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Article 6
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In order that a financial report may thoroughly disclose the information of financial position, operating results, and cash flows, notes to the following matters shall be provided:
1. Historical changes and development of the company and its business scope;
2. A declaration that financial statements are prepared in accordance with these Guidelines, applicable laws (name of law), and generally accepted accounting principles.
3. Summary of significant accounting policies and the considerations on which they are based;
4. Where due to special reasons the accounting treatment changes thus affecting the comparison of the financial information of the prior or subsequent periods, the reason of change and the impact on the financial statements shall be explained;
5. If it is necessary to provide the valuation basis of any amount in the financial report, such shall be provided;
6. If any account contained in a financial report is restricted by laws and regulations, contract, or other limitations, the condition, time limit and relevant matters shall be stated;
7. The standards by which liquid and illiquid assets and liabilities are distinguished;
8. Significant commitments and contingent liabilities;
9. Change of capital structure;
10. Long-term and short-term borrowings;
11. Addition, expansion, construction, lease, obsolescence, lying idle, sale, pledge, or transfer of major assets;
12. Major investment in other enterprises;
13. Significant transactions with related parties;
14. Loss caused by major disasters;
15. Research and development plan sponsored by other parties and the amount;
16. Processing or conclusion of material actions;
17. Signing, completion, cancellation, or voidance of material contracts;
18. Information related to employees pension fund;
19. Departmental financial information;
20. Information of investment in mainland China;
21. Information related to investment in derivative products;
22. For any privately placed stocks, the type, time of issuance, and monetary amount of the issue shall be disclosed.
23. Adjustment of important organization and significant reformation of management system;
24. Material impact of change of government laws and regulations;
25. Other necessary disclosures to ensure the financial statements are not misleading or to facilitate the fair presentation of the financial statements.
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Article 8
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Assets: Assets shall be appropriately categorized. Liquid and illiquid assets shall be separated, provided that this shall not apply in the case of special enterprises where categorization of assets according to liquidity is not appropriate.
The anticipated total amount of return on assets within 12 months after the balance sheet date and in excess of 12 months after the balance sheet date shall be respectively provided in the financial statement or disclosed in a footnote.
The asset account/classification in the balance sheet, content thereof, and matters to be noted are as follows:
1. Current assets: Cash or cash equivalents that are not restricted in use; assets held for the purpose of trade, or that will be held short-term and are expected to be converted to cash within 12 months of the balance sheet date; assets that are expected to be converted to cash, put up for sale, or consumed during the normal course of a business operation cycle.
(1) Cash and cash equivalent: Cash in treasury, bank deposit, petty cash, and revolving fund paid in small amount for incidental expenses, and the short-term investment which is convertible into cash in fixed amount at any time, due in near future, and the change of whose interest rate has insignificant impact on its value.
The non-current bank deposits shall be separately classified. If the maturity date is longer than one year, a note shall be provided. The earmarked deposit or the deposit whose use is restricted, such as expansion and sinking funds, shall not be classified as cash.
If the time deposits (including negotiable certificates of deposit) are pledged as collateral for a debt, and if the secured debt is a long-term liability, such deposits shall be re-classified as other assets. If the secured debt is a current liability, the deposits shall be re-classified as other current assets, and a note shall be provided to explain the fact of security. Where the time deposits are provided as guarantee deposits-out, they shall be classified as current assets or other assets depending on whether they are short-term or long term.
Compensating balance, if incurred due to short-term loans, shall be classified as current asset, and an explanation shall be provided in the note. Compensating balance incurred due to long-term liability shall be classified as other asset or long-term investment rather than current asset.
(2) Short-term investment: This includes the securities, other than those issued by the Issuer, traded on the open market, convertible into cash at any time, and not aimed at controlling or maintaining close business relation with the investee company. Short-term investments shall be valued by using lower-of-cost-or-market method, and a note of the method for calculating the cost shall be provided. Market price means the average closing price of the last month in an accounting period. The market price of an open-end fund means the net asset value of the fund on the balance sheet date.
For the stock dividends acquired for holding securities or the stocks distributed due to capitalization of capital reserve, the increased number of shares shall be recorded by the type of short-term investments, and the average unit cost of each share shall be calculated by weighted average method.
