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Article 3
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When a securities firm concurrently operates two or more of the types of businesses under Article 15 of the SEA in accordance with Article 45 of the same law, there shall be separate handling of accounts for each respective type of business. The accounting affairs of the futures department of a securities firm that concurrently operates futures business in accordance with Article 57 of the Futures Trading Law shall be handled pursuant to futures trading laws and regulations. When a securities firm concurrently operates a bills finance business in accordance with Article 17 of the Act Governing Bills Finance Business, accounting affairs in its bills finance department shall be handled in accordance with the Act Governing Bills Finance Business. When a securities firm concurrently operates specified items of trust business in accordance with Article 3 of the Trust Enterprise Act, accounting affairs in its trust business department shall be handled pursuant to the Trust Enterprise Act. If the treatment of accounting affairs of a securities firm concurrently operated by a financial institution is otherwise provided in banking laws and regulations or other laws and regulations, such laws and regulations shall govern, provided that accounting matters and financial reports related to securities business shall still be handled in accordance with these Regulations. These Regulations shall apply mutatis mutandis to accounting affairs of the branch offices of securities firms.
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Article 7-1
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In the case of an enterprise in another line of business that concurrently operates securities business, when it prepares financial reports in accordance with the requirements of the competent authority responsible for its business, it shall additionally disclose the balance sheets, income statements, footnotes, and material charts of accounts of its independent securities department, provided that this requirement shall not apply if the enterprise in another line of business concurrently operates proprietary bond trading only.
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Article 9
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In order that a financial report may thoroughly disclose information on financial position, operating results, and cash flows, notes on the following matters shall be provided:
1. the historical development of the company and its business scope;
2. a declaration that the financial statement was prepared in conformance with these Regulations, other applicable laws and regulations (names of the laws or regulations shall be expressly stated), and generally accepted accounting principles;
3. a summary of significant accounting policies and the bases of measurement employed;
4. where there is a change in accounting treatment due to special factors that affects comparisons of financial information for the prior or subsequent periods, an explanation of the reasons for the change and the impact on the financial statements;
5. the basis of valuation of any amount in the financial report, where its provision is required;
6. where any item presented in the financial report is subject to restriction by law, contract, or other binding stipulation, a note on the circumstances of the restriction, its effective period, and related matters;
7. the standards by which assets and liabilities are classed as either current or non-current;
8. significant commitments and contingent liabilities;
9. information on relevant financial products, such as call (put) warrants and hedge transactions;
10. changes in capital structure;
11. long-term and short-term borrowings;
12. additions, expansions, construction, leases, obsolescence, idling, sale, pledge, or transfer of major assets;
13. major investments in other enterprises;
14. significant transactions with related parties;
15. losses caused by major disasters;
16. the progress or conclusion of any major litigation;
17. the signing, completion, revocation, or lapse of material contracts;
18. information related to employee pension funds;
19. important changes in organization and significant management reforms;
20. material influences stemming from changes in government regulation;
21. financial information by segment;
22. types, issuance dates, and amounts of privately placed securities;
23. the material impact of any suspension of business;
24. merger, acceptance, or transfer of the entire business to or from another securities firm;
25. the content and monetary amount of trust business conducted in accordance with the Trust Enterprise Act;
26. other necessary disclosures to ensure that the financial statement is not misleading or to facilitate fairness in presentation.
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Article 14
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Balance sheet assets shall be appropriately categorized. Current and non-current assets shall be distinguished.
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 balance sheet or disclosed in the accompanying notes.
The asset classification of account titles in the balance sheet, their content, and matters to be noted are as follows:
1. Current assets: Assets generated by an enterprise's operations, where it is expected that the assets will be converted to cash, consumed, or sold within the enterprise's normal operating cycle; assets held primarily for trading; assets that are expected to be converted to cash within 12 months after the balance sheet date; and cash and cash equivalents, provided that assets used in exchange for or liquidation of debt more than 12 months after the balance sheet date, or that are subject to other restrictions, shall not be included.
(1) Cash and cash equivalents: Cash in treasury, bank deposits, petty cash, revolving funds paid in small amounts for incidental expenses, and highly liquid short-term investments convertible into fixed cash amounts at any time and due in the near future, where interest rate fluctuations have an insignificant impact on the value of the investment.
Non-demand bank deposits shall be posted by item, with maturity dates longer than one year to be noted. Customer settlement amounts, customer settlement amounts collected in advance, funds for subscription of shares collected for an underwriter, and funds which have been earmarked or restricted in use, or which may not be used for other than the designated purpose shall not be entered under this account.
If 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 a refundable guarantee, they shall be classified as current assets or other assets depending on whether they are short-term or long term. Compensating balances, if incurred due to short-term loans, shall be classified as current assets, and an explanation provided in the notes. Compensating balances incurred due to long-term liabilities shall be classified as other assets or long-term investments rather than current assets.
