Major Board Resolution
The Company (TWM) proposed to change its accounting policy regarding bundle sales starting from January 1, 2013
1. Date of the board of directors resolution: 2013/01/31
2. The nature of the change: The Company proposed to change its accounting policy regarding bundle sales from Residual Method to Relative Fair Value Method.
3. Reason for the change: To comply with the developing trend of IFRS (International Financial Reporting Standards), the Company and its subsidiary, Taiwan Fixed Network Co., Ltd (TFN), referring to common practices of most of the large telecom companies worldwide and research reports from professional public accounting firms, proposed to change their accounting policies regarding bundle sales from Residual Value Method* to Relative Fair Value Method**. The aforementioned accounting policy change is to fairly present the substance of a transaction as well as to properly match the revenue and its corresponding expense within a contract period, so as to enhance financial disclosure transparency of the Group.
*Residual Value Method: Telecom service revenue and product sales revenue should be recognized according to the respective actual amounts received from customers.
**Relative Fair Value Method: Telecom service revenue and product sales revenue should be recognized according to the proportion of their respective fair value in a bundled contract.
4. The prior periods affected by retrospective application of the new accounting policy: Starting from January 1, 2013
5. The line items affected and the actual effect for the immediately preceding financial year: The affected items included consolidated revenue, administrative expense and income tax expense, which resulted in an increase in net income of NT$1,748,679 thousand for 2012.
6. The actual effect on the opening balance of retained earnings for the immediately preceding financial year: NT$5,424,092 thousand increase in the opening balance of retained earnings for 2012.
7. The reasonableness and necessity for the change in accounting policy or accounting estimate after the beginning of the financial year: The newly published exposure draft of IAS (International Accounting Standards) No.18 ”Revenue”, which provides a clearer guidance about bundle sales, will be released as a final standard in the first half of 2013. In view of the readiness of the system developed for the new accounting policy and the completion of calculating the affected items and amounts in financial reports, the company proposed to adopt the new accounting policy from January 1, 2013.
8. If retrospective application is impracticable, specify the reasons, how and from when the accounting policy change be applied: None
9. If retrospective application is impracticable, CPA provides the opinion about the impact of the audit opinion for the financial year preceding the accounting change: None
10. About the reasonableness of the item 2 to 9, the itemized analysis and reviewed opinion from CPA: The independent auditor, KPMG accounting firm, has issued a reviewed opinion on the abovementioned items 2 to 9 as follows: The certified public accountant (CPA) has reviewed in accordance with Article 6 of the Guidelines Governing the Preparation of Financial Reports, and issued an opinion on TWM’s and TFN’s changes in accounting policy. The nature and reasons of the aforementioned change and the reasonableness and necessity of adopting the change after the beginning of a fiscal year as well as the content of consolidated affected amounts and so on are fair.
11. Objection or reservation opinion from the independent directors: None
12. Countermeasures: The Company’s Board approved the abovementioned accounting policy change on January 31, 2013. The resolution will be publicly disclosed and filed and then submitted at the forthcoming AGM.
13. Any other matters that need to be specified: None