[THE INVESTOR] The financial regulator said on Sept. 19 it will allow biotechnology and pharmaceutical firms to voluntarily restate accounting errors amid a lack of clear supervisory rules on the industry’s accounting practices.

After completing inspections of 22 biotechnology and pharmaceutical firms, the Financial Services Commission decided not to impose penalties against their accounting errors related to research and development expenses.

Instead, the FSC said it will encourage the firms to correct accounting errors and allow them to treat R&D spending as an asset if a new drug is technically viable.

The FSC also specified when a pharmaceutical or biotechnology company should treat its R&D spending as an asset in its accounting book.

At present, some firms treat their R&D spending as an asset once clinical tests of a substance have been carried out. Other firms have treated them as an asset only after the government grants approval of a product.

Treating R&D spending as an expenditure in accounting books could negatively affect earnings of a company.

Buoyed by expectations of the flexible regulatory decision, pharmaceutical and bio companies have seen their share prices surge about 20 percent recently.

By Song Seung-hyun and newswires (ssh@heraldcorp.com)