If the securities are pledged as collateral for a debt, and if the secured debt is a long-term liability, such securities shall be re-classified as long-term investment; if the secured debt is a current liability, such securities shall still be classified as short-term investment, but a note shall be provided to explain the fact of security. Where the securities are provided as guarantee deposits-out, they shall be classified as short-term or long-term investment based on their long-term or short-term nature.
(3) Notes receivable: all the notes receivable.
The fair value of notes receivable shall be calculated based on the imputed interest rate, provided that for notes receivable at one-year periods or less, where the difference between the fair value and the value at maturity is small and where trading is also frequent, the notes need not be measured at fair value.
Discounted or transferred notes receivable shall be deducted and a note shall be provided.
Notes receivable resulting from operating activities shall be separately recorded from notes receivable resulting from non-operating activities.
Notes receivables in significant amount from related parties shall be separately disclosed.
Notes provided for security shall be so indicated in the footnotes.
If the collection of a note receivable becomes impossible, it shall be written off.
At closing, the amount of notes receivable which cannot be realized shall be assessed and proper allowance for bad debts shall be recognized.
(4) Accounts receivable: claims resulting from sale of goods or services.
The fair value of accounts receivable shall be calculated based on the imputed interest rate, provided that for accounts receivable at one-year periods or less, where the difference between the fair value and the value at maturity is small and where trading is also frequent, the accounts receivable need not be measured at fair value.
Accounts receivable in significant amount from related parties shall be separately disclosed.
If the collection of an account receivable becomes impossible, it shall be written off.
At closing, the amount of accounts receivable which cannot be realized shall be assessed and proper allowance for bad debts shall be recognized.
The unrealized interest revenue of installment sales shall be classified as a deduction of account receivable. Where any portion of an amount is to be received beyond one year, a note shall be provided to explain the amount expected to be received in each year.
A "pledged account receivable" shall be separately recorded. The note payable provided as security shall be classified as a deduction of the "pledged account receivable".
Where the accounts receivable include long-term construction contract sum, the amount reserved for construction within the invoiced account receivable shall be indicated in the balance sheet or the footnote to the financial statements. If the expected period for recovery of the reserved amount is more than one year, the amounts expected to be recovered in each shall be noted.
(5) Other receivables: other receivables not falling within notes receivable and accounts receivable.
At closing, the amount of other receivables uncollectible shall be assessed and proper allowance for bad debts shall be recognized.
If any of the other receivables exceeds the aggregate amount of current assets by 5%, they shall be separately recorded by counterparty.
Allowances for bad debts shall be respectively recorded as the deductions of notes receivable, accounts receivable, and other receivables. If such accounts are further classified, the allowances for bad debts shall also be respectively recorded in the same manner.
(6) Other financial assets liquid: Financial assets not listed separately on the balance sheet shall be listed under "other financial assets," and shall be categorized as either liquid or illiquid assets. Illiquid assets shall be re-listed under "other financial assets liquid."
(7) Inventory: those finished goods or merchandise which are held for sale in the normal course of business; items of work-in-progress which will be sold after further processing; or those materials and supplies directly or indirectly consumed in the production of goods or services to be available for sale.
Inventories shall be valued and disclosed in accordance with The Statements of Financial Accounting Standards No. 10.
Where the value of inventories is apparently reduced due to defects, damage, or obsolescence, the net realized value shall be used as valuation basis.
Inventories provided for pledge, security, or used under the surveillance of creditors shall be noted.
If a construction company which contracts with other parties to construct pre-sold buildings meets all of the following conditions, it may recognize the profit for sale of the buildings based on Percentage-of-Completion Method:
1) The construction has progressed beyond the preparatory stage, i.e., the designing, planning, contracting, grading of the construction have completed and the construction work can be processed at any time;
2) The total amount of pre-sale contracts has reached the total estimated construction cost;
3) Buyers' payment has reached 15% of the total contract price;
4) Collection of the contract amount receivable can be reasonably estimated;
5) Estimate for contract costs to be invested to complete the contract and the degree of its completion at the end of the period are reasonably dependable;
6) Costs belonging to the contract for sale of buildings can be reasonably identified.
