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Article 3
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The accounting affairs of a securities firm which, in accordance with Article 45 of the Securities and Exchange Law, concurrently operates two types of business or more under Article 15 of the same law shall be separately handled based on the type of the business.
The accounting affairs of the futures department of a securities firm which concurrently operates futures business in accordance with Article 57 of the Futures Trading Law shall be handled pursuant to futures trading laws and regulations.
If the treatment of accounting affairs of a securities firm concurrently operated by a financial institution is otherwise provided in the banking laws and regulations, such laws and regulations shall be complied with. However, the accounting events and financial reports related to securities business shall still be handled in accordance with these Guidelines.
These Guidelines shall apply mutatis mutandis to the accounting affairs of the branch offices of securities firms.
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Article 4
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A securities firm shall establish its accounting system based on the nature of its accounting affairs, the actual status and development of its business, and its management needs in preparation for possible inspection.
The content of the accounting system referred to in the preceding paragraph shall, based on the nature of business operation, include a general description, chart of accounts, account titles, accounting documents, account books, accounting reports, descriptions and uses of accounting statements, procedures for handling accounting affairs, finance and payment/receipt operations, etc.
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Article 5
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The appointment and discharge of the accounting personnel of a securities firm shall be approved by a majority vote by the directors present at a board of meeting attended by a majority of the directors, except that a securities firm which is concurrently operated by a financial institution shall separately follow other relevant rules and regulations. Within five (5) days of the appointment or discharge, the relevant securities firm shall apply with the stock exchange, over-the-counter stock exchange, or securities dealers' association for registration and reporting to the SFC for recordation.
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Article 8
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The content of a financial report shall fairly present the financial position, operating results, and cash flows of a securities firm without misleading an interested party in making judgment and decision.
If a financial report violates these Guidelines or any other relevant regulations, upon the SFC's notice of adjustment after examination, the securities firm shall make adjustment and correction. If the adjusted amount attains the standard set by the SFC, a corrected financial report shall be publicly announced. When making public announcement, the securities firm shall indicate the reasons, items, and amount of adjustment as notified by the SFC.
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Article 14
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The asset account/classification in the balance sheet, content thereof, and matters to be noted are as follows:
1. Current assets: Cash and cash equivalent, short-term investments, and other assets that are expected to be converted into cash, sold or consumed within one year;
(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. Customer's settlement amount, customers' settlement amount collected in advance, fund for subscription of shares collected for an underwriter, and fund which has been earmarked, or the use of which is restricted, or which shall not be used for purpose other than the intended one shall not be classified into this account.
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 company, 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 its net asset value 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.
Allowance for loss of short-term investment due to price decline shall be recorded as a deduction of short-term investment.
(3) Operating securities - dealing department: All the securities purchased by a dealer for business purpose fall in this category. For this title, details shall be recorded in separate accounts based on the type of securities. The operating securities shall be valued by the-lower-of-cost-or-market method based on their total amount. Market price means the closing price on the day on which an accounting period ends.
If operating securities are provided for transactions with a call option or subject to restriction/limitations, a note shall be provided.
Allowance for loss of operating securities due to price decline - dealing department: This shall be recorded as a deduction of operating securities - dealing department.
(4) Operating securities - underwriting department: All the securities which are acquired by an underwriter through underwriting on firm commitment basis and which have not been sold fall in this category. Such securities shall be valued by the-lower-of-cost-or-market method based on their total amount. Market price means the closing price on the day on which an accounting period ends.
If operating securities are provided for transactions with a call option or subject to restriction/limitations, a note shall be provided.
Allowance for loss of operating securities due to price decline - underwriting department: This shall be recorded as a deduction of operating securities - underwriting department.
(5) Operating securities - hedging: All securities purchased by securities firms for their own accounts to avoid risk of fluctuation of the call (put) warrants issued by them fall in this category. This title shall be valued by the lower-of-cost-or-market method. Market price means the closing price on the day on which an accounting period ends.
Allowance for loss of operating securities due to price decline - hedging: This shall be recorded as a deduction of operating securities - hedging.
