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Article 6
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The following shall apply when an issuer makes an accounting change:
- Change in accounting policy:
- When an issuer changes an accounting policy voluntarily in a new financial year in order to produce financial reports that provide reliable and more relevant information about the effects of transactions or other events or conditions on the issuer's financial position, financial performance, or cash flows, it shall request a certified public accountant (CPA) to provide an item-by-item analysis and review opinion on the reasonableness of the nature of the change in accounting policy, the reasons why applying the new accounting policy provides reliable and more relevant information, each line item affected and the estimated effect for the financial year preceding the earliest financial year affected by retrospective application of the new accounting policy, and the actual effect on the opening balance of retained earnings for the immediately preceding financial year. These shall be submitted as a proposal for adoption by resolution of the board of directors and for recognition by the supervisors, after which they shall be publicly disclosed and filed.
- If, for the voluntary change in accounting policy in the new financial year, it is impracticable to determine either the period-specific effects or the cumulative effect of the change, as described in paragraph 23 of IAS 8, the issuer shall calculate the effects in accordance with paragraph 24 of IAS 8 and the preceding item above, and shall request a CPA to provide an item-by-item analysis and review opinion on the reasonableness of the reasons why retrospective application is impracticable and how and from when the change in accounting policy has been applied, and also provide an opinion on the impact on the audit opinion for the financial year preceding the change in accounting policy. The issuer shall then make a public disclosure and filing according to the above procedure.
- Unless it is impracticable to determine the effects as described in the preceding item, then within 2 months after the beginning of the financial year in which the new accounting policy is adopted, the issuer shall calculate the line items affected and the actual effect for the financial year preceding the earliest financial year affected by retrospective application of the new accounting policy and the actual effect on the opening balance of retained earnings for the immediately preceding financial year, and shall submit those for adoption by the board of directors and for recognition by the supervisors, after which they shall be publicly disclosed and filed, and shall also be submitted to the shareholders meeting for the financial year of the change. If the difference between the actual effect of the change in accounting policy and the effect originally presented in public disclosure and filing is NT$10 million or more, and is also 1 percent or more of net operating revenues for the immediately preceding financial year, or 5 percent or more of paid-in capital, the issuer shall analyze the reasons for the difference and request a CPA to provide an opinion on its reasonableness. The analysis and the CPA's opinion shall also be publicly disclosed and filed as described above.
- If the shares issued by an issuer have no par value or a par value other than NT$10 per share, the threshold of 5 percent of paid-in capital as set out in the preceding item shall be replaced by 2.5 percent of equity attributable to owners of the parent as stated in the balance sheet.
- Any matter among accounting estimates in relation to a change in the useful life or the depreciation or depletion method of depreciable or depletable assets, a change in the amortization period or amortization method of intangible assets, or a change in the residual value of any such assets shall also be governed by the applicable provisions of item 1 of the preceding subparagraph.
If an issuer changes an accounting policy or accounting estimate after the beginning of a financial year, then when applying the provisions of the preceding paragraph, it shall publicly disclose and file information on the prior periods affected by retrospective application of the new accounting policy, the line items affected and the actual effect for the immediately preceding financial year, and the actual effect on the opening balance of retained earnings for the immediately preceding financial year. The issuer shall also provide additional information on the reasonableness and necessity for the change in accounting policy or accounting estimate after the beginning of the financial year, and shall prior to public disclosure and filing request a CPA to provide an item-by-item analysis and review opinion on the reasonableness of those and other relevant matters. These shall then be publicly disclosed and filed after being submitted as a proposal for adoption by resolution of the board of directors and recognition by the supervisors, and shall also be submitted to the next following shareholders meeting.
The expression "public disclosure and filing" or "publicly disclose and file" as used in this article means entering the information into the website specified by the FSC for the submission of electronic filings.
If an issuer has established the position of independent director in accordance with the Act, then when it submits a proposal for resolution by the board of directors pursuant to paragraph 1 or 2, adequate consideration shall be given to each independent director's opinion; if an independent director has an objection or reservation, the objection or reservation shall be documented in the minutes of the meeting of the board of directors.
If an issuer has established an audit committee in accordance with the Act, the matters for which paragraphs 1 and 2 requires recognition by the supervisors shall be subject to the consent of one-half or more of the entire membership of the audit committee, and shall also be submitted to the board of directors for resolution.
The expression "entire membership of the audit committee " as used in the preceding paragraph shall be calculated according to the number of members then actually holding that position.
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Article 9
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Assets shall be properly classified. Current and non-current assets shall be distinguished, except when a presentation of all assets in order of liquidity provides information that is reliable and more relevant.