When a construction company purchases a property under construction from another party, the company continuing the construction and sale of the buildings shall adopt the Completed Contract Method for recognition of profits on the sale of the buildings.
As a contractor has statutory mortgage on the construction-in-progress commissioned by a construction company, the construction company shall not offset such construction against the billings on construction-in-progress.
(8) Construction-in-progress: the construction costs incurred during the construction period by the long-term construction contract undertaken by an enterprise and the recognized profits/losses.
The profits/losses recognized and expressed in the long-term construction contract shall be in accordance with Rule Number 11 of the Statements of Financial Accounting Standards.
(9) Prepayments: prepaid expenses and prepayments for purchase of materials.
Prepayments for purchase of fixed assets in accordance with contract and payment for uncompleted construction for use by operations shall be classified as fixed assets and shall not be recorded as prepayments.
(10) Other current assets: all the current assets not falling within the above categories.
The above current assets, except for cash and other liquid financial assets, whose amount is less than 5% of the aggregate amount of current assets, may be incorporated into other current assets.
2. Funds and long-term investments: all special funds and the long-term investments for regular business purposes.
(1) Funds: the asset allocated/deposited for special purpose such as sinking fund, improvement and expansion fund, contingent reserve, etc.
The resolutions and rules based on which a fund is allocated/deposited shall be recorded.
The welfare fund set aside in accordance with the Statute on Employee Welfare Fund shall be classified as expense.
(2) Long-term investments: the long-term investments for acquiring controlling power or other property rights and interests to satisfy the operation objective, such as investment in the stocks of other enterprises, purchase of long-term bonds, investment in real estate, etc.
The method used to account for long-term investments shall be provided. Long-term investments shall be separately classified based on their nature.
An investor company's investment in an enterprise's stock shall be classified as a long-term investment in equity securities if any of the following conditions is met:
1) where an investee company's stock is not traded in an open market nor has any definite market price;
2) where an investor company intends to control an investee company or to establish a close relationship with it; or
3) where an investor company intends and has the ability to hold the investee company's equity on a long-term basis.
Except for the following conditions, the long-term investments shall be valued and disclosed and the consolidated financial statements shall be prepared in accordance with The Statements of Financial Accounting Standards No. 5 and No. 7:
1) Unless otherwise provided, the influence of the long-term investment on the investee company shall be assessed based on the ratio of voting stocks of the investee company held by the investor company;
2) For holders of publicly issued company stocks approved for trading at the operating venues of securities firms in accordance with Article 5 of the ROC Over-the-Counter Securities Exchange Criteria for the Review of Emerging Stocks Traded at the Business Premises of Securities Firms(called Emerging Stocks), but without major influence [over the investee enterprise], the cost method shall be adopted for valuation at end of term.
3) If the total assets or operating revenue of any individual subsidiary have not reached the standard for including in consolidated statements, but if the total assets or operating revenue of all the subsidiaries which have not reached the standard for including in the consolidated statements are more than 30% of the total assets or operating revenue of the Issuer, the subsidiaries whose total assets or operating revenue reaches 3% or more of the Issuer shall be included in the consolidated statements. Unless the ratio subsequently decreases to 20%, such subsidiaries shall continue to be included in the consolidated statements. For the subsidiaries not included in the consolidated statements, their company names, percentage of shareholder's equity that is held by the parent, and the reason why they are not included in the consolidated statements shall be disclosed in the notes.
4) If the total votes in the common stocks or special preferred voting stocks held by the investor company is more than 50% of the total votes of the investee company, or if in accordance with Paragraph 2 of Article 269-2 of the Company Law, the investor company can directly or indirectly control the operation of the investee company's personnel, financial, or business affairs, or if all of the following conditions are met, the investment income shall be recognized in the current period:
(a) Where the beginning book balance of the long-term investment is NT$50 million or more and reaches 5% or more of the paid-in capital of the investor company;
(b) Where the investor company holds 30% or more of the equity of the investee company, or where the aggregate shares in the investee company held by the investor company, its directors, supervisors, managers, and the enterprises directly or indirectly controlled by the investor company is more than 50%; and
(c) Where the investor company is among the top 3 shareholders of the investee company in terms of shareholding, or where the board chairman or president of the investee company is appointed by the investor company.
