The revised CPA Law in Taiwan has been hailed an important
milestone for the nation’s accounting profession by industry

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were first introduced in 1945 and were outdated.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.

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.

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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

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

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

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

“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.”