(2) Financial assets－current－with changes in fair value recognized under income: Refers to financial assets for trading or financial assets initially designated as assets to be measured at fair value with changes in fair value to be recognized in income. These accounts shall be classed according to liquidity as current or non-current; those that are non-current shall be reclassified under "funds and investments" as "financial assets with changes in fair value recognized in income－non current".
"Financial assets for trading" refers to assets that were designated as financial assets for trading at the time of initial recognition by the enterprise. The following financial products shall be classed as financial assets for trading:
1. Products acquired primarily for the purpose of sale in the near term.
2. Assets that are part of a group of distinct financial product portfolios under comprehensive management, where there is evidence that in the near term the group is in fact being managed for short-term profit.
3. Derivative financial assets.
Financial assets for trading shall be stated under their respective categories, according to trading purpose, as securities, open-ended funds, or money-market instruments held through a brokerage, or as operating securities or derivative financial products.
"Operating securities" refers to securities purchased by a dealer or acquired by an underwriter on a firm commitment basis that have not yet been resold; these shall be presented in detail in subsidiary ledgers according to domestic or foreign security type. When operating securities are the subject of a repurchase agreement or are subject to any other limitation, such fact shall be noted.
"Derivative financial assets" refers to asset accounts that result from a securities firm's trading of domestic or foreign derivative financial products and that conform to the following definitions:
1. Their changes in value reflect fluctuations in a specific variable, credit rating, price index, rate index, or other variable.
2. They are contracts that, relative to other types of contracts that similarly operate by reference to market fluctuations, require only a relatively small net original investment or no net original investment.
3. They have a future settlement date.
When a hybrid product meets the following conditions, the embedded derivative financial product and the host contract shall be bifurcated for separate accounting treatment and the embedded derivative financial product shall be presented as part of the "financial assets for trading" account:
1. The economic characteristics and risks of the embedded derivative product and of the host contract are not closely related.
2. Individual products with the same terms and conditions as the embedded derivative product meet the definition of derivative products.
3. The hybrid product is not one that is measured at fair value with changes in fair value recognized in income.
Financial assets whose changes in fair value are recognized in income shall be measured at fair value. Except for holdings in emerging stocks, which are measured at cost, "fair value" refers to the closing price on the balance sheet date. For open-ended funds, fair value refers to the net asset value of the fund on the balance sheet date.
When stock dividends or new shares issued out of a capital increase from capital reserves are acquired due to the holding of financial assets whose changes in fair value are recognized in income, respective numbers of increased shares shall be noted for each type of financial asset and the average unit cost of each share calculated by the weighted average method.
(3) Available-for-sale financial assets－current: refers to financial assets classed as current and that meet one of the following conditions:
1. The assets have been designated as available-for-sale.
2. The assets are not financial assets whose changes in fair value are included in earnings, held-to-maturity financial assets, bond investments for which no active market exists, or receivables.
Available-for-sale financial assets shall be classified according to liquidity as current or non-current. Those that are non-current shall be reclassified as "available-for-sale financial assets－non current" under "funds and investments."
Available-for-sale financial asset accounts shall be presented in detail in subsidiary ledgers, according to which type of security they are, as stocks, bonds, or funds; any limitation placed on such an asset shall be noted.
Except where regulations provide otherwise, available-for-sale financial assets shall be measured at fair value, with valuation gains and losses included in shareholder equity. "Fair value," for exchange- or OTC-listed securities, refers to their closing price on the balance sheet date. For open-end funds, fair value means the net asset value of the given fund on the balance sheet date.
(4) Held-to-maturity financial assets－current: refers to financial assets held to maturity and maturing within one year.
Financial assets held to maturity shall be measured at amortized cost.
(5) Bond investments for which no active market exists－current: refers to the "current" portion of bond investments not quoted on the active market.
(6) Bond investments under resale agreements: the actual amounts paid for transactions in bonds with resale agreements.
(7) Margin loans receivable: refers to margin loans extended to customers by a securities firm handling margin lending and securities financing.
Allowance for bad debt－margin loans receivable: a deduction from amounts receivable for margin loans.
A securities firm engaging in securities financing shall record the securities loaned to customers in memorandum entries but not in account entries.
(8) Refinancing margin: The margin amount or refinancing difference in securities refinancing, delivered by a securities firm to a securities finance company for the borrowing of securities in connection with margin loans and securities financing in securities trading.
(9) Refinancing collateral receivable: the deposit for refinancing of securities paid to a securities finance company by a securities firm dealing with margin loans and securities financing in securities trading.
(10) Stock borrowing margin: The margin paid by a securities firm as needed for stock borrowing transactions when borrowing from the holders of the subject securities or selling short in an exchange market.
