings. However, to the extent the adoption of FIN 48 results in a revaluation of uncertain tax positions acquired in purchase business combinations, the cumulative effect will be recorded as an adjustment to any goodwill remaining from the corresponding purchase business combination. The Company has not completed the evaluation of the effect of the application of FIN 48.

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In February 2007, the FABS issued SFAB No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an Amendment to SFAS No. 115, which permits an entity to measure many financial assets and financial liabilities at fair value that are not currently required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions. SFAS No. 159 amends previous guidance to extent the use of the fair value option to available-for-sale and held-to-maturity securities. The Statement also establishes presentation and disclosure requirements to help financial statement users understand the effect of the election. SFAS No. 159 is effective as of the beginning of the first fiscal year beginning after November 15, 2007. The Company has not completed the evaluation of the effect of the application of SFAS No. 159.

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For a discussion of these and other significant differences between Korean GAAP and US GAAP, see Notes 31 and 32 to our consolidated financial statements.

Sales, cost of sales, gross profit, operating expenses, operating loss, net loss and shareholders’ equity under US GAAP as of and for the years ended December 31, 2004, 2005 and 2006 are as follows:


	2004			2005			2006
	(in millions of Korean won)
Sales	(Won)	83,697		(Won)	131,060		(Won)	101,649
Cost of sales		60,772			100,645			87,454
Gross profit		22,975			30,415			14,195
Operating expenses		42,720			47,718			48,310
Operating loss		(19,745	)		(17,303	)		(34,115	)
Net loss		(41,155	)		(21,166	)		(34,939	)

Assets	(Won)	258,102		(Won)	222,948		(Won)	158,107
Liabilities and minority interests		147,493			128,300			100,344
Shareholders’ equity		110,609			94,648			57,763

This excerpt taken from the MRAE 20-F filed Jun 30, 2006.

New Accounting Pronouncements

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In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 generally requires retrospective application to prior periods’ financial statements of all voluntary changes in accounting principle and changes required when a new pronouncement does not include specific transition provisions. This Statement applies to the Company beginning January 1, 2006

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In November 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” revising the recognition and measurement provisions of EITF Issue No. 03-1. This FSP clarified and reaffirmed existing guidance as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. Certain disclosures about unrealized losses on available-for-sale debt and equity securities that have not been recognized as other-than-temporary impairments are required under FSP No. FAS 115-1. The FSP is effective for fiscal years beginning after December 15, 2005. As the FSP reaffirms existing guidance, the Company does not expect this FSP to have a significant impact on the Company’s financial position, operating results or cash flows.

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received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. SFAS 123R will be effective from January 1, 2006. Management does not expect that adoption of this statement will have a material impact on the Company’s consolidated financial position or results of operations.

For a discussion of these and other significant differences between Korean GAAP and U.S. GAAP, see notes 29 and 30 of notes to consolidated financial statements.

Sales, cost of sales, gross profit (loss), operating expenses, operating loss, net income (loss) and shareholders’ equity under U.S. GAAP as of and for the years ended December 31, 2003, 2004 and 2005 are as follows:


	2003		2004		2005
	(in millions of Korean won)
Sales	(Won)	96,039	(Won)	83,697	(Won)	131,060
Cost of sales		82,172		60,772		100,645
Gross profit		13,867		22,975		30,415
Operating expenses		37,231		42,720		47,718
Operating loss		(23,363)		(19,745)		(17,303)
Net loss		(24,278)		(41,155)		(21,166)

Assets	(Won)	223,876	(Won)	258,102	(Won)	222,948
Liabilities and minority interest		74,967		147,493		128,300
Shareholders’ equity		148,909		110,609		94,648

This excerpt taken from the MRAE 20-F filed Nov 30, 2005.

New Accounting Pronouncements

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On January 17, 2003, the FASB issued Interpretation No. 46 (“FIN 46”)—“Consolidation of Variable Interest Entities”, which addresses consolidation by business enterprises where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as “Special purpose entities (“SPEs”)”. The underlying principle behind the new Interpretation is that if a business enterprise has the majority financial interest in an entity, which is defined in the guidance as a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity should be included in the consolidated financial statements with those of the business enterprise. The Interpretation also explains how to identify variable interest entities and how an enterprise should assess its interest in an entity when deciding whether or not it will consolidate that entity. In December 2003, the FASB released a revision of FIN No. 46 (“FIN No. 46(R)”) in which the calculation of expected losses and expected residual returns have been altered to reduce the impact of decision maker and guarantor fees. In addition, FIN No. 46(R) changes the definition of a variable interest. The Company as a foreign private issuer adopted FIN 46(R) on December 31, 2004. The Company previously determined that Cyber Bank, an equity method investee and a manufacturer of telecommunication appliance, was a VIE and that the Company held variable interests in Cyber Bank, but was not a primary beneficiary. Therefore, the accounts of Cyber Bank were not consolidated under US GAAP. In the course of preparing responses to SEC comments to the Company’s annual report for the year ended December 31, 2004, the Company noted that the previous analysis did not consolidate Cyber Bank as it did not consider the relationship with the family members of Mr. Moon Soul Chung, the Company’s former CEO, who are the largest shareholders of the Company and Cyber Bank. After consideration of the relationship between the Company and Mr. Chung’s family, the Company determined that the aggregate variable interests in Cyber Bank held by the Company and its related parties (the “Related Party Group”) will absorb a majority of Cyber Bank’s expected losses. In addition, as the Company has the largest exposure to the expected losses of Cyber Bank within the Related Party Group, the Company determined that it was Cyber Bank’s most closely associated party and primary beneficiary. As a result, the Company restated its US GAAP reconciliation to consolidate Cyber Bank at December 31, 2004. Such restatement did not affect the US GAAP net loss or the US GAAP net loss per share for the year ended December 31, 2004 or shareholders’ equity as of December 31, 2004.