Long-term investments shall be valued by equity method. If the investee company meets any of the following conditions, its financial statements shall be audited by a certified public account in accordance with the "Regulations for Auditing and Certification of Financial Statements by Certified Public Accountants" and the generally accepted auditing standards:
1) Where its paid-in capital is NT$30 million or more;
2) Where its operating revenue reaches NT$50 million or more or 10% or more of the operating revenue of the Issuer.
Valuation of unamortized premium or discount of long-term investments in bonds shall be adjusted based on par value. The premium or discount shall be amortized on a reasonable and systematic basis.
If long-term investments are pledged as collateral or subject to restrictions, such shall be indicated in the notes.
3. Fixed assets: the tangible assets used for operation, with a service life of one year or more, and not for the purpose of sale.
Within the fixed asset classification, land, depreciable assets and depletive assets shall be presented separately.
The fixed assets shall be recorded at acquisition costs or construction costs. However, the interest on the purchase price of a "presold" building and the fixed assets purchased with capital increase in cash shall not be capitalized. Fixed assets that will no longer be used in operations shall be reclassified as other assets at a value equal to the lower of the net realizable value or book value. When there is no net realizable value, the cost and accumulated depreciation shall be offset against each other, and the difference thereof shall be recognized as a loss for the current period. If a fixed asset is still used after the expiration of the service life, such asset shall be depreciated based on the residual value.
The leased assets shall be recognized and disclosed in accordance with The Statements of Financial Accounting Standards No. 2.
If a leased asset falls within operating lease, the improvement made to the leased property is called leasehold improvement and shall be recorded as a fixed asset.
The valuation basis for a fixed asset shall be indicated. If the fixed assets have been revalued, the date of revaluation and increased or decreased amount shall be recorded, and the acquisition costs and the appraisal increment shall be separately presented in the balance sheet. The land value increment tax reserve allocated due to land appraisal increment shall be classified as long-term liability. Where fixed assets have been revalued, from the day following the date of record of the revaluation, depreciation computation shall be based on the reassessed value.
Except for land, the fixed assets shall be periodically depreciated or depleted on a reasonable and systematic basis within the estimated useful or mining life and reclassified as expenses or indirect manufacturing costs of relevant period according to the nature without interruption or deduction.
The accumulated depreciation of a fixed asset shall be recorded as a deduction of fixed assets.
The leasehold improvement shall be reasonably and systematically depreciated based on the lower of the estimated useful life and the lease term, and re-classified as expenses or indirect manufacturing costs of relevant period according to its nature without interruption or reduction.
For depreciable assets, the method for computation of depreciation shall be noted.
If the title to land is temporarily registered in the name of another person, such shall be disclosed in the note, and the preservation measures shall be indicated.
4. Intangible assets: the assets which are nonphysical but have economic value, including patent, copyright, franchise, trademark right, goodwill, etc.
Purchased intangible assets should be recorded at actual cost.
Self-developed intangible assets that cannot be identified clearly (e.g. goodwill) shall not be recorded. Those which can be clearly identified (e.g. patent) can only be recorded in an amount which is no more than the fee for application for registration.
Research and development costs, shall be recorded as expense when incurred. However, expenditures made during the period of development may be capitalized when they conform with each of the following provisions:
(a) Technical feasibility has been established for the given product or know-how (process).
(b) The company intends to complete and to use or to market the given product or know-how (process).
(c) The company has the ability to use or to market the given product or know-how (process).
(d) A specific market already exists for the given product or know-how (process); where the given product or know-how (process) is not provided for sale but is provided for internal use, technical feasibility shall have been established.
(e) There are sufficient technical, financial, and other resources to enable completion of the development project and to enable use or marketing of the given product or know-how (process).
(f) A dependable assessment can be made of the costs expended on the given product or know-how (process) during the development period.
The amount to be capitalized may not exceed the discounted value of projected net future earnings (e.g., the discounted value of anticipated future revenues after deduction of recurring costs for research and development, production, and marketing and administrative expenses).
For the computer software purchased or developed for sale, lease, or marketing in other manners, the cost incurred before the technical feasibility is established shall be recorded as research and development expenses. The cost incurred for the period from the establishment of technical feasibility to the completion of the master copy of the product shall be capitalized. The cost incurred for copying software, documents, training materials from the master copy of the product shall be classified as inventory cost.