(11) Stock borrowing collateral price: The collateral price paid by a securities firm as needed for stock borrowing transactions when borrowing from the holders of the subject securities or selling short in an exchange market.
(12) Notes receivable: All short-term notes receivable except those resulting from brokered securities trades.
Notes receivable shall be valued at fair value based on the imputed interest rate. Notes receivable and maturing within one year or less, however, may be valued at par value when the discrepancy between their fair value and value at maturity is small and they are frequently traded.
Discounted or transferred notes receivable shall be deducted and an explanatory note provided.
Notes receivable resulting from operating activities shall be recorded separately from notes receivable resulting from non-operating activities.
Notes receivables from related parties shall be disclosed separately.
Notes provided for security shall be so indicated in the notes to the balance sheet.
If the collection of a note receivable becomes impossible, it shall be written off.
During account settlement, 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: Claims aside from those incurred due to brokered securities trades fall within this category.
Accounts receivable shall be valued at fair value based on the imputed interest rate. Accounts receivable within one year or less, however, may be valued at par value when the discrepancy between their fair value and value at maturity is small and they are frequently traded.
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) Other financial assets－current: Financial assets not listed separately on the balance sheet shall be listed under "other financial assets," and based on their liquidity shall be stated as current or non-current assets. Non-current assets shall be reclassified as "other financial assets－non-current" under "funds and investments."
When the amount of a financial asset accounts for 5 percent or more of aggregate current assets, it shall be given a separate balance sheet entry.
(15) Prepayments: all prepaid amounts and expenses.
Contractually stipulated prepayments for purchase of fixed assets and payment for uncompleted construction shall be recorded as fixed assets and shall not be classified as prepayments.
(16) Other receivables: other receivables not falling within notes receivable and accounts receivable, including accounting errors and claims arising out of breach of contract. During account settlement, 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.
Any item under other receivables that exceeds the aggregate amount of current assets by 5% shall be separately recorded.
(17) Long-term equity investments held for disposal: equity investments for which sale to a subsidiary is planned within 12 months after the balance sheet date.
(18) Non-current assets held for sale: refers to non-current assets or assets within a disposal group held for sale that, in their current condition, are available for immediate sale by the enterprise in accordance with generally applicable terms and commercial practices, and for which completion of sale within 12 months is highly probable.
Measurement, balance sheet presentation, and disclosures for non-current assets held for sale and disposal groups held for sale shall follow the standards provided in the Statement of Financial Accounting Standards (SFAS) No. 38.
(19) Other current assets: all the current assets not falling within the above categories.
Any of the above current assets whose amount is less than 5% of the aggregate amount of current assets, except for those under cash and "other financial assets－current," may be incorporated into "other current assets."
2. Funds and long-term investments: all special funds and long-term investments for the purpose of ordinary business operations. When the amount of a financial asset accounts for 5 percent or more of funds and long-term investments, it shall be given a separate balance sheet entry.
(1) Available-for-sale financial assets－non-current: refers to the non-current portion of financial assets available for sale.
Items under this account shall be presented in detail in subsidiary ledgers, according to the type of security they represent, as stock, bond, or fund. When available-for-sale financial assets are subject to any limitation, such fact shall be noted.
Except where regulations provide otherwise, available-for-sale financial assets shall be measured at fair value. Valuation gains and losses on these assets shall be recorded under shareholder equity. "Fair value," for stocks or depository receipts listed on an exchange or traded on an over-the-counter exchange, means the closing price on the balance sheet date. For open-end funds, fair value means the net asset value of the given fund on the balance sheet date.
Holdings of unlisted or non-OTC traded stocks, where those holdings have no material influence, shall be listed as available-for-sale financial assets, to be measured at cost at period end.
(2) Held-to-maturity financial assets－non-current: financial assets paying fixed or determinable amounts at a fixed maturity date, which the company both intends and has the ability to hold to maturity.
Held-to-maturity financial assets shall be measured at amortized cost.
Investments held to maturity that mature within one year shall be reclassified as "held-to-maturity investments－maturing within one year" under "current assets". Except where there is a change in intent or ability such that measurement at amortized cost is no longer appropriate, financial assets held to maturity may not be reclassified as available-for-sale financial assets.
(3) Bond investments for which no active market exists－non-current: Investments in bonds paying fixed or determinable amounts and not quoted on an active market, where the following conditions are also met:
1. The bond investments have not been designated for measurement at fair value with recognition of changes in fair value recorded in earnings.
2. The bond investments have not been designated as available-for-sale.
Bond investments for which no active market exists shall be measured at amortized cost and classed according to liquidity as current or non-current. Those that are non-current shall be reclassified as "bond investments for which no active market exists－non current" under "funds and investments".
(4) Funds: assets provided for special purposes such as sinking funds, improvement and expansion funds, contingency reserves, and futures department funds.
