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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II RECOGNITION OF TRANSFER OF FINANCIAL ASSETS CHAPTER III MEASUREMENT OF TRANSFER OF FINANCIAL ASSETS CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the recognition and measurement of the transfer of financial assets (including a single or a group of similar financial assets), these Standards are formulated in accordance with the Accounting Standards for Enterprises-Basic Standards. Article 2. The term "transfer of a financial asset" refers to an enterprise's (the transferor's) transferring or delivering a financial asset to a party other than the issuer of the financial asset (the transferee). Article 3. If the enterprise has control over the transferee of the financial asset, it shall not only apply these Standards to its financial statements, but also integrate the transferee into its scope of consolidated financial statements in accordance with the Accounting Standards for Enterprises No. 33-Consolidated Financial Statements. CHAPTER II RECOGNITION OF TRANSFER OF FINANCIAL ASSETS Article 4. The transfer of a financial asset by an enterprise includes the following two circumstances: (1) The enterprise transfers the right to receive the cash flow of the financial asset to another party; and (2) The enterprise transfers the financial asset to another party, but maintains the right to receive the cash flow of the financial asset and undertakes the obligation to pay the cash flow it receives to the final recipient, and meets the following conditions in the mean while: 1. The enterprise is not obliged to make any payment to the final recipient until it receives the cash flow which is equivalent to the financial asset. For any short-term payment made by the enterprise on behalf of others, if the enterprise has the right to recover the full amount of the payment and charge interests according to the market bank loan interest rate of the same period, the conditions shall be deemed to have been satisfied; 2. According to the contractual stipulations, the enterprise can't sell the financial asset or use it as a collateral, but it may use it as an assurance to pay the cash flow to the final recipient; and 3. The enterprise is obliged to timely pay the cash flow it receives to the final recipient. It has no right to make a re-investment with the cash flow, unless it, according to the contractual stipulations, make investment with cash or cash equivalent by using the cash flow it receives during the interval of between 2 consecutive payments. If the enterprise makes a reinvestment according to the contractual stipulations, it shall pay the investment proceeds to the final recipient according to the contractual stipulations. Article 5. An enterprise shall differentiate the transfer of a financial asset into the transfer of the entire financial assets and the transfer of partial financial assets, and treat them respectively pursuant to these Standards. Article 6. The transfer of a partial financial asset includes the following circumstances: (1) To transfer the specific identifiable portion of the cash flow resulting from the financial asset, for example, the enterprise transfers the interests receivable from a group of similar loans; (2) To transfer a certain portion of the total cash flow resulting from the financial asset, for example, the enterprise transfers a certain portion of the principal and interests receivable of a group of similar loans; and (3) To transfer a certain portion of the specific identifiable portion of the cash flow resulting from the financial asset, for example, the enterprise transfers a certain portion of the interests receivable of a group of the similar loans. Article 7. Where an enterprise has transferred nearly all of the risks and rewards relating to the ownership of the financial asset to the transferee, it shall stop recognizing the financial asset. If it retains nearly all of the risks and rewards relating to the ownership of the financial asset, it shall not stop recognizing the financial asset. The expression "to stop recognizing" is to write off a financial asset or financial liability from the account and balance sheet of the enterprise. Article 8. When an enterprise makes a judgment about whether nearly all of the risks and rewards relating to the ownership of a financial asset are transferred to the transferee, it shall compare the pre-and post-transfer risks it faces due to the change of the net present value of the future cash flow of the financial asset and the time distribution. If the risks that the enterprise faces have changed substantially due to the transfer of a financial asset, it shows that the enterprise has transferred to the transferee nearly all of the risks and rewards relating to the ownership of financial asset, for example, the sale of a financial asset without any additional term of guarantee. If the risks that the enterprise faces have not changed substantially due to the transfer of a financial asset, it shows that the enterprise still retains all the risks and rewards relating to the ownership of the financial asset, for example, it transfers an entire loan and makes a full amount of compensation for the possible credit losses. Where an enterprise needs to judge, by calculation, whether it has transferred to the transferee nearly all of the risks and rewards relating to the ownership of financial asset, when it calculates the net present value of the future cash flow of the financial asset, it shall take into consideration all the reasonable and possible changes of the cash flow, and shall adopt an appropriate prevalent market interest rate as the discount rate. Article 9. Where an enterprise does not transfer or retain nearly all of the risks and rewards relating to the ownership of a financial asset (that is to say, it is under a circumstance other than those as mentioned in Article 7 of these Standards), it shall treat it in light of the following circumstances, respectively: (1) If it waives its control over the financial asset, it shall stop recognizing the financial asset; (2) If it does not waive its control over the financial asset, it shall, within the extent of its continuous involvement in the transferred financial asset and recognize the relevant liability. The term "continuous involvement in the transferred financial asset" refers to the risk level that the enterprise faces due to the change of the value of the financial asset. Article 10. To judge whether an enterprise has waived its control over the