The term "establishment of technical feasibility" means the completion of detailed programming or operation model. In other words, when the necessary planning, designing, coding, and testing which ensure that a product can be produced based on the designed specifications are completed, technical feasibility is established. Capitalized computer software cost shall be individually amortized. The annual amortization ratio shall be the higher of the ratio of the income of such product (software) in the current period to the total income of the product in the current period and the subsequent periods and the amortization ratio calculated based on the residual service life of the product using straight line method.
Computer software cost shall be valued on the balance sheet date on the basis of the lower of unamortized cost and net realizable value.
During the development stage, the assets shall be valued and the loss/profit shall be recognized and disclosed in accordance with the Statements of Financial Accounting Standards No. 19.
The valuation basis for intangible assets shall be noted. Intangible assets shall be amortized reasonably and systematically. The maximum amortization period shall not be more than 20 years, provided that this restriction shall not apply where there is clear evidence showing that the period of benefits exceeds 20 years.
The amortization method of intangible assets shall be noted.
5. Other assets: all the assets not falling within the above categories and with a collection or realization period longer than one year or one operating cycle, such as guarantee deposit-out, long-term note receivable, and other miscellaneous assets.
The fair value of long-term notes receivable and other long-term receivables shall be calculated on the basis of the imputed interest rate.
The account receivable overdue in substantial amount shall be separately recorded, and the condition thereof and the amount of allowance for bad debt shall be noted.
When the amount of other assets exceeds 5% of the total amount of assets, such assets shall be separately recorded on the basis of their nature.
When land acquired by the issuer is registered under another's name as the owner, the reasons shall be disclosed in a note, and the methods of preservation shall be specified.
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Article 9
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Liabilities: Liabilities shall be appropriately categorized. Liquid and illiquid liabilities shall be separated, provided that this shall not apply in the case of special enterprises where categorization of liabilities according to liquidity is not appropriate.
The total amount of liability anticipated for liquidation within 12 months after the balance sheet date and that in excess of 12 months after such date shall be respectively provided in the financial statement or disclosed in a footnote.
The liability account/classification in the balance sheet, content thereof, and matters to be noted are as follows:
1. Current liabilities: Must be fully liquidated within 12 months after the balance sheet date, or if created through operations, anticipated liquidation must occur within one business cycle in the normal course of business.
(1) Short-term loans: including short-term borrowings from banks, overdrafts, and other short-term loans.
For short-term loans, the nature of loan, guarantee, and the range of interest rates shall be noted based on the type of loans. If collateral is provided, the name of collateral and its book value shall be recorded.
Borrowings from financial institutions, shareholders, employees, related parties, and other individuals or institutions shall be separately noted.
(2) Short-term bill payable: short-term bills issued by financial institutions through consignment to acquire fund from the monetary market, including commercial papers payable, bankers' acceptances, etc.
Short-term bills payable shall be valued on the basis of present value. The discounts of short-term bills payable shall be recorded as a deduction of short-term bills payable.
For short-term bills payable, the guarantee, acceptance agency and interest rate shall be noted. If collateral is provided, the name and book value of such collateral shall be stated.
(3) Notes payable: all the notes payable.
Notes payable shall be valued at present value. However, those which result from operating activities and which become mature within one year may be valued at face value.
Notes payable resulting from operating activities shall be separately recorded from notes payable resulting from non-operating activities.
Notes payable to banks and related parties in substantial amount shall be separately disclosed.
If collateral has been provided for notes payable, the name of collateral and its book value shall be recorded.
Notes for guarantee deposit-out which can be recovered for cancellation upon termination of the guaranteed responsibilities may not be recorded as current liabilities. However, the nature and amount of the guarantee shall be explained in the notes of the financial statements.
(4) Accounts payable: liabilities incurred for purchase of materials, goods, or services on credit.
Accounts payable shall be valued at present value. However, those which result from operating activities and which become mature within one year may be valued at the amount stated on book.
Accounts payable resulting from operating activities shall be separately recorded from accounts payable resulting from non-operating activities.
Accounts payable to related parties in substantial amount shall be separately disclosed.