A futures department fund is the working capital exclusively appropriated for the futures department by a securities firm concurrently dealing in futures business.
The resolutions and rules forming the basis for provision of a fund shall be recorded.
A welfare fund set aside in accordance with the Act Governing Employee Welfare Funds shall be classified as an expense.
(5) Long-term equity investments using the equity method: investments in specified enterprises approved by the SEC.
Valuation and presentation of long-term equity investments using the equity method shall conform with the Statement of Financial Accounting Standards No. 5.
Long-term investments shall be valued by the 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 recognized accordingly. If a certified public accountant, pursuant to Statement of Auditing Standards No. 24, determines that the investee company has a material influence on the fair presentation of the audited entity's financial statement, the investee company's 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.
If long-term equity investments valued using the equity method are pledged as collateral or subject to restrictions, such fact 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 depletable assets shall be presented separately. Any asset under "fixed assets" that accounts for 5% of the aggregate total of that category shall be given a separate balance sheet entry.
Fixed assets shall be recorded at the historical cost of acquisition or construction. 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. Idled fixed assets shall be reclassified as other assets at the lower of fair value or book value. If a fixed asset is still used after the expiration of its service life, such asset shall be depreciated to residual value. Leased assets shall be recognized and disclosed in accordance with The Statements of Financial Accounting Standards No. 2.
If a leased asset is in the nature of an operating lease, the improvement made to the leased property is called a leasehold improvement and shall be recorded as a fixed asset.
The valuation basis for a fixed asset shall be indicated. If a fixed asset has been revalued, the date of revaluation and the increased or decreased amount shall be recorded, and the acquisition cost 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 a long-term liability. The accrual of depreciation on fixed assets which have been revalued shall be based on the revalued value beginning from the day after the record date of the revaluation.
Except for land, fixed assets shall be periodically depreciated on a reasonable and systematic basis within their estimated useful life.
The accumulated depreciation or accumulated impairment of a fixed asset shall be recorded as a deduction from fixed assets.
A leasehold improvement shall be reasonably and systematically depreciated based on the lower of its estimated useful life and the term of the lease, 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 a lien, such fact 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 income-generating equipment, information equipment, transportation equipment, and other equipment acquired for operation purposes;
(4) Prepayments for buildings/land: all the prepayments for purchase of land and buildings;
(5) Prepayments for equipment: all prepayments for purchase of equipment;
(6) Leasehold improvements: improvements made to the property under the operating lease;
(7) Other fixed assets.
4. Intangible assets: non-currency assets that are nonphysical in form, but which conform to the requirements of being identifiable, under the control of the enterprise, and having future economic value. When the amount an intangible asset accounts for 5 percent or more of total intangible assets, it shall be given a separate balance sheet entry.
Recognition, measurement, and disclosures for intangible assets shall follow the standards provided in the Statement of Financial Accounting Standards (SFAS) No. 37.
During the development stage, assets shall be valued and profits and losses recognized and disclosed in accordance with the Statement of Financial Accounting Standards No. 19.
The valuation basis for intangible assets shall be noted, and those assets shall be amortized reasonably and systematically. The maximum amortization period shall not be more than 20 years, provided that this shall not apply where clear evidence exists demonstrating the validity of the intangible assets past 20 years.
The amortization method for 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 refundable deposits, long-term notes receivable, and other miscellaneous assets.
Long-term notes receivable and other long-term receivables shall be valued based at fair value according to the imputed interest rate.
A receivable account with a substantial overdue 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 and other financial assets/liquidity, the names of the accounts shall be separately recorded.
(1) Operation bond: the operation bonds set aside in accordance with Article 55 of the SEA;
(2) Settlement/clearance fund: The settlement/clearance fund paid/deposited by securities firms in accordance with Article 107 or Article 132 of the SEA;
(3) Refundable deposits: other refundable deposits;
(4) Deferred debits: long-term prepaid expenses that will bring future economic benefits and shall be subsequently amortized periodically;
(5) Accounts with branches: if a securities firm has branches, used when the head office has a debit balance on payments with its branches;
(6) Accounts with head office: used when branches of a securities firm have a debit balance on payments with the head office.
(7) Inter-departmental accounts: if a securities firm concurrently operates another line of business, or an enterprise in another line of business concurrently operates securities business, used when the securities department of such firm or enterprise has a debit balance on payments with other departments.
(8) Other assets: the assets not falling within the above categories.
6. Debit items for trade brokerage: items to be offset against each other in the trades brokered by a securities broker. When the statement is prepared, the balance after offsetting debit items against credit items shall be recorded, but the details shall be explained in the notes of the financial reports.
(1) Cash and cash equivalents－settlement amounts: All settlement amounts (excluding handling fees and taxes withheld) received from and paid to customers in handling securities brokerage business shall be recorded under this account, including deposits in a separate accounts exclusively used for settlement purposes.