transferred financial asset, the enterprise shall lay emphasis on the transferee's actual ability to sell the financial asset. If the transferee is able to independently sell the entire financial asset to a third party which is not a connected party and if there is no additional conditions limiting the sale, it shows that the enterprise has waived its control over the financial asset. Article 11. To judge whether the transfer of a financial asset can satisfy the conditions as described in these Standards for stopping the recognition of a financial asset, the enterprise shall lay emphasis on the essence of the transfer of the financial asset: (1) For the sale of a financial asset with a repurchase agreement, if the asset to be repurchased by the transferor is identical with or substantially identical with the financial asset sold, and if the repurchase price is fixed or is the original sales price plus a reasonable return, the transferor shall not stop recognizing the financial asset sold, for example, selling any bonds through a buyout repo or a pledged repo transaction; (2) After the transfer of a financial asset, if the transferor only retains the priority to repurchase the financial asset at its fair value (when the transferee sells the financial asset), it shall stop recognizing the transferred financial asset; (3) For the transfer of a financial asset in which the secondary equities are retained or a credit guaranty is given for upgrading the level of credit, if the transferor only retains partial (not nearly all of) the risks and rewards relating to the ownership of the transferred financial asset, it shall recognize the relevant asset and liability to the extent of its continuous involvement in the transferred financial asset. CHAPTER III MEASUREMENT OF TRANSFER OF FINANCIAL ASSETS Article 12. If the transfer of an entire financial asset satisfies the conditions for stop recognition, the difference between the amounts of the following 2 items shall recorded in the profits and losses of the current period: (1) The carrying amount of the transferred financial asset; (2) The aggregate consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in the owner's equities (in the event that the financial asset involved in the transfer is a financial asset available for sale). Where an enterprise obtains a new financial asset or undertakes a new financial liability due to the transfer of a financial asset, it shall, on the date of transfer, recognize the financial asset or liability (including the call option, put option, guaranteed liability, future contract, interchange, etc.) at its fair value, and shall treat the net amount of the financial asset less the financial liability as an integral part of the aforesaid consideration. Where an enterprise concludes a service contract with the transferee of a financial asset on offering relevant services (including receiving cash flow of the financial asset and delivering the cash flow received to the fund preservation institution as designated), it shall recognize a service asset or liability on the basis of the service contract. The service liability shall be subject to the initial measurement at its fair value and shall be treated as an integrate part of the aforesaid consideration. Article 13. If the transfer of partial financial asset satisfies the conditions for stopping recognition, the carrying amount of the entire financial asset transferred shall, between the portion whose recognition has stopped and the portion whose recognition has not stopped (under such circumstance, the service asset retained shall be deemed as a portion whose recognition has not stopped), be allocated at their respective relative fair value, and the difference between the amounts of the following 2 items: (1) The carrying amount of the portion whose recognition has stopped; (2) The aggregate consideration of the portion whose recognition has stopped, and the portion of the accumulative amount of the changes in the fair value originally recorded in the owner's equities which is corresponding to the portion whose recognition has stopped (in the event that the financial asset involved in the transfer is a financial asset available for sale). The portion of the accumulative amount of changes in the fair value originally recorded in the owner's equities which corresponds to the portion whose recognition has stopped, shall be determined after the allocation of the accumulative amount on the basis of the relative fair values of the portion whose recognition has stopped and the portion whose recognition has not stopped. Article 14. If the carrying amount of the transferred entire financial asset is allocated according to the relative fair values between the portion whose recognition has stopped and the portion whose recognition has not stopped, the fair value of the portion whose recognition has not stopped shall be determined pursuant to the following provisions: (1) It shall be determined according to the latest actual transaction price if the enterprise has ever sold any financial asset similar to the portion whose recognition has not stopped, or has ever conducted any other market transaction relating to the portion whose recognition has not stopped; (2) If no quotation for the portion whose recognition has not stopped is available in the active market and if there is no actual transaction price relating to it, it shall be determined according to the residual amount between the fair value of the transferred entire financial asset less than the consideration of the portion whose recognition has stopped. Article 15. If an enterprise still retains nearly all of the risks and rewards relating to the ownership of the transferred financial asset, it shall continue to recognize the transferred entire financial asset and shall recognize the consideration it receives as a financial liability. The financial asset shall not be used to offset the relevant financial liabilities it has recognized. In the subsequent accounting periods, the enterprise shall continue to recognize the income generated by the financial asset and the expenses incurred by the financial liability. If the transferred financial asset is measured at the amortized cost, the relevant liability it has recognized shall not be designated as a financial liability which is measured at its fair value and of which the changes are recorded in the profits and losses of the current period. Article 16. If an enterprise does not transfer or retain nearly all of the risks and rewards relating to the ownership of the financial