The Opportunities and Challenges
– Full Adoption of IFRS in Taiwan
James Wang
Chairman and CEO
July 9, 2011
Roadmap for the Implementation
First IFRS
Financial
Statements
2013.12.31
Transition Date
to IFRS
2012.1.1
Now
2009
2010
Initial
Analysis
Develops Accounting Solutions
Completed
In Progress
2011
Dry Run
Pro forma IFRS
Transition Date
adjustments
2012
2013~
1st IFRS Comparative
Period
External reporting
using IFRS
Pro forma
IFRS
Financial
Statements
First IFRS Quarterly
Report
2013.3.31
IFRS Pre-disclosure in Financial Statements:
► 2011 FS prepared under ROC GAAP:
ROC GAAP
ROC GAAP & IFRS
Dual Reporting
disclosure on expected timeline of adoption,
current adoption progress and significant
GAAP differences
► 2012 Annual and Interim FS: Reconciliations
of significant GAAP differences
IFRS
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Strategic Perspectives of the Implementation
►
►
►
►
►
►
►
Full adoption of IFRS – project management
Principles based accounting standards – judgment
required for the appropriate accounting treatment
Focus is on consolidated financial statements
Fair value measurement – reflecting current value
Consistency across the globe – dynamic management
Investment in internal accounting system and alignment of
enterprise structure and business objectives
Challenges presented by language and different
accounting methods
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Switching to the IFRS Mindsets
Mindset 1:
Principles Based Accounting Requires
Professional Judgment from Management
Mindset 2:
Focus on Consolidated Financial Statements
Mindset 3:
Consistency of Group Accounting Policies
Mindset 4:
Integrate the Enterprise-wide FSCP to Create
Shareholder Value
Mindset 5:
Increasing use of Fair Value
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 1: Principles Based Accounting Requires
Professional Judgment from Management
Challenges presented by principles based accounting
standards:
► Current practice is to rely on interpretations made by
Accounting Research and Development Foundation in
Taiwan (“ARDF”) to determine the appropriate accounting
treatment:
►
►
►
Around 900 interpretations were issued by ARDF between 1985 to
2009
Business would have to apply its own judgment in making
the appropriate accounting treatment under IFRS
Avoid “second guessing” by auditors and regulators of the
reasonableness of a judgment after the fact
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 1: Principles Based Accounting Requires
Professional Judgment from Management (Cont.)
Principles based accounting standards facilitate the
communication of management’s strategy and economic
substance of transactions:
►
Principles based accounting standards would:
►
►
►
Increase the number of policy choices and level of disclosures
Require disclosure on management’s estimates and judgment and
the relevant sensitivity analysis
Recommendations:
►
►
►
Page 6
Carefully select the first-time IFRS adoption exemptions as they
form basis of the IFRS Opening BS and future profit appropriation
Choose accounting policies that best present the financial position
and operating performance of the entity and consider industry
practice
Establish a due process for the determination of accounting
estimate and judgments
The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 2: Focus on Consolidated Financial
Statements
Consolidated Financial Statements would reflect the financial
position and operating performance of the group as a whole:
►
Consolidated revenue and gross profit
► The performance of each business segment within the group
would impact on the overall consolidated gross profit
► Impact on the internal management accounts and the making
of budgets
Conversion considerations:
►
►
►
►
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Determine the scope of consolidated entities
Examine the difference in operating models and industry practice
for each subsidiary within the group
Evaluate the conversion resources requirement for each
subsidiary
Re-assess the operating process, IT system and FS consolidation
process in place
The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 3: Consistency of Group Accounting
Policies
►
Consistency of Group Accounting Policies
►
Consistent accounting policy should be adopted in the
FS for like transactions and events in similar
circumstances
►
If an associate uses accounting policies other than
those of the investor for like transactions and events in
similar circumstances, adjustments shall be made to
conform the associate’s accounting policies to those of
the investor when the associate’s FS are used by the
investor in applying the equity method
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 3: Consistency of Group Accounting
Policies (Cont.)
►
Challenges presented by requiring consistent group
accounting policies:
►
The level of co-operation and ability of the associate to
reconcile its reporting package
►
Frequency of reconciliation
►
The degree of reconciliation and materiality
consideration
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 4: Integrate the Enterprise-wide
FSCP to Create Shareholder Value
The leading companies use FSCP as a foundation for managing key activities, such as achieving operational
effectiveness, performance management and regulatory compliance, to strengthen Shareholder Value.
►Improve the quality of sales and
timeliness
Customers
►Improve customers data analysis
Growing Sales
►Improve product analysis
Pricing
►Improve pricing analysis
►Improve
COGS
Reducing Costs
Operating
Expense
Shareholder Value
Fixed Assets
Assets
Optimization
Expectations of
Stakeholders
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Working
Capital
analysis for performance of purchase
orders and process efficiency
►Improve analysis for product development and
production and process efficiency
►Optimize the FSCP and reduce the related
costs
►Improve the quality and relevance of financial
information
►Improve fixed assets management process
►Improve fixed assets management information
►Improve
the analysis of working capital (e.g.
AP, AR, etc.)
►Improve working capital management
Management
Confidence level
►Improve
External
Stakeholders
Confidence level
►Improve
►Provide
performance evaluation information
adequate time for performing analysis
shareholder/stakeholder
communication
►Maintain compliance with regulations
The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 5: Increasing Use of Fair Value
►
►
►
May elect to use the fair value at transition date as the
deemed cost for an investment property
Must use fair value in areas including financial
instruments accounting and business combination
accounting
Entities must consider the following:
►
►
►
►
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Definition of fair value and the method of obtaining fair value
Establishing valuation mechanism or gathering the required
information for valuation
Management and performance evaluation for post investment
decisions
Costs of obtaining fair value
The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Mindset 5: Increasing Use of Fair Value –
Establishing the Mechanism for Valuation
Underlying
Assets for
Valuation
► Equity
► Evaluate
investments in
unlisted entities
► Financial
instruments
► Business
combinations
Page 12
Key Factors in Valuation
the future need of valuation,
including the timing and scope of
valuation
► Decide the valuation models to use for
initial recognition and subsequent
measurement, whether to use
independent expert’s valuation report or
perform in-house evaluation
► Develop appropriate valuation models
for different underlying assets, including
the selection of valuation techniques,
input values and market information and
establishing market participants’
valuation reference information
► Establish monitor mechanism for
changes in significant input values
► Costs and benefits consideration
Best Practice
► Pre-valuation
planning,
including underlying asset,
purpose of valuation, and timing
of valuation
► Extensive communication
between the entity and its inhouse or external valuation
experts and accountants prior
to valuation being performed
► Discussion and communication
before finalizing the valuation
report, in order to ensure the
selection of valuation method,
market data, valuation models
and inputs is conducted
appropriately
The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
Hot Topics for Specific Corporations and
Industries in Taiwan
►
►
Technology industry – Revenue recognition project
Insurance industry – the adoption of IFRS 4 in two phases and
the valuation of investment properties:
►
►
►
►
►
Phase 1 – Changing the classification of insurance contracts, revenue
recognition and the liability adequacy test
Phase 2 – Measuring insurance liabilities using fair value
Investment properties may be revalued by Transition Date Fair Value,
however reserve must be made for the increment after making up for
the other IFRS adjustments that decrease the net assets value
Real estate industry – Entities that undertake construction of
real estate may have to treat the agreement as a sale of goods
and thereby unable to use Percentage of Completion Method
Banking industry – Preferential savings rate for bank
employees
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan
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The Opportunities and Challenges – Full Adoption of IFRS in Taiwan