(2) Receivable securities purchased for customers: receivable but unsettled securities purchased for customers;
(3) Receivable price of securities purchased for customers: the prices of securities purchased for the account of and receivable from customers but 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 amounts receivable from and payable to the stock exchange, to be used when there is debit balance.
(6) Securities purchased for customers: securities purchased for the accounts of customers.
(7) Securities sold for customers: securities sold for the accounts of customers.
(8) Receivable notes for settlement: 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 slips, transferred amounts, remittances delivered by consignors, stock exchanges, 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.
If financial assets held by a securities firm are provided as collateral for debt, they shall be categorized according to the liquidity of the collateralized debt as current or non-current assets. Assets provided as refundable deposits shall be categorized according to liquidity as current or non- current assets.
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Article 15
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Liabilities shall be appropriately categorized. Current and non-current liabilities shall be distinguished.
The total amount of liability anticipated for liquidation within 12 months after the balance sheet date and that to be liquidated more than 12 months after the balance sheet date shall be respectively disclosed in the financial statement or in the notes to the statement.
The classification of liability accounts in the balance sheet, their content, and matters to be noted are as follows:
1. Current liabilities: Liabilities incurred through the enterprise's operations for which liquidation is anticipated within one business cycle in the normal course of business; liabilities incurred primarily in relation to trading; liabilities which must be liquidated within 12 months after the balance sheet date; and liabilities whose liquidation the enterprise may not unconditionally defer more than 12 months beyond the balance sheet date.
(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 paper payable: short-term bills issued by financial institutions through consignment to acquire fund from the monetary market.
Commercial paper payable shall be valued based on present value. The discounts of commercial paper payable shall be recorded as a deduction of commercial papers payable.
For commercial paper 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) Financial liabilities－current－with changes in fair value recognized in income. Refers to financial liabilities for trading or financial liabilities to be measured at fair value, with changes in fair value to be recognized in income. Financial liabilities whose changes in fair value are recognized in income shall be classed according to liquidity as current or non-current. Those that are non-current shall be reclassified under "long-term liabilities" as "financial liabilities whose changes in fair value are recognized in income－non current".
Financial liabilities for trading. Refers to financial liabilities which at the time of initial recognition were designated as liabilities for the purpose of trading. The following financial liabilities shall be classed as financial liabilities for trading:
1. Liabilities incurred primarily for the purpose of repurchase in the near term.
2. Liabilities that are part of a group of distinct financial product portfolios under comprehensive management, where there is evidence that in the near term the group is in fact being managed for short-term profit.
3. Derivative financial product liabilities.
4. Securities covering obligations in short sales or sales or securities borrowing and lending.
5. Financial liabilities for trading whose subsequent valuations are measured at fair value, where the assessed fair value is negative.
Financial assets for trading shall be recorded under accounts such as "investments in bonds with resale agreements-short sales," "call/put warrants," "stock borrowing/lending," and "financial derivatives products."
Issuance of call/put warrants by a securities firms shall be recognized as a liability according to amounts actually received, and amounts paid in the repurchase of call put warrants previously issued shall be listed as a deduction from liabilities.
When a securities firm engages in securities borrowing and lending transactions, the amounts of sales of borrowed securities shall be recognized as liabilities. They shall be separately classed as transactions for hedging and non-hedging purposes, and recorded in detail in stock or bond sub-accounts. Amounts paid for repurchase of borrowed stocks or bonds shall be deductions from this category.
Financial liabilities whose changes in fair value are recognized in income shall be measured at fair value; valuation gains and losses on those liabilities shall be stated under current-period income. "Fair value," for stocks or depository receipts listed on the Taiwan Stock Exchange or traded over-the-counter on the GreTai, means the closing price on the balance sheet date.
(4) Preferred stock liabilities－non-current: refers to preferred stock issued in accordance with the Statement of Financial Accounting Standards No. 36 and having the nature of a financial liability.
Preferred stock liabilities shall be classified according to liquidity as current or non-current. Those that are non-current shall be reclassified as "preferred stock liabilities－non-current."
(5) Liabilities for bonds with attached repurchase agreements: the amount actually acquired in dealing with transactions with a repurchase agreement.
(6) Securities financing refundable deposits: Deposits collected from customers for securities financing by a securities firm dealing with margin loan and securities financing in securities trading.
(7) Deposits 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 loans and securities financing in securities trading from customers for securities financing.
A securities firm engaging in securities financing shall record the securities provided by customers as guarantees in memorandum entries but shall not enter such into account. Details shall be provided in the notes to the financial report.
(8) Refinancing borrowings: the refinancing amount acquired from securities finance companies by a securities firm in dealing with margin loans and securities financing in securities trading.
(9) Notes payable: all undue notes payable except those resulting from brokered securities trading.
Notes payable shall be valued at present value. However, those resulting from operating activities and which maturing within one year may be valued at the amount stated on the books.