If collateral has been provided for accounts payable, the name of collateral and its book value shall be recorded.
(5) Other payables: other payables not falling within notes payable and accounts payable, such as tax payable, salary/wage, and dividends.
For the dividend and bonus payable passed by the resolution of the shareholders meeting, the distribution method and proposed payment date, if determined, shall be disclosed.
When loss and profit are calculated at the end of each period, the estimated income tax payable calculated based on taxable income shall be recorded as current liabilities.
If any of the other payables exceeds the aggregate amount of current liabilities by 5%, it shall be separately recorded by counterparty.
(6) Amounts received in advance: all the amounts received in advance, such as deposits received in advance for selling products or providing services.
Amounts received in advance shall be separately recorded based on principal classification, and relevant agreement, if any, shall be noted.
(7) Other current liabilities: all the current liabilities not falling within the above categories.
The above current liabilities whose amount is less than 5% of the aggregate amount of current liabilities may be incorporated into other current liabilities.
2. Long-term liabilities: Those liabilities which will mature 12 months or more after the balance sheet date, including corporate bonds payable, long-term borrowings, long-term notes payable, and long-term payables.
The long-term liability which will mature within one year or one operating cycle and be liquidated by the use of current assets or the creation of other current liabilities shall be re-classified as current liability.
(1) Corporate bonds payable (including overseas corporate bonds): the bonds issued by issuers.
For issued bonds, the approved total amount, interest rate, maturity date, name of collateral, book value, issuing area, and other relevant terms and restrictions shall be indicated in the footnotes. If the bonds are convertible corporate bonds, the method of conversion and the amount converted shall also be noted.
The premium and discount of corporate bonds payable are valuation account of corporate bonds payable and shall be classified as an addition to or deduction of corporate bonds payable and amortized during the circulation period of the bonds by using a reasonable and systematic method and recorded as an adjustment of the interest expense.
(2) Long-term borrowings: including long-term bank loans, and other long-term borrowings or loans to be paid in installments. For long-term borrowings, the content, date of maturity, interest rate, name of collateral, book value, and other important restrictions agreed shall be disclosed.
For the long-term loan to be repaid in foreign currency or in an amount translated at a foreign exchange rate, the name and amount of such foreign currency shall be indicated.
Long-term loans from shareholders, employees, and related parties shall be separately recorded.
Long-term notes payable and other long-term payables shall be valued at present value.
3. Other liabilities: the liabilities not falling within the above categories, such as guarantee deposit-in, other miscellaneous liabilities, etc.
When the amount of other liabilities exceeds 5% of the total amount of liabilities, the name of accounts shall be separately reported.
For long-term liabilities which reach maturity within 12 months of the balance sheet date, when the original loan contract period was in excess of 12 months and the business intends to continue long-term refinancing, and when the financial statement indicates that refinancing or loan extension had been accomplished before the submission date, the loan shall continue to be listed as a long-term liability, and a footnote shall be appended to the financial statement disclosing the amount of the loan and the relevant facts.
Long-term liabilities shall be listed as current liabilities when, under a given loan contract, breach of a specific clause of the loan contract requires immediate repayment. However, when consent has been obtained from the creditor prior to the financial statement submission date that the creditor will not enforce such a clause, and when there is little possibility that such a breach will be committed within 12 months after the balance sheet date, then the loan may continue to be listed as a long-term liability.
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Article 10
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Stockholders equity: The stockholders equity account/ classification in balance sheets, content thereof, and matters to be noted shall be as follows:
1. Capital stock: the capital invested in the issuer by shareholders and applied for registration with the authority in charge of corporate registration.
The type of capital stock, par value per share, number of shares authorized, number of shares issued, and special terms shall be indicated.
If convertible special stocks and international depositary receipts are issued, the issuing area, issuance and conversion methods, converted amount and special conditions shall be disclosed.
Treasury stocks shall be handled by cost method or par value method and recorded as a deduction of stockholders equity. The number of shares shall be recorded.
2. Additional paid-in capital reserve: refers to the premiums generated by capital stock transactions between the company and the stockholder, and typically includes premiums over the par value of stock issued, surplus from donations, and other revenues generated as recognized by generally accepted accounting principles.
