Business Leader Urges Postponement of New Accounting Criteria

Taipei, Jan. 5, 2009 (CENS)--Rock Hsu, chairman of Kinpo Group, has urged the

government to postpone the implementation of the No. 10 Basic Financial Statements, an accounting criterion regarding the calculation of inventory value, warning that it will bring an unthinkable crisis to the business sector.

In an uncharacteristically stern tone, Hsu, also chairman of Importers and Exporters Association of Taipei and honorary chairman of Taiwan Electrical and Electronic Manufacturers Association, likened the new measure to "throwing an explosive in a well" and threatened to join forces with the Association of Industries in Science Parks in appealing the case to President Ma Ying-jeou directly.

Hsu stressed that many enterprises will not be able to withstand the impact of the new accounting criteria, already put into force from Jan. 1, and the problem will be big enough so long as half of 30% of the listed enterprises, which confirmed the influence of the new measure on their operations, incurred financial trouble associated with the new measure.

Hsu pointed out that the effect will show up when listed enterprises publish their first-quarter financial statements, compiled according to the new accounting criteria, prompting banks to further tighten their credit extension for them due to their miserable figures.

He doubted the correctness of the survey carried out by the Financial Supervisory Commission (FSC), which finds only 33% of the interviewed enterprises believe the new accounting criterion will have major influence on them and the total amount of extra loss associated with the new measure to be written down by 801 listed firms reached only NT$9.84 billion. He believed that many of the interviewed enterprises chose not to tell the truth in responding to a government-sponsored survey.

Sean Chen, FSC chairman, reported that he is open to opinions reflected by the business sector regarding the new measure, so as they can come up with solid figures. He noted that the FSC survey was directed at accounting managers of listed firms, who supposedly are more familiar with the details of listed enterprises' financial statements than their executives.

The No. 10 Basic Financial Statements will entail two major changes in dealing with inventories in financial statements. First is the adoption of "net realizable value" in calculating the value of inventories, or equivalent to current sale prices deducted by sale cost and processed cost, different from the method of replacement cost, or cost of reproduction, of the past.

Second is the adoption of itemized comparison in calculating the loss of inventory value, different from the past method of "aggregate comparison" enabling the offsetting of losing items with profitable items, with the new practice possibly raising the amount of loss on books. The new accounting criteria is especially unfavorable to electronics businesses featuring low margin and rapid price drop, such as flat-panel display, DRAM (dynamic random access memory), and electronics parts/components.