In accordance with the "Basic Standards of Enterprise Accounting," the Ministry of Finance issued Enterprise Accounting Standard No. 22 — Recognition and Measurement of Financial Instruments on 2006/2/15, effective as of 2007/1/1. (Note: This standard was revised in 2017.)
1. Overview of Guidelines
This standard specifies the recognition, measurement, and disclosure of financial instruments. A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Classification of Financial Assets (Four Categories)
- Financial assets measured at fair value through profit or loss
- Held-to-maturity investments
- • Loans and receivables
- • Available-for-sale financial assets
II. Initial Recognition and Subsequent Measurement
Initial Confirmation
When an enterprise becomes a party to the terms of a financial instrument contract, it shall recognize a financial asset or a financial liability. Financial assets and financial liabilities shall be measured at fair value upon initial recognition.
Subsequent Measurement
Enterprises shall subsequently measure financial assets at fair value, except for financial assets measured at amortized cost and certain available-for-sale financial assets. The effective interest method is a technique used to calculate the amortized cost of a financial asset or liability and allocate interest income or expense across accounting periods.
III. Impairment of Financial Assets
Incurred Loss Model
At each reporting date, an entity shall assess the carrying amount of financial assets other than those measured at fair value through profit or loss. If objective evidence indicates that a financial asset is impaired, an impairment allowance shall be recognized.
Objective evidence includes: severe financial difficulties of the issuer or debtor; a breach of contract by the debtor; concessions granted by the creditor to the financially troubled debtor due to economic or legal considerations.
Regulatory Document Attachment
CAS 22 — Recognition and Measurement of Financial Instruments (2006 Edition) (PDF)