Thu, Jul 08, 2004 - Page 11 News List

Finance laws will changeto end `window dressing'

BLOOMBERG

The government plans to change how companies should record the value of their securities holdings, such as stocks, to discourage ``window dressing'' of financial reports, a government official said.

Starting 2006, companies must report a ``fair value'' for securities, said Jong Huey-jen (鍾慧貞), deputy director general of the Securities and Futures Bureau under the newly established Financial Supervisory Commission.

The government is studying how to define fair value, she said. The rules now require companies to report the purchase price or market price, whichever is lower.

Under current practice, the value of securities disclosed in earnings reports is based on the closing price at the end of the earnings period.

Jose Lee, a deputy manager at the First Taisec Securities Inc (一銀證券) proprietary trading department, said he's skeptical about whether the rule change would put an end to window dressing. The practice is common toward the end of every quarter, and some companies tend to boost stock prices on the last day of a reporting period, he said.

``We still need to wait and see how well it works, as it's unclear how fair value will be defined,'' he said.

One possibility is using the average price during an entire earnings period, Lee said. That would make it more expensive for shareholders to keep their stocks up.

Standard & Poor's Ratings Services on Monday said there was a "crisis of confidence" in the quality of financial reporting by many companies following Procomp Informatics Ltd's (博達科技) default on a corporate bond last month.

"Other than a small number of companies that are subject to international reporting standards, few companies have been active in driving corporate governance forward," John Bailey, director of S&P's corporate ratings, said in a statement.

"It should come as no surprise if further reports emerge of Taiwan companies in financial difficulty," he said.

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