The Advance Notice Procedure for the Draft Amendment to Part of the Articles of the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” Has Been Completed, and the Amended Version Will Be Released and Implemented Soon
2023-12-19
To comply with the amendments to IFRS and the current implementation status of IFRS in Taiwan, in order to review the current regulations and improve the consistency of the accounting treatment for financial reports, the Financial Supervisory Commission (hereinafter referred to as the FSC) has amended the relevant articles of the “Regulations Governing the Preparation of Financial Reports by Securities Issuers,” with the key amendments as follows:
1. Compliance with the classification regulations of the amended IFRS for current and non-current liabilities; the amendment articles shall come into effect from fiscal year 2024:
(1) To avoid differences in practice, it is clearly defined in compliance with the relevant amendment to International Accounting Standard No. 1 “Presentation of Financial Statements” (IAS 1) that for long-term borrowing liabilities with contractual terms in place, consideration shall be given to whether the contractual terms can be met on the balance sheet date in order to determine the liquidity classification of the liabilities, and the contractual terms that enterprises need to follow after the balance sheet date will not affect the liquidity classification of the liabilities. For example, in an extremely simple case where a company has on its books a long-term loan due several years later, with contractual terms (the current ratio must exceed 100% by the end of December 2023, and 150% by the end of June 2024) in place with the lending bank, if the company meets the bank’s current ratio requirement and contractual terms on the balance sheet date of December 31, 2023, then the loan can be classified as non-current liabilities. If the company expects that the current ratio will not reach 150% by the end of June next year, it will not affect the judgment of liquidity, but the contractual terms and relevant countermeasures need to be disclosed. In addition, if the company intends or expects to repay the long-term loan in advance within twelve months after the balance sheet date, the loan shall still be classified as “non-current liabilities,” and information on the repayment date shall be disclosed. The amendment to the regulations will make the judgment of liability liquidity simpler and clearer to reduce the differences in practice.
(2) In the case where liabilities may be repaid with equity instruments, enterprises need to consider the issuance conditions and the pricing of conversion rights to determine whether the conversion rights meet the equity classification condition, and then evaluate whether the classification may affect the liquidity of convertible corporate bonds. For example, convertible corporate bonds can be converted into stocks for repayment, so enterprises need to determine whether it is possible for bondholders to exercise conversion rights at any time within a year and the impact on bond liquidity, because convertible corporate bonds are a composite financial instrument composed of a “pure bond portion” and a “conversion rights portion.” In fact, if the conversion rights are to be recognized separately from the pure bond portion, even if the holder can convert at any time within twelve months, it will not affect the liquidity classification of the bond.
2. Amendment to the definition of share capital in accordance with current practices and addition of relevant disclosure provisions: Considering the fact that the funds already fully raised for capital increase in cash are recognized by enterprises as either share capital or advance receipts for share capital on the ex-date, and the fact that enterprises’ issuance of new shares to those exercising employee stock options or to convertible corporate bond holders are not limited to those already registered with the competent authority, the definition of share capital is amended in line with the above, and it is required to disclose in the notes the information that no change of registration has been approved yet by the company registration authority; the amendment article shall come into effect from the date of announcement.
Contact unit: Accounting and Auditing Group, Securities and Futures Bureau
Tel: (02) 2774-7124
If you have any questions, please write to: https://fscmail.fsc.gov.tw
1. Compliance with the classification regulations of the amended IFRS for current and non-current liabilities; the amendment articles shall come into effect from fiscal year 2024:
(1) To avoid differences in practice, it is clearly defined in compliance with the relevant amendment to International Accounting Standard No. 1 “Presentation of Financial Statements” (IAS 1) that for long-term borrowing liabilities with contractual terms in place, consideration shall be given to whether the contractual terms can be met on the balance sheet date in order to determine the liquidity classification of the liabilities, and the contractual terms that enterprises need to follow after the balance sheet date will not affect the liquidity classification of the liabilities. For example, in an extremely simple case where a company has on its books a long-term loan due several years later, with contractual terms (the current ratio must exceed 100% by the end of December 2023, and 150% by the end of June 2024) in place with the lending bank, if the company meets the bank’s current ratio requirement and contractual terms on the balance sheet date of December 31, 2023, then the loan can be classified as non-current liabilities. If the company expects that the current ratio will not reach 150% by the end of June next year, it will not affect the judgment of liquidity, but the contractual terms and relevant countermeasures need to be disclosed. In addition, if the company intends or expects to repay the long-term loan in advance within twelve months after the balance sheet date, the loan shall still be classified as “non-current liabilities,” and information on the repayment date shall be disclosed. The amendment to the regulations will make the judgment of liability liquidity simpler and clearer to reduce the differences in practice.
(2) In the case where liabilities may be repaid with equity instruments, enterprises need to consider the issuance conditions and the pricing of conversion rights to determine whether the conversion rights meet the equity classification condition, and then evaluate whether the classification may affect the liquidity of convertible corporate bonds. For example, convertible corporate bonds can be converted into stocks for repayment, so enterprises need to determine whether it is possible for bondholders to exercise conversion rights at any time within a year and the impact on bond liquidity, because convertible corporate bonds are a composite financial instrument composed of a “pure bond portion” and a “conversion rights portion.” In fact, if the conversion rights are to be recognized separately from the pure bond portion, even if the holder can convert at any time within twelve months, it will not affect the liquidity classification of the bond.
2. Amendment to the definition of share capital in accordance with current practices and addition of relevant disclosure provisions: Considering the fact that the funds already fully raised for capital increase in cash are recognized by enterprises as either share capital or advance receipts for share capital on the ex-date, and the fact that enterprises’ issuance of new shares to those exercising employee stock options or to convertible corporate bond holders are not limited to those already registered with the competent authority, the definition of share capital is amended in line with the above, and it is required to disclose in the notes the information that no change of registration has been approved yet by the company registration authority; the amendment article shall come into effect from the date of announcement.
Contact unit: Accounting and Auditing Group, Securities and Futures Bureau
Tel: (02) 2774-7124
If you have any questions, please write to: https://fscmail.fsc.gov.tw
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Update：
2023-12-22