For each asset line item, the total amount expected to be recovered within 12 months after the balance sheet date and the total amount expected to be recovered more than 12 months after the balance sheet date shall be separately presented in the financial reports or disclosed in the notes.
As a minimum, the balance sheet shall include the following asset line items:
- Current assets: An entity shall classify an asset as current when it expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; when it holds the asset primarily for the purpose of trading; when it expects to realize the asset within 12 months after the balance sheet date; or when the asset is cash or a cash equivalent, unless the asset is to be used for an exchange or to settle a liability, or otherwise remains restricted, at more than 12 months after the balance sheet date.
- Cash and cash equivalents: Cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
An issuer shall disclose the components of cash and cash equivalents and the policy which it adopts in determining the composition of cash and cash equivalents.
- Financial assets at fair value through profit or loss - current: Financial assets that meet any of the following conditions:
- Financial assets held for trading.
- Financial assets that, except for those designated as hedged items under hedge accounting requirements, are designated upon initial recognition as at fair value through profit or loss.
A financial instrument shall be classified as a financial asset held for trading if:
- It is acquired principally for the purpose of sale in the near term.
- It is, upon initial recognition, a part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of short-term profit-taking.
- It is a derivative financial asset, except for a derivative financial asset that is a financial guarantee contract or a designated and effective hedging instrument.
Financial assets at fair value through profit or loss shall be measured at fair value.
- Available-for-sale financial assets - current: Financial assets that are not derivative financial assets and that meet any of the following conditions:
- Financial assets that are designated as available-for-sale.
- Financial assets that are not:
- Financial assets measured at fair value through profit or loss.
- Held-to-maturity financial assets.
- Financial assets measured at cost.
- Bond investments for which no active market exists.
- Receivables.
Available-for-sale financial assets shall be measured at fair value.
- Derivative financial assets for hedging - current: Any derivative financial asset that is a designated and effective hedging instrument under hedge accounting requirements. Any such asset shall be measured at fair value.
- Financial assets measured at cost - current: Financial assets that meet all of the following conditions:
- An investment in equity instruments that do not have a quoted price in an active market, or a derivative instrument that is linked to such equity instruments that do not have a quoted price in an active market and that shall settled by delivery of such equity instruments.
- The fair value cannot be reliably measured.
- Bond investments for which no active market exists - current: Bond investments that do not have a quoted price in an active market and with fixed or determinable payments, and that meet all of the following conditions:
- Not classified as at fair value through profit or loss.
- Not designated as available-for-sale.
- There are no other reasons except for credit worsening that are likely to cause the holder to not be able to recover almost all of the original investments.
Bond investments for which no active market exists shall be measured at amortized cost.
- Notes receivable: All notes receivable.
Notes receivable shall be measured at amortized cost using the effective interest method. However, short-term notes receivable with no stated interest rate may be measured at the original invoice amount if the effect of discounting is immaterial.
Discounted or transferred notes receivable shall be deducted and the deduction shall be noted.
Notes receivable arising from operating activities shall be presented separately from other notes receivable arising from non-operating activities.
Notes receivable from related parties in significant amounts shall be presented separately.
Notes provided as security shall be indicated in the notes to the financial reports.
At each balance sheet date an assessment shall be made of whether there is any uncollectible amount from notes receivable and an appropriate allowance for doubtful debts shall be made.
- Trade receivables: Claims resulting from sale of goods or services.
Trade receivables shall be measured at amortized cost using the effective interest method. However, short-term trade receivables with no stated interest rate may be measured at the original invoice amount if the effect of discounting is immaterial.
Trade receivables from related parties in significant amounts shall be presented separately.
At each balance sheet date an assessment shall be made of whether there is any uncollectible amount from trade receivables and an appropriate allowance for doubtful debts shall be made.
Unrealized interest revenue on installment sales shall be presented as a deduction from trade receivables. For trade receivables that will be recovered after more than 1 year, the amount expected to be recovered in each financial year shall be disclosed in the notes to the financial reports.
Pledged trade receivables shall be disclosed in the notes to the financial reports.
- Other receivables: Receivables other than notes receivable and trade receivables.
At each balance sheet date an assessment shall be made of whether there is any unrecoverable amount from other receivables and an appropriate allowance for doubtful debts shall be made.
Allowances for doubtful debts shall be presented respectively as deductions from notes receivable, trade receivables, and other receivables. If such items are further subclassified, the allowances for doubtful debts shall also be presented respectively in the same manner.