Additional paid-in capital reserves shall be recognized separately according to their classifications. Where utilization is restricted, the restricting conditions shall be disclosed in a note.
3. Retained earnings (or accumulated deficit): the equity resulting from operating activities, including legal reserve, special reserve, and unappropriated earnings (or deficit to be covered), etc.
(1) Legal reserve: the legal reserve allocated in accordance with the Company Law.
(2) Special reserve: the reserve allocated from earnings in accordance with relevant laws and regulations, contracts, provisions of the articles of incorporation, or resolutions of shareholders meetings.
(3) Unappropriated earnings (or deficit to be offset): the undistributed and unappropriated earnings (a deficit to be offset is the loss not yet recouped).
Distribution of earnings or offsetting of losses shall not be recognized until approved by the shareholders meeting. However, when an earnings distribution or offsetting of losses has been proposed, such shall be disclosed in the footnotes of the current financial statements.
4. Other shareholder equity: Refers to other items resulting in increases or decreases to shareholder equity, and typically includes unrealized losses on market value decline of long-term equity investments, net losses not recognized as retirement fund costs, translation adjustments, and treasury stock.
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Article 11
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The account structure of income statement, contents thereof, and matters to be noted are as follows:
1. Operating Revenue: the revenue derived from sale of goods or provision of services in the ordinary course of operating activities in the current period, including sales revenue and service revenue. Recognition of operating revenue shall be comply with the Statement of Financial Accounting Standards No. 32.
Revenues from sale of goods, reprocessing, repairing/processing, and services shall be separately recorded.
Sales return and allowance shall be recorded as a deduction of sales revenue.
2. Operating cost: the cost to be borne for sale of goods or provision of services in the ordinary course of operating activities in the current period, including sales cost, service cost, etc.
Purchase return and allowances shall be deducted from purchase cost.
3. Operating expenses: the expenses to be borne for sale of goods or provision of services in the current period, including research and development expense, selling expenses, management and general affairs expenses. However, if the operating cost and operating expenses cannot be separately recorded, they may be consolidated as operating expenses.
4. Non-operating revenue and gains, expenses and losses: the revenue and expenses incurred not for ordinary operating activities, including interest revenue, interest expense, investment gain/loss recognized under the equity method, exchange gain/loss, gain/loss on disposal of fixed assets, and gain/loss on disposal of investment, etc.
Interest revenue and interest expense shall be separately recorded. Investment gain/loss recognized under the equity method, exchange gain/loss, and gain/loss on disposal of investment may be recorded at their net amount.
5. Losses and gains from continuing operation: The net amount of the preceding four Items shall be indicated as pre-tax loss/gain, income tax expense (profit), and after-tax loss/gain.
6. Discontinued losses and gains: the losses or gains incurred in the current period for disposing or deciding to dispose of significant department, including the operating losses and gains and disposal losses and gains before suspension of operation in the current period. Disposal losses and gains shall be assessed on the date on which the disposal is decided. Any loss shall be immediately recognized. The profit, if any, shall be recognized upon realization.
7. Extraordinary losses and gains: the losses and gains that are distinguished by their unusual nature and by the infrequency of their occurrence, such as the passage of a new law prohibiting operations or losses due to seizure of [assets] by a foreign government.
Significant losses or gains from payment of debts before maturity shall be recorded as extraordinary losses or gains.
Significant losses or gains shall be separately recorded and shall not be amortized on yearly basis.
8. The amount of cumulative effect resulting from the change of accounting principles shall be separately recorded below extraordinary losses/gains.
9. Net income (or net loss) of current period: The earnings (or losses) of the current accounting period are the aggregate amount of the preceding four Items.
10. Earnings per share shall be calculated and disclosed in accordance with The Statements of Financial Accounting Standards No. 24.
11. Income tax shall be amortized and disclosed in accordance with the Statements of Financial Accounting Standards No. 22.
Except where otherwise provided by the Statement of Financial and Accounting Standards, expenses and losses shall be listed according to function, provided expenses relating to employment, depreciation, depletion, and amortization shall be disclosed.
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Article 13
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A cash flow statement is a summarized report on receipts and payments of cash and cash equivalents during a specific period in relation to operational, investment, and financing activities. Cash flow statements shall be prepared in accordance with The Statements of Financial Accounting Standards No. 17.