(6) Operating securities - call (put) warrant: All the call (put) warrants directly purchased from the market by securities dealers fall in this category. This title shall be valued by lower-of-cost-or-market method based on the total amount. Market price means the closing price on the day on which an accounting period ends.
Allowance for loss of operating securities due to price decline - call (put) warrant: This shall be recorded as a deduction of operating securities - call (put) warrant.
(7) Call option - hedging: The option contracts purchased by a securities firm for hedging the risk of the fluctuation of the call (put) warrants issued by it fall in this category. This account shall be valued by fair value method.
(8) Investment in bonds with a put option: The amount actually paid for transactions with a put option fall in this category.
(9) Receivable amount for margin loans: The margin loans extended to customers by a securities firm in handling margin lending and securities financing fall in this category.
Allowance for bad debts - receivable amount for margin loans: a deduction of receivable amount for margin loans.
The security firm engaging in securities financing shall record the securities loaned to customers in memorandum entries but shall not enter such into account. However, the details shall be provided in the note of the financial report.
(10) Refinancing margin: The margin money or difference of securities refinancing delivered by a securities firm to a securities finance company for borrowing of securities in dealing with margin loan and securities financing in securities trading.
(11) Refinancing deposit receivable: the deposit for refinancing of securities paid to a securities finance company by a securities firm dealing with margin loan and securities financing in securities trading.
(12) Notes receivable: All the short-term notes receivable except those resulting from consigned securities trading fall in this category.
Notes receivable shall be valued at present value. However, those which resulting from operating activities and which become mature within one year may be valued at par 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 from related parties shall be separately disclosed.
Notes provided for security shall be so indicated in the notes.
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, and the net amount shall be disclosed.
(13) Accounts receivable: The claims except those incurred due to consigned securities trading fall within this category.
Notes receivable shall be valued at present value. However, those which resulting from operating activities and which become mature within one year may be valued at recorded amount.
Accounts receivable 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, and the net amount shall be disclosed.
(14) Prepayments: all the prepaid amounts and expenses.
Prepayments for purchase of fixed assets in accordance with contract and payment for uncompleted construction shall be recorded as fixed assets and shall not be classified as prepayments.
(15) Other receivables: other receivables not falling within notes receivable and accounts receivable, including accounting errors and claims arising out of breach of contract. At closing, the amount of other receivables uncollectible shall be assessed and proper allowance for bad debts shall be recognized, and the net amount shall be disclosed.
If the collection of other receivables becomes impossible, they shall be written off.
If any of the other receivables exceeds the aggregate amount of current assets by 5%, it shall be separately recorded.
(16) Deferred loss on purchase of call (put) warrants: in connection with the increase of the fair value of the issued call (put) warrants, the amount which has not been recognized as loss in the current period.
(17) Other current assets: all the current assets not falling within the above categories.
The above current assets, except for cash, 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 the special funds and the long-term investments for the purpose of ordinary business operation .
(1) Funds: the asset allocated/deposited for special purpose such as sinking fund, improvement and expansion fund, contingent reserve, and funds for futures department.
The funds for futures departments are the working capital exclusively appropriated to the futures department by a securities firm concurrently dealing with futures business.
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 purchase of long-term bonds and shares in specified enterprises or other investments approved by the SEC.
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) If the total assets or operating revenue of any individual subsidiary have not reached the standard for including in the 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 30% or more of the total assets or operating revenue of the securities firm, the subsidiaries whose total assets or operating revenue reaches 3% or more of the securities firm 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 statement, 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.
3) If the total votes in the common stocks and special (preferred) voting stocks held by the investor company is more than 50% of the total votes of the investee company, or if the investor company directly or indirectly controls the personnel, finances, or operations of the investee company as set forth in Article 369-2, Paragraph 2 of the ROC Company Law, or if all the following conditions are met, the investment income shall be recognized in the current period:
(a) Where the beginning underlying equity in net assets of the long-term investment is NT$50 million or more and reaches 5% or more of the paid-in capital of the securities firm;
(b) Where the securities firm holds 30% or more of the equity of the investee company, or where the aggregate shares in the investee company held by the securities firm, its directors, supervisors, managers, and the enterprises directly or indirectly controlled by the securities firm is more than 50%; and
(c) Where the securities firm 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 securities firm.