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 refundable deposits 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 brokered securities trading.
Accounts payable shall be valued at present value. However, those resulting from operating activities and which maturing 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 profit and loss 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 financial liabilities－current: Financial liabilities not listed individually on the balance sheet shall be listed as other financial liabilities and be categorized according to liquidity as either current or non-current. Non-current liabilities shall be reclassified as "other financial liabilities－non-current" under "long-term liabilities".
Any financial liability under "current liabilities" that accounts for 5 percent of aggregate current liabilities shall be given a separate balance sheet entry.
When financial liabilities of an enterprise reach maturity within the 12 months after the balance sheet date and long-term refinancing or extension is not accomplished until after the balance sheet date, such liabilities shall still be stated as current liabilities.
(15) Liabilities directly associated with non-current assets held for sale: refers to assets within a disposal group held for sale, that in their current condition are available for immediate sale by the enterprise in accordance with generally applicable terms and commercial practices, and for which sale within 12 months is highly probable.
(16) Other current liabilities: all the current liabilities not falling within the above categories, such as corporate bonds and long-term borrowings maturing within one year.
Any of the above current liabilities whose amount does not exceed 5% of the aggregate amount of current liabilities may be incorporated into other current liabilities.
2. Long-term liabilities: liabilities which will mature in excess of 12 months after the balance sheet date, including corporate bonds payable, long-term borrowings, long-term notes payable, and long-term payables. Any financial liability under "long-term liabilities" that accounts for 5 percent of aggregate long-term liabilities shall be given a separate balance sheet entry.
(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 accounts of corporate bonds payable and shall be shown as an additions to or deductions from corporate bonds payable, amortized reasonably and systematically during the circulation period of the bonds, and recorded as an adjustment to interest expense.
(2) Long-term borrowings: the type, date of maturity, interest rate, name of collateral, book value, and other important restrictions agreed shall be disclosed.
For long-term loans that are 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.
For long-term liabilities which reach maturity within 12 months after the balance sheet date, when the original loan contract period was over 12 months and the enterprise intends to continue long-term refinancing, and when the financial statement indicates that refinancing or loan extension had been accomplished prior to the balance sheet date, the loan shall continue to be listed as a long-term liability, and the amount of the loan and the relevant facts disclosed in the notes to the financial statement.
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 of commission of such a breach within 12 months after the balance sheet date, then the loan may continue to be listed as a long-term liability.
(3) Preferred stock liabilities－non-current: Preferred stock issued in accordance with the Statement of Financial Accounting Standards No. 36 and having the nature of a financial liability.
Preferred stock liabilities shall be classified according to liquidity as current or non-current. Those that are current shall be reclassified as "preferred stock liabilities－current."
3. Other liabilities: liabilities not falling within the above categories, such as refundable deposits and other miscellaneous liabilities. When the amount of any item under other liabilities exceeds 5% of the aggregate total amount of liabilities, the account title shall be given a separate listing.
(1) Reserve for loss on defaults on contracts: the reserve allocated from the transaction amounts of consigned securities trades to cover losses caused by defaults on contracts by customers.
(2) Trading loss reserve: When profits from the operating department's sales of operating securities exceed losses, a specified percentage of the excess shall be allocated as a trading loss reserve.
(3) Refundable deposits: all other deposits made as security.
(4) Accounts with branches: if a securities firm has branches, used when the head office has a credit balance on payments with its branches;
(5) Accounts with head office: used when branches of a securities firm have a credit balance on payments with the head office.
(6) Inter-departmental accounts: if a securities firm concurrently operates another line of business, or an enterprise in another line of business concurrently operates securities business, used when the securities department of such firm or enterprise has a credit balance on payments with other departments.
(7) Other liabilities: liabilities not falling within the above categories.
4. Credit items in brokered trading: items to be offset against each other in the securities trading consigned to a securities broker. When the statement is prepared, the recorded balance shall be the balance after offsetting debit items against credit items; details, however shall be provided in the notes of the financial reports.
(1) Securities deliverable purchased for customers: any securities deliverable to principals resulting from purchase of securities for customers.
(2) Prices payable of securities sold for customers: prices payable to principals resulting from sales of securities for customers.
(3) Securities deliverable sold for customers: any securities deliverable resulting from sales of securities for customers.
(4) Settlement notes payable: all notes delivered to principals or financial institutions in settlements arising out of securities brokerage business.
(5) Settlement accounts payable: all amounts paid through transfer to principals or financial institutions in settlements arising out of securities brokerage business.
(6) Settlement proceeds: the net settlement amount of receivable and payable transactions; to be used when there is a credit balance.
(7) Margin trading: the amounts of margin trades directly settled by securities finance institutions with the stock exchange in its securities financing agency business; to be used when there is a credit balance.
