FSC to allow institutions to reclassify huge losses

FSC officials said that after receiving information on the IASB resolution, the FSC has immediately asked the Accounting Research Development Association to study the case, and will follow the IASB practice due to close linkage of Taiwan’s accounting practice to the international norm.

The officials noted that continuance of the evaluation of the financial assets owned by financial institutions according to the fair market value would aggravate the market chaos, adding that there exist no market prices for some securitized products which already have no liquidity.

Consequently, the FSC will move to modify the No. 34 Basic Financial Statements which forbids enterprises from arbitrarily changing the accounting categories of its income statement, such as moving assets under the trading-purpose category to the non-trading purpose category, in order to prevent accounting manipulation by enterprises.

The IASB issued amendments to IAS 39 Financial Instruments, introducing the possibility of reclassifications for companies applying International Financial Reporting Standards (IFRSs), which were already permitted under U.S. generally accepted accounting principles (GAAP) in rare circumstances.

The IASB said that the deterioration of the world’s financial markets that has occurred during the third quarter this year is a possible example of rare circumstances cited in these IFRS amendments, and therefore justifies their immediate publication. The aforementioned amendments enable companies reporting to IFRSs to use the reclassification amendments, if they so wish, from July 1, 2008.

These amendments are the latest in a series of steps that the IASB has undertaken to respond to the credit crisis. In responding to the crisis, the IASB noticed the concern expressed by EU leaders and finance ministers through the ECOFIN Council to ensure that “European financial institutions are not disadvantaged vis-a-vis their international competitors in terms of accounting rules and their interpretation.”

The amendments address the desire to reduce differences between IFRSs and U.S. GAAP in a manner that produces high quality financial information for investors across the global capital markets, according to IASB.

In response, accounting firms shared the view that the amendments are a must-do job amid the global financial tsunami, as they can effectively prevent investors from getting panic.

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