The Financial Supervisory Commission (hereinafter, the “FSC”) issued the Jin-Guan-Zheng-Shen-1050050021 Circular of December 19, 2016 to promulgate the latest version of the Standard for the Preparation of Financial Reports by Securities Issuers (hereinafter, the “Standard”), which will go into effect in fiscal year 2017. The amendments are highlighted below:
1. Manners of revenue recognition in the statement of comprehensive income
Article 12 of the Standard as amended provides that it is only when an enterprise assesses and assumes major risks and rewards assumed for sales of goods or provision of services according to the substantive economic aspects of transactions that the revenue should be recognized based on the total amount. Conversely, the revenue should be recognized based on the net amount.
2. Independent recognition of amounts reaching threshold attributable to related parties with an expanded scope of substantive related parties
Article 18, Paragraph 1 of the Standard as amended specifically requires that an enterprise shall list the names and relations of related parties, and that if the transaction amount or balance with a single related party accounts for over 10% of the issuer’s total transaction amount or balance of each item, independent listing based on the name of the related party should be provided. To determine if a trading counterparty is a related party, Paragraph 2 of the same article includes “a company or entity whose chairman or general manager is the same person as the issuer’s or is a spouse or relative to its chairman or general manager within the second degree of consanguinity” in the scope of substantive related parties.
3. Impairment test required for consolidated recognition of goodwill with required disclosure of major differences in substantive operation and expected benefits after the consolidation
Article 24-2 is added to the Standard to stipulate that the consolidated goodwill of enterprises shall be subject to an annual impairment test. Major differences, if any, between the actual operation of the acquired company and the expected benefits at the time of acquisition after the consolidation should be disclosed in the notes.
4. Deletion of the requirement that a copy of financial statements should be provided for public review
Since relevant documents and attachments to the financial reports of a publicly offered company have been uploaded to the Market Observation Post System, the amendments delete Article 29 from the Standard, which provides that existing financial reports should also be copied to the Securities and Futures Institute for public review.