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Article 16
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The classification of shareholder equity account titles in the balance sheet, their content, and matters to be noted are as follows:
1. Capital stock: the capital invested in a securities firm by shareholders and for which application for registration has been made with the competent authority in charge of corporate registration, but does not include preferred stock with the nature of a liability.
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 from shareholder equity. The number of shares shall be recorded.
2. Allocated operating capital: operating capital allocated by an enterprise in another line of business that concurrently conducts securities business, for exclusive use by its securities department.
3. Capital reserve: capital reserve refers to the equity components of financial products issued by the issuer and premiums generated through share capital transactions between the company and shareholders, typically including premiums on stock issued above par value, gains from donated capital, and other reserves generated in accordance with generally accepted accounting principles.
Capital reserves shall be listed separately according to type, with circumstances relating to any limits on their utilization to be set out in the notes to the report.
4. Retained earnings (or accumulated deficit): the equity resulting from operating activities, including legal reserves, special reserves, and unappropriated earnings (or deficit to be covered).
(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, the articles of incorporation, or resolutions of shareholders meetings.
(3) Unappropriated earnings (or deficit to be offset): the undistributed or not yet appropriated earnings (a deficit to be offset is a loss not yet covered).
Distribution of earnings or offsetting of losses shall not be recognized until approved by the shareholders meeting, but when an earnings distribution or offsetting of losses has been proposed it shall be disclosed in the notes to the financial statement for the current period.
5. Other shareholder equity: Refers to other items resulting in increases or decreases to shareholder equity, and typically includes unrealized gains or losses on financial products, unrealized losses on market value decline of long-term equity investments, net losses not recognized as retirement fund costs, translation adjustments, treasury stock, equity directly associated with non-current assets classified as held for sale, and other adjustment items.
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Article 17
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The account structure of income statements, their contents, and items to be noted are as follows:
1. Revenues:
(1) Brokerage handling fee revenue: handling fee revenue derived from brokered trading and securities financing business. This account shall be further subdivided as follows:
1) Handling fee revenues from brokered trading (applicable to brokers and OTC trading).
2) Handling fees from securities financing (applicable to securities financing).
3) Emerging stock handling fee revenues.
(2) Revenues from underwriting business: the revenue derived from underwriting of securities. This account shall be further subdivided as follows:
1) Revenues from underwriting securities on a firm commitment basis.
2) Handling fee revenues from underwriting securities on best-efforts basis.
3) Processing fee revenues from underwriting operations.
4) Revenues from underwriting consultation and other revenue.
(3) Profit from issuance of call (put) warrants: profits derived from a securities firm's issuance of call (put) warrants, including gains on changes in fair value of call (put) warrant liabilities, gains on exercise of call (put) warrants before maturity, gains on changes in fair value for repo of call (put) warrants, and gains on expired call (put) warrants.
(4) Gains on sale of operating securities: includes all gains on sales of operating securities by the dealing and underwriting departments. Amounts in this account shall be separately recorded by type and whether trading took place through the centralized securities exchange market or the securities firm's place of business, and shall be entered as net of income from sale of the securities after deduction of their cost.
(5) Valuation gains on operating securities: Unrealized gains on operating securities measured at fair value. Amounts in this account shall be separately recorded according to operational category.
(6) Gains on covering of borrowed securities and bonds with resale agreements: Profits generated through the securities firm's securities borrowing transactions or outright sale of bonds with resale agreements due to a decline in the market price of the given security when the trade is covered at maturity. This item shall be listed as net after write-off of relevant items.
(7) Valuation gains on borrowed securities and bonds with resale agreements: Profits generated through valuation-related items connected with the securities firm's transactions in borrowed securities or outright sales of bonds with resale agreements.
(8) Revenue from providing agency service for stock affairs: revenue from providing agency service for stock affairs.
(9) Interest revenue: interest revenue from margin purchase and short sales, bond trades, and other business-related activities.
(10) Futures commission revenue: commission revenue from acting as a futures introducing broker, engaging in futures introducing broker business, or collected from the mandating futures commission merchant.
(11) Revenue from trust business: revenue derived from conducting trust business.
(12) Revenue from derivative financial products: Revenue account generated by a securities firm's trading in foreign or domestic derivative financial products in operations or hedging transactions.
(13) Dividend revenue: dividend and bonus revenue from stocks held by the company.
(14) Other operating revenue: other operating revenue not falling under the above categories.
(15) Non-operating revenue and profits: non-operating revenue and revenue not falling within the above categories.
2. Expenses:
(1) Brokerage handling fee expenses: the handling fees payable by a securities firm to the stock exchange or the OTC exchange in trading securities through consignment. Items in this account shall be listed separately according to whether they were transacted through the centralized securities market or the securities firm's place of business.
