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Enforcement Letter

 
Organisation: Financial Supervisory Commission
Issue No.: Financial-Supervisory-Securities-Corporate-10901500221 
Issue Date: 2021/03/31
Content:     Order of the Financial Supervisory Commission

    Issue date: 31 March 2021
    Issue no.: Financial-Supervisory-Securities-Corporate-10901500221

  1. This order is issued pursuant to Article 41, paragraph 1 of the Securities and Exchange Act.
  2. If a public company chooses to adopt the fair value model for subsequent measurement of investment properties in accordance with Article 9, paragraph 4, subparagraph 4 of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with International Accounting Standard (IAS) 40 Investment Property, to maintain the sound and stable financial structure of the public company, unless the Financial Supervisory Commission or a competent authority of a relevant industry has otherwise made supplementary provisions, the provisions set out below shall apply. These provisions shall be applied beginning from the public company's distribution of earnings for fiscal year 2020, but their application may be postponed until the distribution of earnings for fiscal year 2021:
    1. When a public company chooses to adopt for the first time a fair value model for subsequent measurement of investment property, it shall allocate special reserve in an amount equivalent to the portion of the amount of the net increase in fair value transferred to retained earnings. However, when, after the transfer to retained earnings, there remains an insufficiency for allocation of the amount mentioned above, the company may make the allocation based merely on the book retained earnings amount, and the amount of the insufficiency for allocation need not be included in the calculation of the amount of the cumulative net increase in fair value.
    2. When a public company continues to adopt a fair value model for subsequent measurement of investment property, at the time for distribution of distributable surplus, it shall allocate special reserve in the manners listed below and, secondarily, allocate special reserve in accordance with the 31 March 2021 FSC Order No. Financial-Supervisory-Securities-Corporate-1090150022, and the special reserve may not be distributed:
      1. With respect to the book amount of the net increase in fair value for the period in which it arises, an equivalent amount of special reserve shall be allocated from the amount of the after-tax net profit for the period, plus items other than after-tax net profit for the period, that are included in the undistributed earnings of the period. If there remains any insufficiency, it shall be allocated from the undistributed earnings of the previous period.
      2. With respect to the cumulative amount of net increase in fair value in a preceding period(s), the company shall choose one of the following methods to allocate special reserve, which may not be distributed:
        1. Allocate an amount of special reserve equal to the amount allocated to undistributed earnings for the preceding period.
        2. Allocate an amount of special reserve equal to the amount allocated to undistributed earnings for the preceding period. If there remains any insufficiency, allocate it from the amount of the after-tax net profit for the period, plus items other than after-tax net profit for the period, that are included in the undistributed earnings of the period. Furthermore, if this method is to be used, it shall be expressly provided in the dividend policy specified in the company's articles of incorporation.
    3. If subsequently there is any decrease in the cumulative amount of net increase in fair value of investment property, or the investment property is disposed of, the amount of the decrease or the amount dictated by the circumstances of disposal may be reversed and booked for earnings distribution.
  3. A public company that, in accordance with Point 2 herein, postpones the application of these provisions until the distribution of earnings for fiscal year 2021 shall, when distributing earnings for fiscal year 2020, allocate special reserve in accordance with the 18 March 2014 FSC Order No. Financial-Supervisory-Securities-Corporate-1030006415.
  4. This Order is effective from this day forward. The 18 March 2014 FSC Order No. Financial-Supervisory-Securities-Corporate-1030006415 is repealed from 31 December 2021.