asset, and if it does not waive its control over the financial asset, the relevant asset and liability it recognizes in pursuance of these Standards shall fully reflect the rights it retains and the obligations it undertakes. Article 17. If the enterprise is continuously involved in the transferred financial asset by way of providing a financial guarantee, it shall, on the date of transfer, recognize the assets formed by its continuous involvement on the basis of the carrying amount of the financial asset and the amount of financial guarantee, whichever is lower. In the meanwhile, it shall, on the basis of the aggregate amount of financial guarantee and the fair value of the financial guaranty contract (the charge for providing the guarantee), recognize the liability formed by its continuous involvement. The amount of financial guarantee refers to the highest amount of repayment to be demanded among the considerations the enterprise receives. In the subsequent accounting periods, the initially recognized amount of the financial guarantee contract shall be amortized according to the time proportion within the period of the financial guarantee contract and shall be recognized as income for each period. The carrying amount of the asset formed by the guarantee shall be subject to an impairment test on the balance sheet date. Article 18. If an enterprise fails to satisfy the conditions for stopping recognition because it sells a put option or holds a call option, and if it measures the financial asset at the amortized cost, it shall recognize the liability formed by its continuous involvement according to the consideration it receives on the date of transfer. The difference between the amount of the amortized cost of the transferred financial asset on the maturity date of the option and the amount of the initially recognized liability formed by continuous involvement shall be amortized through the effective interest rate method. In the meanwhile, an adjustment shall be made to the carrying amount of the liability formed by its continuous involvement. For the relevant option exercise, the difference between the carrying amount of the liability formed by its continuous involvement and the exercise of option shall, when exercising the option, be recorded in the profits and losses of the current period. Article 19. If an enterprise fails to satisfy the conditions for stopping recognition because it holds a call option, and if it measures the financial asset at its fair value, it shall, on the date of transfer, recognize the transferred financial asset at its fair value and shall, in pursuance of the following provisions, simultaneously measure the liability formed by its continuous involvement: (1) If the option is an in-the-money option or at-the-money option, the liability formed by its continuous involvement shall be measured according to the residual amount of the option exercise price less the time value of the option; and (2) If the option is an out-of-the-money option, the liability formed by its continuous involvement shall be measured according to the residual value of the fair value of the transferred financial asset less the time value of the option. Article 20. If an enterprise fails to satisfy the conditions for stopping recognition because it sells a put option and if it measures the financial asset at its fair value, it shall, on the date of transfer, recognize the asset formed by its continuous involvement according to the fair value of the financial asset and the option exercise price, whichever is lower. At the same time, it shall recognize the liability formed by its continuous involvement according to the aggregate option exercise price and the time value. Article 21. If an enterprise fails to satisfy the conditions for stopping recognition because it sells a put option and purchases a call option (namely up-and-down options) and if it measures the financial asset at its fair value, it shall, on the date of transfer, still recognize the transferred financial asset at its fair value. At the same time, it shall measure the liability formed by its continuous involvement according to the following provisions: (1) If the call option is an in-the-money option or at-the-money option, the liability formed by its continuous involvement shall be measured according to the residual amount of the aggregate option exercise price and the fair value of the put option less the time value of the call option; and (2) If the call option is an out-of-the-money option, the liability formed by its continuous involvement shall be measured according to the residual value of the total fair value of the transferred financial asset and the fair value of the put option less the time value of the call option. Article 22. An enterprise shall recognize the relevant assets formed by its continuous involvement in the transferred financial assets as the relevant incomes and shall recognize the relevant liabilities formed by its continuous involvement therein as the relevant expenses. The relevant assets and liabilities so formed by its continuous involvement shall not offset each other, and their subsequent measurement shall be governed by the Accounting Standards for Enterprises No. 22-Recognition and Measurement of Financial Instruments. Article 23. An enterprise's continuous involvement in merely a portion of its transferred financial asset shall be treated in accordance with Article 13 of these Standards. Article 24. Where an enterprise provides the transferee of a financial asset with a non-cash collateral (such as a liability instrument or equity instrument investment), this enterprise and the transferee shall make treatments according to the following provisions: (1) If the transferee has the right to sell the collateral or reuse it as a collateral according to the contract or practices, the enterprise shall put it into a new category in the balance sheet date and present it separately; (2) If the transferee has sold this collateral, the transferee shall recognize the obligation to return the collateral as a liability at its fair value; (3) If the enterprise loses the right to redeem the collateral, it shall stop recognizing the collateral and the transferee shall recognize the collateral as an asset at its fair value. If the transferee has sold the collateral, it shall stop recognizing the obligation to return it; and (4) In a circumstance other than that as described in Item (3), the enterprise shall continue recognizing the collateral as an asset. |
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