Long-term investments shall be valued by equity method. If the financial reports produced by the investee company fail to conform to generally accepted accounting principles in the ROC, the report shall first be adjusted to conform to such principles and profits and losses for investments recorded thereafter. 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 securities firm.
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 an economic life of one year or more, and not for the purpose of sale.
Within the fixed asset classification, land, depreciable assets and assets subject to depletion 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" house 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 recorded as a loss.
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.
Except for land, the fixed assets shall be periodically depreciated on a reasonable and systematic basis within the estimated useful life.
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 of relevant period according to its nature without interruption or reduction. For depreciable assets, the method for computation of depreciation shall be noted.
If a fixed asset is provided as collateral for security, mortgage, or creation of Dien, such shall be indicated.
Major accounts of fixed assets are as follows:
(1) Land: all the land of the company used in operations;
(2) Buildings: all the buildings of the company used in operations;
(3) Equipment: all the income-generating equipment, information equipment, transportation equipment, and other equipment acquired for operation purpose;
(4) Prepayments for building/land: all the prepayments for purchase of land and buildings;
(5) Prepayments for equipment: all the prepayments for purchase of equipment;
(6) Leasehold improvement: the improvement made to the property of operating lease;
(7) Other fixed assets.
4. Intangible assets: the assets which are nonphysical but have economic value, such as goodwill.
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 can only be recorded in an amount which is no more than the fee for application for registration.
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.
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 of one year or more, such as guarantee deposit-out, long-term note receivable, and other miscellaneous assets.
Long-term notes receivable and other long-term receivables shall be valued based on present value.
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, the names of the accounts shall be separately recorded.
(1) Operation bond: the operation bond set aside in accordance with Article 55 of the Securities and Exchange Law;
(2) Settlement/clearance fund: The settlement/clearance fund paid/deposited by securities firms in accordance with Article 107 or Article 132 of the Securities and Exchange Law;
(3) Guarantee deposit-out: other guarantees deposited-out;
(4) Deferred debits: long-term prepaid expenses which will bring future economic benefits and shall be periodically amortized subsequently;
(5) Accounts with branches: in the case of a security firm with branch offices, the amount of the accounts between the head office and branch offices;
(6) Accounts with head office: the amount of the accounts between the branch offices and head office of a securities firm;
(7) Inter-departmental accounts: The amount of the inter-departmental transaction between the securities department and futures department of a securities firm concurrently dealing with futures business; to be used when there is debit balance;
(8) Other assets: the assets not falling within the above categories.
6. Debit items for consigned trades: items to be offset against each other in the securities trading consigned to a securities broker. When the statement is prepared, the balance after offsetting debit items against credit items shall be recorded. However, the detailed contents shall be explained in the notes of the financial reports.
(1) Cash and cash equivalents - settlement amount: All settlement amounts (excluding handling fee and taxes withheld) of customers received/paid in handling securities brokerage business shall be recorded under this account, including the deposit in a separate settlement account which should not be used for other purpose.
(2) Receivable securities purchased for customers: the receivable and unsettled securities purchased for customers;
(3) Receivable price of securities purchased for customers: the price of securities purchased for the account of and receivable from customers and unsettled;
(4) Receivable securities sold through consignment: the securities to be sold through consignment and receivable from customers and unsettled;
(5) Settlement price: net settlement amount receivable from and payable to the stock exchange, to be used when there is debit balance.
(6) Securities purchased for customers: the securities purchased for the accounts of customers.
(7) Securities sold for customers: the securities sold for the accounts of customers.
(8) Receivable notes for settlement: the notes delivered by consignors or securities finance institutions in settlement in the process of securities brokerage business. Sub-accounts under this account may be established by party.
(9) Receivable accounts for settlement: the withdrawal slip, transferred amount, remittance delivered by consignors, stock exchange, or securities finance institutions in settlement in the process of securities brokerage business. Sub-accounts under this account may be established by party.
(10)Margin trading: the amounts of margin trading directly settled by securities finance institutions and stock exchange in the process of margin loan/securities financing agency business. This account may be a credit balance.
