In accordance with the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued the revised Enterprise Accounting Standard No. 37 — Presentation of Financial Instruments (Cai Kuai [Year] No. 23) on 6/20/2014, effective for financial reporting periods beginning in 2014 and thereafter. This standard was subsequently revised again in 2017.
I. Distinction Between Financial Liabilities and Equity Instruments
An entity shall classify a financial instrument, or its components, as a financial asset, financial liability, or equity instrument at initial recognition based on the substance of the contractual terms and the definitions of financial assets, financial liabilities, and equity instruments, rather than solely on legal form.
Core Differentiation Principle
- • Cannot avoid settling by delivering cash or another financial asset unconditionally → Financial liability
- • Exchange a fixed number of the entity's own equity instruments for a fixed amount of cash or other financial assets → Equity instrument
II. Offset of Financial Assets and Financial Liabilities
Financial assets and financial liabilities shall be presented separately in the statement of financial position and shall not be offset. However, they shall be presented at their net amount in the statement of financial position only when both of the following conditions are met:
- • The enterprise has a legally enforceable right to offset recognized amounts, and this right is currently exercisable.
- • The enterprise plans to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously.
III. Risk Disclosure
Credit Risk
Disclose information on maximum credit risk exposure, available collateral or other credit enhancements, and financial assets that are past due or impaired.
Liquidity Risk and Market Risk
Disclose the maturity analysis of financial liabilities, as well as sensitivity analyses for exchange rate risk, interest rate risk, and other price risks.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 37 — Presentation of Financial Instruments (2014) (PDF)