The Impact and Management Strategy of Taiwan Banking Industry by New Regulation On Fair Value of Finanical Instrument

• Main Authors: Lin,Mei-Lin, 林玫伶
• Other Authors: Goo,Yeong-Jia +Lin,Joun-Gyol
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/52895831509428427092

碩士 === 國立臺北大學 === 國際財務金融碩士在職專班 === 93 === There are growing numbers of financial frauds recently. When probing into the phenomenon, we find that the main causes could be the off-balance-sheet financing techniques regarding derivatives, improper loss deferring, early recognition of revenue, failure in disclosure, improper operation, and deficient internal controls. Hence, the new accounting approach requiring companies to carry at the fair price was brought up. To the general companies valuating by the traditional approaches, cost-based and lower of cost or market, it is a dramatic reformation. Companies would be required to recognize the variables of specific items in the income statement and the balance sheet rather than merely disclose them in the footnotes. According to my research and case studies, I make several conclusions below: 一、Feasibility of fair value approach: (一) Positive effects: (1)predictability (2)comparability (3)conformable to the practice of positive financial risk management (4)recognizing the variation in market value to present the righteous value in the financial statement (5)reflecting the effects immediately (6)less complexity (7)simplified approach of hedging accounting. (二) Negative effects: (1)larger volatility (2)financial assets and debts are incomparable with those non-financial (3)lacking actual transaction basis (4)high cost of obtaining the accurate fair value (5)insufficient stability (6)less known by the public (7)suspicion of manipulation 二、The new approach has several impacts on the financial reports of the bank industry, such as: (一) Long-term investment loss would be classified as the deduction to the book value, affecting the operation. On the other hand, gains and losses on short-term investment would be more volatile due to its characteristic. (二) In this research we find that after the new approach is in effect, the values of non-derivatives have slight impact on the financial statement because they account for large proportion of assets. On the other hand, although the value of derivatives is more volatile, it also has slight effect on the income statement because it is mainly for hedging and accounts for a small proportion of assets. (三) Since companies adopted the new approach, the financial ratios will be altered. Therefore, money managers should re-evaluate those figures. 三、The recommended future strategies: (一)Since derivatives are difficult to valuate fairly, we can barely measure the risks. Therefore, we ought to review the internal controls and establish well-developed ones which would help banks to manage market risk effectively. (二)The financial statements would reflect more of reality, and the management effectiveness and company value as well. When using CAMEL(Capital Adequacy, Asset Quality, Management Earnings, Liquidity), we should contemplate adjusting the overall investment policy in order to raise the business values. (三)Dimensions of CAMELS: 1. Capital Adequacy: set a model to warn about the risks in order to determine whether the capital structure is adequate. 2. Asset Quality: establish the system to monitor the asset quality of banks in order to 3. Management: 4. Earning: 5. Liquidity: 6. Sensitivity to market risks Key-word：Finanical Instrument、fair value、statements of financial Accounting standards NO.34、IAS NO.39、Impact of Taiwan Banking Industry、Management Strategy of Taiwan Banking Industry