- Current tax assets: The portion of the tax amount already paid in respect of current and prior periods that exceeds the amount due for those periods.
- Inventories: Inventories are assets:
- held for sale in the ordinary course of business;
- in the process of production for sale in the ordinary course of business; or
- in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Inventories shall be accounted for in accordance with IAS 2.
Inventories shall be measured at the lower of cost and net realizable value. If the cost of inventories is higher than net realizable value, inventories shall be written down below cost to net realizable value, and the amount of the write-down shall be recognized as cost of sales in the period the write-down occurs.
Inventories provided as a pledge or security or used under the surveillance of creditors shall be noted.
- Prepayments: Prepaid expenses and prepayments for purchase of materials.
- Non-current assets held for sale: Any non-current asset, or asset included in a disposal group held for sale, that is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups, and whose sale must be highly probable.
The measurement, presentation, and disclosure of non-current assets held for sale and disposal groups held for sale shall be made in accordance with IFRS 5.
- Other current assets: Current assets not attributable to any of the classes above.
- Non-current assets: Tangible, intangible and financial assets of a long-term nature, other than assets classified as current.
- Held-to-maturity financial assets - current: A non-derivative financial asset with fixed or determinable payments and fixed maturity, and which the enterprise has the positive intention and ability to hold to maturity, excluding the following items:
- It is designated, upon initial recognition, as at fair value through profit or loss.
- It is designated as available-for-sale.
- It meets the definition of loans and receivables.
Held-to-maturity financial assets shall be measured at amortized cost using the effective interest method.
- Investments accounted for using the equity method: An investment in an associate, or an interest in a jointly controlled entity not recognized by the venturer using proportionate consolidation.
The valuation and presentation of investments accounted for using the equity method shall be made in accordance with IAS 28 and IAS 31.
When investment gain or loss is recognized, if the financial reports prepared by an associate do not conform to these Regulations, those financial reports shall first be adjusted to achieve conformance before they may be used to recognize investment gain or loss. The financial reports of an associate used in applying the equity method shall be prepared as of the same date as that of the investor, and if prepared as of a different date, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the investor's financial reports. In no case shall there be more than 3 months difference between the balance sheet date of the associate and that of the investor. If a CPA determines, pursuant to Statement of Auditing Standards No. 24, that an associate has a material effect on the fair presentation of the financial reports of an investor, the financial reports of the associate shall be audited by a CPA in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and generally accepted auditing standards.
If an investment accounted for using the equity method is pledged as collateral or otherwise subject to any restriction or limitation, that fact shall be noted.
- Property, plant and equipment: Tangible asset items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and that are expected to be used during more than 1 financial year.
Property, plant and equipment shall be subsequently measured using the cost model and accounted for in accordance with IAS 16.
Each component of property, plant and equipment that is significant shall be depreciated separately.
When items of property, plant and equipment have different useful lives, or provide economic benefits in different ways, or are subject to different depreciation methods or depreciation rates, the notes to the financial reports shall show each class of their material components.
- Investment property: Property held, by the owner or by the lessee under a finance lease, to earn rentals, or for capital appreciation, or both.
Investment property shall be accounted for in accordance with IAS 40, and investment property that is subsequently measured using the fair value model shall be subject to the following provisions:
- The income approach shall be used for the valuation of fair value. If, however, undeveloped land cannot be valuated using the income approach, the land development analysis approach shall be adopted instead.
- When the income approach is used, it shall be subject to the following provisions:
- Cash flow: Cash flow shall be valuated on the basis of existing lease contracts, rent at local market rates, or current market rents for similar comparable properties in the same location and condition, and overvalued and undervalued comparable properties shall be excluded. If there is a period-end value, the discounted present period-end value may be added.
- Analysis period: When there is no specified period for the income, the analysis period in principle shall not be longer than 10 years; when there is a specified period for the income, the income shall be estimated for the remainder of the specified period.
- Discount rate: The discount rate shall be determined using the risk premium approach only, with the calculation based on a certain interest rate, plus the estimate for the individual characteristics of the investment property. The language "based on a certain interest rate" means the interest rate may not be lower than the floating interest rate on a 2-year time deposit of a small amount, as posted by the Chunghwa Post Co., Ltd., plus 0.75 percentage points.
- Either internal appraisal or outsourced appraisal may be adopted for the valuation of fair value. If, however, the amount of any single item of investment property held reaches either 20 percent or more of paid-in capital or NT$300 million or more, the appraisal report issued by a professional appraiser shall be obtained to measure the fair value of that item of investment property. Furthermore, if the amount of any single item of investment property reaches 10 percent or more of total assets, one of the following measures shall be taken:
- Appraisal reports issued by professional appraisers of two or more appraising offices shall be obtained.
