Introduction to Accounting and Auditing Requirements in Taiwan

1. Overview

Businesses are required to maintain accounting records and prepare annual financial statements in accordance with Taiwan Generally Accepted Accounting Principles (GAAP), which largely follow International Financial Reporting Standards (IFRS) and US GAAP. Taiwan requires financial statement audits for any company with paid-in capital exceeding NT$30 million.

2. Accounting and Bookkeeping Requirements under Income Tax Law & Related Regulations

(1) Accounting Books and Records
Accounting Period Businesses generally use the 1 January to 31 December calendar year as their accounting year, which is the same as the fiscal year for tax purposes. However, a company may, with permission, adopt a non-calendar year-end.

(2) Bookkeeping Currency
Accounting books must be denominated in the local currency (New Taiwan dollar, NT$). If accounts are kept in a foreign currency due to business needs, such currency must be translated into the local currency in the company’s closing financial statements.

(3) Bookkeeping Language
All accounting books, documents and financial statements prepared by a company should be in Chinese, but may also be written concurrently in a foreign language.

(4) Accounting Basis
Business entities must follow the accrual basis of accounting in performing recognition, measurement and reporting for accounting purposes. All income realised and expenses incurred or attributable to the current period should be recognised as income or expenses in the current period regardless of when the income is received or expenses are paid.

(5) Accounting Books and records
Companies are required to maintain accounting records and prepare annual financial statements in accordance with Taiwan GAAP. They must keep journals, a general ledger and subsidiary ledgers, as well as appropriate memorandum records. Computerised accounting systems, if utilised, can be regarded as the company’s accounting records.

(6) Financial Statements
Basic financial statements such as balance sheet, income statement (profit and loss account), cash flow statement, statement of changes in owners?equity and notes to financial statements, along with comparative data for the previous year, are all required.

(7) Reporting Format
The format of financial statements is set forth in the Statements of Financial Accounting Standards issued by Taiwan’s accounting standard-setting body, the Accounting Research and Development Foundation (ARDF). Public companies are also required to follow the format and guidance prescribed by the Securities and Futures Bureau (SFB) of the Financial Supervisory Commission (FSC).

(8) Preservation of Books and Records
All accounting records must be kept for at least five years, and all accounting books and financial statements must be kept for at least ten years after the completion of annual closing procedures.

3. Financial Statements Requirements

A profit-seeking enterprise must prepare the following reports and financial statements:
(1) Business reports.
(2) Balance sheets.
(3) Statements of profit and loss.
(4) Status of shareholding changes sheets.
(5) Cash flow statements.
(6) Proposals for allocation of surplus profit or making up loss.

First of all, the board of directors must approve these reports and financial statements. Secondly, the enterprise supervisors must examine these reports and financial statements. Finally, the stockholders must approve these reports and financial statements at their meetings. Supervisors are statutorily required officers of each company who are elected from among stockholders, and at least one of the supervisors must reside in the Taiwan. They may investigate the company’s operating and financial condition at any time. They may also appoint a CPA to conduct the examination on behalf of the company.

If a company’s paid-in capital is NT $30 million or more, its financial statements must be audited by an independent CPA. The company must keep the audited financial statements and the other reports mentioned above, and make them available for examination by the MOEA. All public companies must publicize and file the following financial statements to the Securities and Futures Bureau (SF) within a specified time period.

4. Audit Requirements

There are three kinds of audit assurance in Taiwan: audits of financial statements, audits of income tax filing, and audits of capital.

(1) Financial statements statutory audit
Private companies are required to have their annual financial statements audited and certified by a Taiwan-licenced certified public accountant (CPA) if their paid-in capital is NT$30 million or more. Public companies and financial institutions must also have their financial statements audited and certified by a CPA, as well as meet other reporting requirements.

Public companies are required to have their annual financial statements audited and certified by a CPA within four months following the close of each fiscal year.? They must also have their semi-annual financial statements audited and certified by a CPA within two months after the close of each fiscal half year. In addition, their first and third quarter financial reports must be reviewed by a CPA within one month after the end of the first and third fiscal quarters.

(2) Income tax filing audit
An audit of an income tax filing is prepared for the National Tax Administration of the Ministry of Finance. It is a requirement for a company with revenue above NT$100 million. Tax assurance is also of advantage to other companies. For example, losses can be carried forward to offset earnings in the upcoming ten years in order to reduce income tax payable during the years of earnings. In addition, there is a lower chance that a government audit of the company’s income. Nevertheless, with an audit of income tax filing, the company can have higher amount on limit of expense.

(3) Capital contribution audit
Capital assurance is required when setting up a new company or for an increase/decrease in capital or working capital.