The revised CPA Law in Taiwan has been hailed an important milestone for the nation’s accounting profession by industry leaders.
The reformed legislation, implemented by Taiwan’s Financial Supervisory Commission (FSC) last December, aligned domestic accounting rules with international standards. It provides accounting firms greater choice in organisation structure and clarifies firm liability. Industry leaders predict the changes will strengthen the practice environment.
Grant Thornton Taiwan managing partner Jay Lo said: “These changes will ensure elements such as reports are much more accurate and timely for today’s international accountancy world. The public and other talented people within the market can thus have much greater faith and a much greater reliance on the work we do.”
Many sections of Taiwan’s CPA Law had not been amended since they were first introduced in 1945 and were outdated. The FSC first proposed these amendments in 2005 and they were implemented in December 2007.
Limited liability model One of the major changes impacting on the profession is the diversification of organisation type. Lo explained that previously CPAs could only practice as either a sole practitioner or an unlimited liability partnership/accounting alliance.
“The problem was if a partnership hit any misfortunes then all the partners would go insolvent,” he said.
Under the new law, an accounting corporation is now allowed to be recognised as a ‘legal person’, which should consist of more than three registered CPAs and only the shareholders of the corporation can practice on its behalf. One of the main advantages that falls under this new ‘legal person’ entity is limited liability.
Lo explained: “The new law is beneficial in the fact that only the partner who violates the law and regulations will be liable and all other partners will now be protected.”
The limited liability partnership path is likely to be pursued by the Big Four with the mid-tier adopting a wait and see approach. PricewaterhouseCoopers Taiwan managing partner Wen-Horng Kao said the firm is already organised in this way as such partnerships are spread across PwC’s global network.
“I think for most of the Big Four firms these requirements should be complied with already,” he said. “Our global policy generally means we are ahead of this law in terms of internal operation and organisation. So this will have no real impact in terms of restructuring.”
Grant Thornton is cautious about adopting the new model until the government establishes how a limited liability partnership will affect other related regulations.
Lo said: “Grant Thornton is very optimistic in the way we expect our firm to change to a limited liability partnership in the near future. The reason we have not done so yet is because there are other related regulations that have not been clearly announced yet; one of which is income tax. We are still waiting for the government to advise us what the tax impact for converting to a limited liability partnership is.
“[This month], the government confirmed that limited liability partnership would continue to be exempt from value-added tax but they still have not decided what they are going to do with income tax, so no-one has converted to a limited liability partnership as yet. Grant Thornton does believe, however, that the change will only enhance our market position and improve our image. It will also allow us to recruit and retain talented people to our organisation.”
Consolidation beckons According to Lo, third-tier firms will struggle to adopt the new model because it will become mandatory to take out insurance. “After you convert to a limited liability partnership you must buy professional indemnity insurance, which is considered to be very expensive in Taiwan,” he said.
“For a firm like ours we believe we have the economy of scale and can afford to buy the insurance. For smaller firms, the professional liability insurance may stop them converting to a limited liability partnership. They may have to merge with other smaller firms, or even with the Big Four in order to achieve their economy of scale.”
Consolidation is expected to heighten due to the implications of the new legislations, according to Kao. He said: “Consolidation will take time, but the new law will encourage smaller firms to merge.
“We think the second- and third-tier firms will start their mergers by themselves, because it may be harder for them to meet our quality control and computer audit systems, but that is not to say it will be impossible to merge into the Big Four.”