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Article 15
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The liability account/classification in the balance sheet, content thereof, and matters to be noted are as follows:
1. Current liabilities: payables, loans, and other obligations to be liquidated with current assets or the creation of other current liabilities within one year during the ordinary 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 non-financial institutions in accordance with Article 17 of the Regulations Governing Securities Firms shall be separately recorded.
(2) Commercial papers payable: short-term bills issued by financial institutions through consignment to acquire fund from the monetary market.
Commercial papers payable shall be valued based on present value. The discounts of commercial papers payable shall be recorded as a deduction of commercial papers payable.
For commercial papers payable, the guarantee, acceptance agency and interest rate shall be noted. If collateral is provided, the name of collateral and its book value shall be noted.
(3) Liabilities for issuance of call (put) warrants: the amounts actually acquired for issuance of call (put) warrants.
(4) Repurchase of issued call (put) warrants: the amount paid by a securities firm for repurchase of the call (put) warrant issued by it. This account is a deduction of the account "liabilities for issuance of call (put) warrants".
(5) Liabilities for bonds with a call option: the amount actually acquired in dealing with transactions with a call option.
(6) Securities financing guarantee deposit-in: The deposit collected from customers for securities financing by a securities firm dealing with margin loan and securities financing in securities trading.
(7) Deposit payable for securities financing: the sale price (less stock exchange tax, handling fee for consigned trading, and securities financing fee) of loaned stocks collected as collateral by a securities firm dealing with margin loan and securities financing in securities trading from customers for securities financing.
The securities firm engaging in securities financing shall record the securities provided by customers as guarantee in memorandum entries but shall not enter such into account. However, the details shall be provided in the note of the financial report.
(8) Refinancing borrowings: the refinancing amount acquired from securities finance companies by a securities firm in dealing with margin loan and securities financing in securities trading.
(9) Notes payable: all the undue notes payable except those resulting from consigned securities trading.
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 the amount stated on book.
Notes payable resulting from operating activities shall be separately recorded from notes payable resulting from non-operating activities.
Notes of large value payable to banks and related parties shall be separately disclosed.
If collateral has been provided for notes payable, the name of collateral and the 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.
(10) Accounts payable: amounts payable incurred in business other than consigned securities trading.
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 par value.
Accounts payable resulting from operating activities shall be separately recorded from accounts payable resulting from non-operating activities.
Accounts of large value payable to related parties shall be separately disclosed.
(11) Amounts received in advance: all the amounts received in advance.
Amounts received in advance shall be separately recorded based on principal classification, and relevant agreement, if any, shall be noted.
(12) Amounts collected for other parties: all the amounts collected for other parties, such as the securities transaction tax and salary income tax.
(13) Other payables: other payables not falling within notes payable and accounts payable, such as tax payable, salary payable, and dividends.
For the dividend and bonus payable passed by the resolution of the shareholders meeting, the distribution method and proposed payment date shall be noted.
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 based on the nature or party concerned.
(14) Other current liabilities: all the current liabilities not falling within the above categories, such as corporate bonds and long-term borrowings which become mature within one year.
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: liabilities which will mature after one year, 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 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): For bonds issued by a securities firm, 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 or deduction of corporate bonds payable, 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: 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 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.
(1) Reserve for loss caused by breach of contract: the reserve allocated from the handling fee of consigned securities trading to cover the loss caused by breach of contract by customers.
(2) Trading loss reserve: When the profit exceeds loss in securities trading for own account, a specified percentage of the portion in excess shall be allocated as trading loss reserve.
(3) Guarantee deposit-in: all the bonds deposited in.
(4) Accounts with branches: to be used when there is a credit balance in the account between the head office and branch offices, if any.
(5) Accounts with head office: to be used when there is a credit balance in the account between the branch offices and head office of a securities firm.
(6) Inter-departmental accounts: the amount of the inter-departmental transaction between the securities department and futures department of a securities firm concurrently dealing with futures business; to be used when there is a credit balance;
(7) Other liabilities: the liabilities not falling within the above categories.