- An appraisal report issued by two appraisers of a joint appraisers office shall be obtained.
- At each balance sheet date the issuer shall review and assess the validity of the fair value. If outsourced appraisal is adopted for the valuation of fair value, the issuer shall consult an appraiser to review the original appraisal report and determine whether it is necessary to reissue an appraisal report. Additionally, the issuer shall obtain an appraisal report issued by a professional appraiser at least once every year.
Disclosure of investment property that is subsequently measured using the fair value model, in addition to being handled in accordance with IAS 40, shall include the following information in the notes to the financial reports:
- Important terms of any existing lease contracts with respect to the subject property, rent at local market rates, and assessed current market rents for similar comparable properties in the same location and condition.
- The present condition of the investment property, the amounts of, and changes in, the income generated in the past by the investment property, and the basis and reasons for the current projection of reasonable net income with respect to the investment property.
- The method for determining the changes in the inflows and outflows of cash for each period in the future, and the basis for the determination.
- The basis and reasons for adjusting and determining the capitalization rate or discount rate of the income.
- Explanation of the appropriateness and reasonableness of the process for income value projection, parameters used in the calculation, and appraisal result.
- When land development analysis approach is adopted, disclose the reason for the adoption, the key points of the land development analysis program, the projection of overall economic conditions, the expected total sales price, the rate of return, and the overall capital interest rate. If the above information substantially differs from that for prior periods, the issuer shall give the reason for the difference and the effect on the fair value.
- If outsourced appraisal is adopted, additionally disclose the information on the appraising office(s), name(s) of the appraiser(s), and appraisal date.
- The valuation results of fair value obtained through outsourced appraisal and internal appraisal shall be disclosed separately.
When outsourced appraisal is adopted for the valuation of fair value, the appraisal shall be made by a certified ROC real estate appraiser who satisfies the following conditions, and shall be subject to the Real Estate Appraiser Act and the Regulations Governing Real Estate Appraisals with reference to the relevant Statements of Valuation Standards issued by the Accounting Research and Development Foundation (ARDF):
- The appraiser must have at least 4 years of experience practicing in the field of real estate appraisal. An appraiser who graduated from an academic department equivalent to one devoted to real estate appraisal and obtained the graduation certificate must have at least 3 years of experience practicing in the field.
- The appraiser has never received a fixed prison sentence or a more severe punishment from a court due to a crime involving fraud, breach of fiduciary duty, embezzlement, or forgery in the field of real estate appraisal business.
- The appraiser does not have a record of poor credit in connection with negotiable instruments or with debt during the most recent 3 years nor have a record of being subject to disciplinary action by a real estate appraiser disciplinary board during the most recent 5 years.
- The appraiser may not have a related party or substantive related party relationship with the issuer.
When internal appraisal is adopted for the valuation of fair value, the appraisal shall be made with reference to the relevant Statements of Valuation Standards issued by the ARDF, in addition to as provided in these Regulations, and shall be subject to the following provisions:
- Establish the procedures for real estate appraisal and include them in the internal control system. The procedures shall encompass the professional qualifications and conditions to be met by the appraising personnel, acquisition and analysis of information, appraising of the value of the subject property, preparation of appraisal reports, and preservation of relevant documents.
- An appraisal report shall present the information on which the appraisal is based and the reasons for the conclusion reached, and shall be signed by the personnel in charge. In addition, the appraisal report shall include at least the following: basic data on the subject property, effective date of the appraisal, transactions of comparable properties located in the area of the subject property, assumptions and restrictive conditions of the appraisal, method and implementation procedures of the appraisal, conclusion of the appraisal, and reporting date of the appraisal.
A subsidiary of the issuer that holds investment property shall also be subject to the provisions of this item.
If the shares issued by an issuer have no par value or a par value other than NT$10 per share, the valuation threshold of 20 percent of paid-in capital applicable to any single item of investment property as set out in this item shall be replaced by 10 percent of equity attributable to owners of the parent as stated in the balance sheet.
- Intangible assets: An identifiable non-monetary asset without physical substance that meets the definition of identifiability, control by an entity, and existence of future economic benefits.
Intangible assets shall be subsequently measured using the cost model and accounted for in accordance with IAS 38.
- Biological assets: A living animal or plant related to agricultural activity. Biological assets shall be accounted for in accordance with IAS 41.
- Deferred tax assets: The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carryforward of unused tax losses, and the carryforward of unused tax credits.
