The Financial Supervisory Commission (FSC) yesterday approved loose readings of accounting rules for disputed items to ease the impact of phasing in the international financial reporting standards (IFRS) on financial institutions and the Taiwan High Speed Rail Corp (THSRC, 台灣高鐵).
“The FSC decided to introduce IFRS in a manner that would create minimal impact on companies while seeking to make their financial statements more transparent and accountable,” Financial Supervisory Commission Vice Chairman Wu Tang-chieh (吳當傑) said.
The commission said insurance firms could account for their real-estate properties with regular rentals based on their market worth.
Real-estate investments that fail to produce rental income, such as buildings for the firms’ own use and undeveloped plots of land, should be valued in accordance with acquisition costs, Wu said.
The commission had previously favored acquisition costs to value real-estate investments, a practice that life insurance firms said failed to recognize value gains and could end up weakening their capital adequacy and net worth.
It also decided not to set thresholds on recognizing rental incomes, but allow the insurers and accountants to make the judgments.
“Rental income should involve steady cash flows and reasonable profits,” Wu said.
The commission also decided to spare THSRC from categorizing about NT$40 billion (US$1.38 billion) worth of special shares as liability, saying the requirement does not apply to special shares issued prior to 2006.
Without the immunity clause, securities transaction rules would have forced THSRC to be delisted from the emerging stock market.
In addition, the FSC said banks need only recognize interest payments to retired employees as liability, meaning they may postpone recognizing interest expenses to staffers on active duty.
The decision would significantly ease debt burdens on state-run lenders, which provide employee savings deposits that have interest rates far higher than market rates.
Wu declined to give numbers, but Chinese-language media put the original burden on banks at NT$140 billion.
Local companies listed on the Taiwan Stock Exchange or the GRETAI Securities Market, as well as all financial institutions that are under the commission’s supervision, are required to start keeping their accounts using IFRS next year so they can begin providing financial statements based on IFRS in 2013.
Wu said adoption of IFRS would provide investors, shareholders and analysts with a better view of corporate performance and financial disclosure.
More than 115 countries either require companies to adopt IFRS as part of responsible corporate governance or are planning to do so.
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