(2) Dealing handling fee expenses: the handling fees payable by a securities dealer to the stock exchange or the OTC exchange. Items in this account shall be listed separately according to whether they were transacted through the centralized securities market or the securities firm's place of business.
(3) Refinancing processing fee expenses: the securities firm's expenses arising from processing fees paid to securities finance enterprises for refinancing in connection with margin loans borrowing of securities.
(4) Underwriting operation processing fee expenses: expenses arising from processing fees paid by an underwriter in underwriting operations.
(5) Expenses arising out of issuance of call (put) warrants: the expenses payable by a securities firm for issuance of call (put) warrants.
(6) Loss on issuance of call (put) warrants: the losses incurred by a securities firm in issuing call (put) warrants, including loss due to changes in the fair value of call (put) warrant liabilities, and losses due to changes in the fair value of call (put) warrant repurchase.
(7) Losses on sale of operating securities: Includes the price differential of all operating securities sold by the dealing and underwriting departments when the security is sold at a price below cost. Amounts in this account shall be separately recorded by type and whether the transaction took place through the centralized securities exchange market or the securities firm's place of business, and shall be entered as net of income from sale of the securities after deduction of their cost.
(8) Losses on valuation of operating securities: Unrealized losses on operating securities measured at fair value. Amounts in this account shall be separately recorded according to operational category.
(9) Losses on covering of borrowed securities and bonds with resale agreements: Losses arising out of the securities firm's securities borrowing transactions or outright sales of bonds with resale agreements due to a decline in the market price of the given security when the trade is covered at maturity. This item shall be listed as net after write-off of relevant items.
(10) Valuation losses on borrowed securities and bonds with resale agreements: Valuation losses due to valuation-related items connected with the securities firm's transactions in borrowed securities or outright sale of bonds with resale agreements.
(11) Interest expenses: interest expenses arising out of margin loans and securities borrowing, bond trades, and other business-related activities.
(12) Securities commission expenses: commissions paid by mandating securities firms to securities introducing brokers.
(13) Trust business expenses: expenses arising from the conduct of trust business.
(14) Losses on derivative financial products: Losses arising out of a securities firm's trading in foreign or domestic derivative financial products in operations or hedging transactions.
(15) Operating expenses: includes all of the company's required operating expenses, which shall be given separate, detailed entries as needed, and includes expenses such as salaries, meal expenses, stationery/printing, communications, entertainment, utilities, insurance premiums, taxes, depreciation, amortization, rent, repair/maintenance, advertising, commissions, computer information, donations, memberships, bad debts, loss on defaults on contracts, trading losses, losses on accounting errors, penalties, employees' welfare, travel expenses, transportation expenses, overtime pay, miscellaneous purchases, retirement pensions, employee training expenses, service expenses, newspapers and magazines, depository service expenses, stock borrowing fees, emerging stock handling fees, securities investor protection fees, miscellaneous expenses shall be separately recorded in detail according to actual needs.
(16) Non-operating expenses and losses: all financial expenditures incurred through non-operating activities, as well as losses on disposal of fixed assets, impairment losses, losses on disposal of investments, valuation losses on non-operating financial products, and dividends on preferred stock having the nature of a financial liability.
3. Gains and losses on units in continuing operation: The net amount of the preceding two items shall be indicated as pre-tax income, income tax expenses (benefits), and after-tax income.
4. Gains and losses on discontinued units: gains or losses generated by previous disposal of units or by organizational units of the enterprise classified as held for sale, including operating gains or losses on discontinued units, gains and losses on disposal of assets of discontinued units, and gains and losses measured at net fair value.
Presentation of and disclosures for gains and losses on discontinued units shall follow the standards provided in the Statement of Financial Accounting Standards (SFAS) No. 38.
5. Extraordinary income: income items distinguished by their unusual nature and by the infrequency of their occurrence, such as losses arising when newly promulgated laws or regulations prohibit operation or losses due to seizure by a foreign government.
Extraordinary income shall be recorded separately and shall not be amortized on a yearly basis.
6. The amount of cumulative effect resulting from a change in accounting principles shall be recorded independently following extraordinary income.
7. Current-period net gains (or net losses): The earnings (or losses) of the current accounting period are the aggregate amount of the preceding three items.
8. Earnings per share shall be calculated and presented in accordance with The Statements of Financial Accounting Standards No. 24.
9. Income tax shall be amortized and presented in accordance with the Statements of Financial Accounting Standards No. 22.
10. Where two or more types of business are operated, income statements based on the type of business shall be prepared.
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Article 34
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These Regulations shall enter into force from 1 January 2006.
Amendments to these Regulations shall enter into force from the date of issuance, unless the enforcement date is otherwise specified.
The amendments of 26 March 2007 shall enter into force from 1 January 2007, with the exception of Form 6 under Article 22, paragraph 1, subparagraph 6, which shall enter into force from 1 January 2008.
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