4. Credit items for consigned trading: items to be offset against each other in the securities trading consigned to a securities broker. When the statement is prepared, the balance after offsetting debit items against credit items shall be recorded. However, the detailed contents shall be explained in the notes of the financial reports.
(1) Securities deliverable purchased for customers: the securities deliverable to consignors in dealing with the business of purchasing securities for customers.
(2) Price payable of securities sold for customers: the price payable to consignors in dealing with the business of selling securities for customers.
(3) Securities deliverable sold for customers: the securities deliverable in dealing with the business of selling securities for customers.
(4) Settlement notes payable: the notes delivered to consignors or financial institutions in settlement in dealing with securities brokerage business.
(5) Settlement accounts payable: the amount paid through transfer to consignors or financial institutions in settlement in dealing with securities brokerage business.
(6) Settlement proceeds: net settlement amount receivable from and payable to the stock exchange; to be used when there is a credit balance.
(7) Margin trading: the amounts of margin trading directly settled by securities finance institutions and stock exchange in dealing with margin loan/securities financing agency business; to be used when there is a credit balance.
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Article 16
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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 a securities firm 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.
Treasury stocks shall be handled by the cost method and recorded as a deduction of stockholders equity. The number of shares shall be recorded.
2. Capital reserve: except for capital stock, the equity not resulting from operating activities.
Premiums on stock, gains on the disposal of fixed assets, donated capital, appreciation from assets revaluation, the price of assets assumed from the company extinguished in merger less the liabilities assumed from such company and payment to stockholders of such company, capital reserve from long-term equity investment by using equity method, and capital reserve from transaction of treasury stocks shall be separately reported.
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, articles of incorporation, or resolutions of shareholders meetings.
(3) Unappropriated earnings (or deficit to be offset): the undistributed or 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. Unrealized losses of long-term investments due to price decline: the unrealized losses of price decline recognized for long-term equity investments by using the lower-of-cost-or market method.
5. Accumulated translation adjustments: the translation adjustments resulting from foreign exchange transaction or translation of foreign financial statements.
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Article 19-1
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Notes to a financial report, in addition to being prepared in accordance with Articles 9 and 10 herein, shall also disclose information relating to the following matters:
1. Information on large-value transactions:
(1) Extension of monetary loans to others.
(2) Endorsements and guarantees for others.
(3) Acquisition of real estate equaling at least NT$100 million or 20% of paid-in capital.
(4) Disposal of real estate equaling at least NT$100 million or 20% of paid-in capital.
(5) A combined total of discounts on commissions in trades with affiliated persons equaling NT$5 million or more.
(6) Receivables from affiliated persons amounting to at least NT$100 million or 20% of paid-in capital.
2. Information on re-investing enterprises:
(1) For enterprises which directly or indirectly have a controlling or very large influence on the investee company, the name, location, chief areas of operation, original investment amount, stock holdings at the end of the previous period, profits and losses in the current period and recorded profits and losses on investments.
(2) Enterprises which directly or indirectly have a controlling influence in the investee company shall also disclose information relating to transactions of the investee company falling under Sub-subparagraphs 1-6 of the preceding subparagraph, provided that where the total assets or operating revenues of the investee company are less than 10% of the respective figures for the issuer, or where it directly or indirectly controls the personnel, finances, or operations of the investee company, only disclosure of information on transactions under Sub-subparagraphs 1 and 2 are required.
(3) Notes to consolidated financial reports shall also disclose information on the items listed in Paragraphs 1 and 2 of this article, provided that where the total assets or operating revenues of the investee company are less than 10% of the respective figures for the securities firm, or where the securities firm directly or indirectly controls the personnel, finances, or operations of the investee company, it may be exempt from the provisions of Subparagraph 2. Securities firms disclosing information on transactions in accordance with the above provisions shall, in preparing consolidated statements, add appropriate notes of explanation for those already offset.
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Article 19-2
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Securities firms shall make full disclosure of trades with associated persons in accordance with the Statement of Financial Accounting Standards No. 6. Substantive relationships as well as purely legal aspects shall be taken into account when determining which trading counterparts are to be considered associated persons. Under any of the following circumstances, except where an entity can demonstrate a lack of controlling ability or substantive influence, an entity shall be deemed to have a substantive relationship as an associated person, and notes disclosing relevant information in financial statements will be required in accordance with the Statement of Financial Accounting Standards No. 6:
1. "Affiliated enterprises" as referred to under Chapter VI-I of the Company Law, and their directors, supervisors, and managers.
