convergence with ifrs: the experience of chinese taipei · fsc p 13 convergence with ifrs ifrs...

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Convergence with IFRS: The Experience of Chinese Taipei

Dr. Rebecca Chung-Fern WuCommissioner

Financial Supervisory Commission, Chinese Taipei

OECD-ADBI 8th Round Table on Capital Market Reform in AsiaOctober 11-12, 2006, Tokyo

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Capital Market HighlightConvergence with IFRSImplementation of SFAS 34The Effects of SFAS 34Future Direction

Content

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Capital Market Highlight

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One of the East Asia’s Economies

Geographic center

Comprehensive industrial infrastructure

Human resources

Research and development capabilities


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Financial Supervisory CommissionEstablished on July 1, 2004One single vertical integrated regulator:Insurance, Securities and Banking

Organization StructureOf nine commissioners, one appointed as Chairperson and two as Vice ChairpersonsBanking Bureau, Securities & Futures Bureau, Insurance Bureau and Financial Examination Bureau


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Self Regulatory OrganizationTaiwan Stock Exchange CorporationGre Tai Securities MarketTaiwan Futures ExchangeTaiwan Depository & Clearing CorporationSecurities & Futures InstituteTaiwan Securities AssociationSecurities Investment Trust & Consulting AssociationChinese National Futures AssociationSecurities & Futures Investors Protection CenterAccounting Research and Development Foundation

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Stock MarketThe market capitalization amounted toUSD 0.53 trillion with a total of 1221 listed

companies at the end of July 2006The trading value summed total USD 0.52 trillion from Jan. to July 2006Turnover rate 147.3% No.3 in Asia No.8 globally (from Jan. 2006 to July 2006)


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Futures MarketRapid growth of trading volume

Reached 92 million contracts in 2005Options accounted for 89%

Ranked 18th on trading volumeAwarded “Derivatives Exchange of the Year 2004” by Asia Risk Magazine in Oct. 2004TAIEX Options ranked 3rd by Trade Data Global Service in 2005


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Bond MarketBy the end of July 2006, the turnover reached USD 3.2 trillionOutright trades: USD 1.64 trillion98% Government bond Repo / reverse repo trade counts USD 1.56 trillionThe number of primary dealers is 106, including banks, securities firms and bills finance companies


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Securitization MarketBy the end of July 2006, the issuing volume reached US$12.6billion, including financial securitization amounting to US$10.79billion and real estate securitization amounting to US$1.81billion

The main issue types are ABCP, CBO, and REITs, which accounted for 37%, 24% and 10% of the total issuing volume respectively


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Convergence with IFRS

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Converging local accounting standards with international accounting standards is one of the FSC’s major policies

the Accounting Research and Development Foundation (ARDF) has recently issued and revised many local accounting standards

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IFRS requires the underpinnings of education, application, interpretation, and regulation to support correct and consistent use of international standardsIOSCO has embarked on a project to facilitate worldwide communication among securities regulatorsThe production of financial information that supports investor decision making and investor confidence relies on：

High quality standards (e.g. clarity)Effective application and enforcement of the standardsSupporting infrastructure

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Accounting Standards Recently Issued

2006.1.1.2003.12.25/2005.9.22

Financial Instruments: Recognition and Measurement

34

2007.1.1.2006.7.20Intangible Assets 37

2006.1.1.2005.6.23Financial Instruments: Disclosure and Presentation

36

2005.1.1.(early adoption encouraged)

2004.7.1/2006.7.20

Impairment of Assets 35

Effective DateIssued Date/Revised Date

StatementSFAS No.


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Implementation of SFAS 34

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Companies

CPAs Investors

FinancialInstitutions

Authorities

SFAS 34

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Establishment of Task ForceThe FSC established a Task Force(September 2004)

Task Force member: the related authorities, experts, scholars and industrial representativesTask Force conducted 58 discussion meetings and 15 large training seminars(by the end of December 2005)

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Achievement by Task ForceSurvey for the implementation of fair value accountingPractice guidance for fair value accountingFinancial accounting standards- 9 Financial Accounting Standards revised, e.g.

accounting for long-term equity investments and the effects of changes in foreign exchange rates - 20 interpretations and 227 FAQs issued

Auditing standard- No. 42 “Auditing Fair Value Measurements and

Disclosures” issued

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Information disclosure - Financial reporting format revised

Supervision- The restriction on earning distribution revised- The capital adequacy for financial institutions

revised

Promulgation- Training seminars and courses- Specific website for open discussion

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The Effects of SFAS 34

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Companies Behavior ChangeHave financial instruments policies adjusted?- Yes, and the effects are material. (0.52%)- Yes, but the effects are immaterial. (13.14%)- No. (86.34%)

Have companies stopped engaging in financial derivatives?- Yes. (5.07%)- No. (54.81%)- N/A, which have never engaged in derivatives. (40.12%)

ImplicationMost companies' financial instruments strategies have not been changed

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The Adoption of Hedge AccountingHad Financial hedge activities engaged during the first half of 2006?- Yes. (38.83%)- No. (61.17%)

Had hedge accounting adopted during the first half of 2006?- Yes. (7.82%)- No. (92.18%)

ImplicationCompanies engaging in financial hedge activities had rarely adopted hedge accounting due to its strict definition

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The Effects on Financial StatementsIncome Statement (the first half of 2006)- Accumulated effects of accounting change:

NT $11.48 billion (US $348 million)- Gains/Losses on Valuation of Financial Assets (Liabilities):

NT $2.68 billion (US $81 million)

Balance Sheet (June 30, 2006)- Unrealized Gains/Losses of Financial Assets (Liabilities):

NT $154.7 billion (US $4,688 million)

ImplicationIn general, there were positive effects on financial statements, possibly due to the performance offinancial markets.

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The Effects of Derivatives MarketThe change in the notional amounts outstanding of derivatives- June 30, 2004: NT $20,343 billion (US $616 million)- June 30, 2005: NT $25,644 billion (US $777 million)- June 30, 2006: NT $36,349 billion (US $1,101million)

(Source: Central Bank of China statistics)

ImplicationThe derivatives markets is not negatively affected

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Future Direction

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Accounting for Employees Bonus Amended

Restricted by old Business Accounting Law, employee bonus was stated as earning distribution instead of expenseBusiness Accounting Law is amended in May 2006

Employee bonus will be recognized as expense and will be measured by fair valueTo mitigate the negative impact, the FSC has established a Task Force and has proposed related rules.

Future Direction

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Future Direction

The FSC will continue to make effort in converging with IFRS2006 International Conference on Accounting Standards held in Taipei on October 4, 2006

The FSC will continue to pay attention to the influence of implementation of accounting standard recently issued, and periodically review the related regulations and rules

convergence with ifrs: the experience of chinese taipei · fsc p 13 convergence with ifrs ifrs...

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