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In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” SFAS No.151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. The Statement is effective for inventory costs incurred during fiscal year beginning after June 15, 2005. Management does not expect this statement will have a material impact on the Company’s consolidated financial position or results of operations.

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In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.123 (revised 2004), “Share-Based Payments” (SFAS 123R). This statement eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” to stock compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. SFAS 123R will be effective from January 1, 2006. Management does not expect that adoption of this statement will have a material impact on the Company’s consolidated financial position or results of operations.

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In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.153, “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29” (“SFAS 153”), which amends Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. Management does not anticipate that the adoption of this statement will have a material effect on the Company’s consolidated financial position or results of operations.

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change in accounting estimate effected by a change in accounting principle and correction of errors in previously issued financial statements should be termed a “restatement”. FAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of FAS 154 is not expected to have a material impact on the Company’s consolidated financial statements.

For a discussion of these and other significant differences between Korean GAAP and US GAAP, see notes 29 and 30 of notes to consolidated financial statements.

Sales, cost of sales, gross profit (loss), operating expenses, operating loss, net income (loss) and shareholders’ equity under US GAAP as of and for the years ended December 31, 2002, 2003 and 2004 are as follows:


	2002		2003		2004
	(in millions of Won)
Sales	(Won)69,715		(Won)96,039		(Won)83,697
Cost of sales	76,786		82,172		60,772
Gross profit (loss)	(7,071	)	13,867		22,975
Operating expenses, as restated⁽¹⁾	44,092		37,231		42,720
Operating loss, as restated⁽¹⁾	(51,163	)	(23,363	)	(19,745	)
Net income (loss), as restated⁽¹⁾	(62,607	)	(24,278	)	(41,155	)
Shareholders’ equity, as restated⁽¹⁾	148,251		148,909		(110,609	)

(1)	See Note 29 to our Financial Statements.

This excerpt taken from the MRAE 20-F filed Jun 30, 2005.

New Accounting Pronouncements

•

On January 17, 2003, the FASB issued Interpretation No. 46 (“FIN 46”) - “Consolidation of Variable Interest Entities”, which addresses consolidation by business enterprises where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as “Special purpose entities (“SPEs”)”. The underlying principle behind the new Interpretation is that if a business enterprise has the majority financial interest in an entity, which is defined in the guidance as a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity should be included in the consolidated financial statements with those of the business enterprise. The Interpretation also explains how to identify variable interest entities and how an enterprise should assess its interest in an entity when deciding whether or not it will consolidate that entity. In December 2003, the FASB released a revision of FIN No. 46 (“FIN No. 46R”) in which the calculation of expected losses and expected residual returns have been altered to reduce the impact of decision maker and guarantor fees. In addition, FIN No. 46R changes the definition of a variable interest. The Company as a foreign private issuer applied either FIN 46 or FIN 46R to variable interest entities (“VIEs”) created after January 31, 2003 and applied FIN 46R for VIEs created prior to February 1, 2003 during 2004. The Company has determined that Cyber Bank, an equity method investee and a manufacturer of telecommunication appliance, is a VIE and that the Company holds variable interests in Cyber Bank, but it is not a primary beneficiary. Therefore, the accounts of Cyber Bank have not been consolidated. The maximum exposure of the Company and subsidiaries to loss as a result of its involvement in Cyber Bank as of December 31, 2004 was Won 25,929 million, representing the total of collateral provided for Cyber Bank and accounts receivable due from Cyber Bank, of which the Company provided reserves of Won 17,745 million as of December 31, 2004. The adoption of this Interpretation did not have a significant impact on the Company’s consolidated financial position or results of operations.

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In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections” (“FAS 154”). FAS 154 replaces APB Opinion No. 20, “Accounting Changes” and FAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. FAS 154 requires that a voluntary change in accounting principle be applied retrospectively to prior period’s financial statements as if that principle had always been used. FAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle and correction of errors in previously issued financial statements should be termed a “restatement”. FAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of FAS 154 is not expected to have a material impact on the Company’s consolidated financial statements.

For a discussion of these and other significant differences between Korean GAAP and U.S. GAAP, see notes 29 and 30 of notes to consolidated financial statements.


	2002			2003			2004
	(in millions of Korean won)
Sales.	(Won)	69,715		(Won)	96,039		(Won)	83,697

Cost of sales		76,786			82,172			60,772
Gross profit (loss)		(7,071	)		13,867			22,975
Operating expenses		43,124			35,386			41,618
Operating loss		(50,195	)		(21,518	)		(18,643	)
Net income (loss)		(62,607	)		(24,278	)		(35,044	)
Shareholders’ equity.		148,251			148,909			116,720

EXCERPTS ON THIS PAGE:

20-F	Jul 16, 2007

20-F	Jun 30, 2006

20-F	Nov 30, 2005

20-F	Jun 30, 2005

Mirae (MRAE)

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