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Article 14
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Names of financial statements and lists of significant account titles are as follows (formats as attached):
1. Balance Sheet (Form 1);
2. Lists of Assets, Liabilities, and Stockholders Equity Accounts.
(1) List of Cash and Cash Equivalents (Form 2-1);
(2) List of Short-term Investments (Form 2-2);
(3) List of Notes Receivable (Form 2-3);
(4) List of Accounts Receivable (Form 2-4);
(5) List of Other Receivables (Form 2-5);
(6) List of Inventories (Form 2-6);
(7) List of Construction in Progress (Form 2-7);
(8) List of Prepayments (Form 2-8);
(9) List of Other Current Assets (Form 2-9);
(10) List of Changes in Funds (Form 2-10);
(11) List of Changes in Long-term Equity Investments (Form 2-11);
(12) List of Changes in Long-term Bond Investments (Form 2-12);
(13) List of Changes in Other Long-term Investments (Form 2-13);
(14) List of Changes in Fixed Assets (Form 2-14);
(15) List of Changes in Accumulated Depreciation of Fixed Assets (Form 2-15);
(16) List of Changes in Intangible Assets (Form 2-16);
(17) List of Other Assets (Form 2-17);
(18) List of Short-term Loans (Form 3-1);
(19) List of Short-term Bills Payable (Form 3-2)
(20) List of Notes Payable (Form 3-3);
(21) List of Accounts Payable (Form 3-4);
(22) List of Accounts Collected in Advance (Form 3-5);
(23) List of Construction Price Received in Advance (Form 3-6);
(24) List of Other Payables (Form 3-7);
(25) List of Other Current Liabilities (Form 3-8);
(26) List of Corporate Bonds Payable (Form 3-9);
(27) List of Long-term Loans (Form 3-10);
(28) List of Other Liabilities (Form 3-11);
3. Income Statement (Form 4);
4. Lists of Revenue and Expense Accounts
(1) List of Operating Revenue (Form 5-1);
(2) List of Operating Cost (Form 5-2); (3)List of Selling Expenses (Form 5-3);
(4) List of Administrative and General Affairs Expenses (Form 5-4);
(5) List of Non-Operating Revenue and Gains, and Expenses and Losses (Form 5-5);
5. Statement of Changes in Stockholders' Equity (Form 6);
6. Statement of Cash Flows (Form 7).
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Article 21
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Review and analysis of financial condition and operating results: An Issuer shall review its financial condition, operating results, and cash flow and analyze the cause of change. The content shall at least cover the following matters, and discussion may be conducted on departmental basis depending on actual need:
1. Financial condition: The major reasons for any significant changes in assets, liabilities, or shareholder equity during the most recent two years and their impact. If expected impact is significant, an outline for future response shall be included (Form 25).
2. Material capital expenditure and the source of fund: Give an explanation on material capital expenditure invested or committed in last two years, and the nature, expected efficiency, and the actual or expected sources of fund of the capital expenditure to be invested in the coming five years. If any material change is expected in the corresponding cost of capital for future borrowing and capital increase or in the policy of borrowing and capital increase, an explanation shall be provided (Form 18).
3. Liquidity: Analyze the liquidity in last two years and the reason of its increase or decrease, and explain the condition of change in future working capital demand, the working capital amount to be generated from operation, and working capital amount to be obtainable from other parties based on the operation trend, capital demand and other material commitment, transaction or non-transaction matters. If it is discovered that the liquidity has been or will be materially insufficient, the remedy which has been or will be taken shall be indicated (Form 19).
4. Operating results: Analyze the constituent items of the losses and gains from continuing operation and the change in the material transaction, non-transaction matters, and economic environment which affects the increase/decrease of such items. When there is significant increase/decrease or change in the revenues or expenses, an explanation shall be given as to whether such change is caused by the adjustment of sales price or cost, production/sale mix, increase/ decrease in quantity, or replacement of old products with new products. If material change has occurred or is expected to occur in the operating policy, market situation, or any other internal or external elements, thus resulting in material increase/decrease or change in the revenue or expense of the continuing operation, an explanation on such fact and the impact shall be given (Form 20).
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