2. Any company or institution falling under the control of the same general management division and their directors, supervisors, and managers.
3. Personnel in the general management division with the level of manager or above.
4. Any company or institution listed as an affiliated enterprise in information published or released to the public.
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Article 20
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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) Operating Securities - List of Dealing Department (Form 2-3);
(4) Operating Securities - List of Underwriting Department (Form 2-4);
(5) List of Investment in Bonds with Put Option (Form 2-5);
(6) List of Amount of Margin Loan Receivable (Form 2-6);
(7) List of Refinancing Margin (Form 2-7)
(8) List of Refinancing Deposit Receivable (Form 2-8);
(9) List of Notes Receivable (Form 2-9);
(10) List of Accounts Receivable (Form 2-10);
(11) List of Prepayments (Form 2-11);
(12) List of Other Receivables (Form 2-12);
(13) List of Other Current Assets (Form 2-13);
(14) List of Changes in Funds (Form 2-14);
(15) List of Changes in Long-term Equity Investments (Form 2-15);
(16) List of Changes in Long-term Bond Investments (Form 2-16);
(17) List of Changes in Other Long-term Investments (Form 2-17);
(18) List of Changes in Fixed Assets (Form 2-18);
(19) List of Changes in Accumulated Depreciation of Fixed Assets (Form 2-19);
(20) List of Other Assets (Form 2-20);
(21) List of Short-term Loans (Form 2-21);
(22) List of Bonds with Call Option Liabilities (Form 2-22);
(23) List of Securities Refinancing Deposit-in (Form 2-23);
(24) List of Securities Financing Deposit Payable (Form 2-24);
(25) List of Refinancing Borrowings (Form 2-25);
(26) List of Notes Payable (Form 2-26);
(27) List of Accounts Payable (Form 2-27);
(28) List of Other Payables (Form 2-28);
(29) List of Other Current Liabilities (Form 2-29);
(30) List of Long-term Loans (Form 2-30);
(31) List of Other Liabilities (Form 2-31);
3. Income Statement (Form 3);
4. Income Statements Based on Types of Business (Form 4);
5. Lists of Revenue and Expense Accounts.
(1) List of Brokerage Handling Fee Revenue (Form 5-1);
(2) List of Revenue from Underwriting Business (Form 5-2);
(3) List of Profit (Loss) from Sale of Securities (Form 5-3);
(4) List of Revenue from providing Agency Service for Stock Affairs (Form 5-4);
(5) List of Interest Revenue (Form 5-5);
(6) List of Operating Expenses (Form 5-6);
(7) List of Non-operating Revenue and Expenditure (Form 5-7);
6. Statement of Changes in Stockholders' Equity (Form 6);
7. Statement of Cash Flows (Form 7);
8. Form of Securities Underwriting Report (Form 8);
9. Form of Operation Report of OTC Trading (Form 9);
10. Form of Margin Loan/Securities Financing Business Report (Form 10);
11. List of Collateral Securities for Margin Loan/Securities Financing (Form 11);
12. List of Refinancing Collateral (Form 12);
13. List of Securities Borrowed (Lent) for Refinancing (Form 13).
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Article 25
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A listed securities firm or a securities firm whose stocks are traded on the OTC market shall disclose the market value, dividend, and the condition of dispersal of ownership of securities issued by it:
1. Market value information: If the securities of a securities firm have been listed or traded on the OTC market, it shall disclose the highest and lowest transaction value in each quarter of the last two years (Form 16).
2. Dividend information: Information on the details of the dividend policy, the cash dividend per share distributed in last two years, earnings, and number of shares distributed with capital reserve shall be provided. If there is any accumulated unpaid dividend, the amount thereof shall be disclosed. In case of any material change or expected material change in the dividend policy of a securities firm, an explanation shall be given (Form 17).