- Other non-current assets: Non-current assets not attributable to any of the classes above.
Exploration and evaluation assets shall be subsequently measured using the cost model and accounted for in accordance with IFRS 6.
The items described in the preceding paragraph in relation to financial assets at fair value through profit or loss, derivative financial assets for hedging, available-for-sale financial assets, financial assets measured at cost, bond investment for which no active market exists, held-to-maturity financial assets, notes receivable, trade receivables, and other receivables shall be accounted for in accordance with IAS 39.
An issuer shall assess at each balance sheet date whether there is any objective evidence of impairment for the items described in paragraph 3 in relation to available-for-sale financial assets, financial assets measured at cost, bond investment for which no active market exists, held-to-maturity financial assets, notes receivable, trade receivables, other receivables, investments accounted for using the equity method, property, plant and equipment, investment property, intangible assets, and exploration and evaluation assets. If any such evidence exists, the issuer shall recognize the amount of any impairment loss in accordance with IAS 39 and IAS 36.
The items described in paragraph 3 in relation to financial assets at fair value through profit or loss, derivative financial assets for hedging, available-for-sale financial assets, financial assets measured at cost, bond investment for which no active market exists, held-to-maturity financial assets, and biological assets shall be distinguished as current and non-current based on liquidity.
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Article 17
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An issuer shall separately disclose in the notes to the financial reports information on the following events between the issuer and its subsidiaries during the current period, and on parent-subsidiary transactions:
- Information on significant transactions:
- Lending funds to others.
- Providing endorsements or guarantees for others.
- Holding of securities at the end of the period (excluding the portion held due to investment in a subsidiary or an associate, and the portion held due to an interest in a jointly controlled entity).
- Aggregate purchases or sales of the same securities reaching NT$300 million or 20 percent of paid-in capital or more.
- Acquisition of real estate reaching NT$300 million or 20 percent of paid-in capital or more.
- Disposal of real estate reaching NT$300 million or 20 percent of paid-in capital or more.
- Purchases or sales of goods from or to related parties reaching NT$100 million or 20 percent of paid-in capital or more.
- Accounts receivable from related parties reaching NT$100 million or 20 percent of paid-in capital or more.
- Trading in derivative instruments.
- Others: The business relationship between the parent and the subsidiaries and between each subsidiary, and the circumstances and amounts of any significant transactions between them.
If the shares issued by an issuer have no par value or a par value other than NT$10 per share, the threshold transaction amount of 20 percent of paid-in capital as set out in items 4 to 8 of this subparagraph shall be replaced by 10 percent of equity attributable to owners of the parent as stated in the balance sheet.
- Information on investees: If the issuer directly or indirectly exercises significant influence, control, or joint control over an investee company not in the Mainland Area, it shall disclose information on the investee company, showing the name, location, principal business activities, original investment amount, shareholding at the end of the period, profit or loss for the period, and recognized investment gain or loss.
The issuer is exempted from the requirements of items (1) to (4) of the preceding subparagraph when the investee company it controls directly or indirectly is a financial, insurance, or securities enterprise.
- Information on investments in the Mainland Area:
- If the issuer directly or indirectly exercises significant influence, control, or joint control over an investee company in the Mainland Area, it shall disclose information on the investee company, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, shareholding ratio, profit or loss for the period and recognized investment gain or loss, carrying amount of the investment at the end of the period, repatriated investment gains, and limit on the amount of investment in the Mainland Area.
- Any of the following significant transactions with investee companies in the Mainland Area, either directly or indirectly through a third area, and their prices, payment terms, and unrealized gains or losses:
- The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period.
- The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period.
- The amount of property transactions and the amount of the resultant gains or losses.
- The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes.
- The highest balance, the end of period balance, the interest rate range, and total current period interest with respect to financing of funds.
- Other transactions that have a material effect on the profit or loss for the period or on the financial position, such as the rendering or receiving of services.
The amounts or balances of the transactions referred to in (a) through (f) of this item shall be presented separately if they reach 10 percent or more of the issuer's total transaction amount or balance of that respective category, but otherwise they may be presented in the aggregate.
- When the issuer recognizes investment gain or loss using the equity method or prepares consolidated financial statements with respect to a Mainland Area investee company, the recognition or preparation shall be made based on the investee company's financial reports audited and certified by an international accounting firm having a business cooperation relationship with an R.O.C. accounting firm, provided that when preparing interim consolidated financial reports, the recognition or preparation may be made based on the investee company's financial reports reviewed by an international accounting firm having a business cooperation relationship with an R.O.C. accounting firm.
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