3. Condition of dispersal of ownership of securities: An explanation on the condition of dispersal of the common stocks and preferred special stocks of the securities firm on the date of balance sheet shall be provided (Form 18).
If a securities firm distributes stock dividend with earnings or by capitalization of capital reserve, it shall disclose the information of market value and cash dividend retroactively adjusted based on the number of shares after distribution.
A securities firm shall disclose the condition of share transfer and pledge or change in ownership of stocks of its directors, supervisors, managers, and shareholders holding 10% or more of its total shares (Form 19).
A securities firm which is approved to offer and issue securities by shelf registration system shall disclose the approved amount and relevant information of the securities to be issued or already issued (Form 20).
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Article 28-1
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Securities firms preparing financial reports and making disclosures in accordance with the provisions of this chapter shall seek a certified public accountant to issue a review opinion, in accordance with the Guidelines for Other Matters Requiring Disclosure in financial reports.
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Article 31-1
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Changes in accounting procedures at a securities firm shall be undertaken in accordance with the following rules:
1. Changes in accounting principles:
(1) Where valid reasons require a change in accounting principles, at the end of the year prior to the projected change, the securities firm shall set out the original accounting principles, the reason for changing to the proposed new accounting principles and their theoretical basis, concrete evidence that the new accounting principles will be superior to the old, and data on the projected cumulative effect of adopting the new principles; the securities firm shall seek a certified public accountant to provide an analysis of the reasonableness of each item and a review opinion, which shall be presented in a proposal to the board of directors for passage and thereafter submitted to the SFC for approval and recordation.
(2) Where there are conditions as set forth in The Statement of Financial Accounting Standards No. 8, Section 12, in which substantive difficulty prevents determination of the cumulative effect of change in accounting principles, the securities firm shall set out the original accounting principles, the reason for changing to the proposed new accounting principles and their theoretical basis, concrete evidence that the new accounting principles will be superior to the old, and the reasons why the projected cumulative effect of adopting the new principles cannot be determined, and shall seek a certified public accountant to provide an analysis of the reasonableness of each item and a review opinion. After presenting its opinion on the effects of the review opinion for the year of the change to the new accounting principles, the securities firm shall proceed in accordance with the procedures set forth above.
(3) Except where the cumulative effect of the change to new accounting principles cannot be determined as set forth in the preceding sub-subparagraph, the securities firm shall, within two months after the beginning of the accounting year during which it changes to the new accounting principles, calculate the actual cumulative effect of adopting the new principles and submit those figures to the SFC following their ratification by the board of directors. If the difference between the figures showing the actual cumulative effect and the projected cumulative effect differ by more than NT$10 million, the securities firm shall present an analysis of the reason for the differences between the two, request a CPA's opinion on its reasonableness, and submit both to the SFC.
(4) Where the circumstances in Subparagraph 2 apply to a securities firm, it shall set out the effects of adopting the new accounting principles with respect to profits and losses in notes to the financial reports prepared for the first quarter, the half-yearly report, and the third quarter in the accounting year during which the new accounting principles are adopted.
(5) With the exception of purchases of real estate to which newly adopted accounting principles are applied, which may be exempted from application of the provisions of each of the preceding subparagraphs, where any other changes in accounting principles have not been reported for approval and filing in accordance with regulations prior to their adoption, the financial report for the year in which the new principles were adopted shall be rewritten, and the new principles may be adopted only in the year following a supplementary report for approval and filing.
2. Accounting estimates relating to changes in the estimated useful life of depreciable/depletable assets and the effective period of intangible assets shall be handled in accordance with such Subparagraphs 1, 4, and 5 of the preceding paragraph.
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Article 31-2
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Pursuant to the mutatis mutandis application of Article 36 of the Securities and Exchange Law through Article 63 of the same law, the submission of financial reports and related documents by securities firms shall be undertaken in accordance with Article 21, Paragraph 3 of the Rules Governing Securities Firms; copies shall also be submitted to the ROC Securities and Futures Institute ("the SFI") to be made available to the public.
Securities firms submitting documents in accordance with the provisions of the preceding article shall, in accordance with the preceding paragraph, submit copies to the TSE, the Over-the-Counter Securities Exchange, and the SFI.
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