Taiwan’s accounting profession has entered
a challenging period following the recent announcement of a
timetable for the adoption of IFRS and an approaching deadline for
accounting firms to decide their public liability status.

New standards and changes in tax laws are
expected to generate additional work for accountants, yet there is
increasing competition among the large number of small practices
due to a trend for manufacturing clients to move operations out of

The Big Four and mid-sized accounting firms
are poised to benefit from improved relations between Taiwan and
Mainland China following the election of the Taiwan Nationalist
Party (Kuomintang) president Ma Ying-Jeou last year on a pro-growth

Ma, a Hong Kong-born former mayor of Taipei,
won votes with plans for economic expansion after years of
relatively slow economic growth under former president Chen Shui
Bian, who failed to develop co-operation with Beijing.

Warming relations between Taiwan and China
have lifted Taiwan’s economic outlook since the beginning of this
year and given the local stock market an important boost.

Taiwan’s estimated 2,100 accountants could see
a 25 percent increase in demand for their services within the next
three years, according to the local newspaper Economic Daily
. The report forecasts a further 5 percent increase during
this period if another 250 companies list on the Taiwan Stock
Exchange in response to government tax incentives and other
initiatives to persuade Taiwanese companies in China to list in

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Big Four dominance

The Big Four audit about 84 percent
of Taiwan’s public listed companies, according to the National
Federation of CPA Associations of the Republic of China (NFCPAA).
Medium-sized accounting firms audit the remainder as local
regulations specify audit firms must employ a minimum of three CPAs
to audit a public company.

Big Four firms employ about 18 percent of CPAs
in Taiwan. Second-tier accounting firms employ about 15 percent of
CPAs and sole proprietors account for the remaining 67 percent.

Taiwan’s planned adoption of IFRS will present
accounting firms, especially sole practitioners, with new

In May, Taiwan’s Financial Supervisory
Commission (FSC) announced a two-phase timetable for listed and
non-listed companies to adopt IFRS.

Local companies listed on the Taiwan Stock
Exchange or the Gre Tai Securities Market and financial
institutions under FSC’s supervision must adopt IFRS by 2013.

Non-listed companies, credit co-operatives,
credit card companies and insurance companies must adopt IFRS by

The Taiwanese government previously hesitated
on IFRS adoption due to uncertainty over whether the US would adopt
the international standards.

The Big Four encouraged the government to
proceed due to increased foreign shareholding in Taiwanese
companies, which has resulted in demands for higher standards of
financial reporting. However, small businesses opposed IFRS
adoption, saying they do not have the resources to meet the

“IFRS has recently become a hot topic between
the government, academics and practicing accountants,” says Roger
Shih, an international affairs and audit committee member at Taipei
Provincial CPA Association, one of the three bodies that form the

Amendments to Taiwan’s Certified Public
Accountants Law that were passed on 1 January 2008 are expected to
boost the quality of accounting services and bring Taiwanese
accounting rules in line with international standards.

One amendment aims to ensure auditors play
their part in preventing corporate fraud similar to that which
occurred in the collapse of hardware manufacturer Procomp
Informatics in 2005 and the Rebar Group in 2006-2007.

But the most important change clarifies
accounting firm liability. This could cause a wave of mergers among
small and medium accounting firms as they seek to achieve the
economies of scale needed to operate viable practices. These
mergers would be a new phenomenon in Taiwan where most businessmen
want to retain their autonomy.

Final details of the amendments are still
being sorted out between the FSC and NFCPAA, but the revised law is
expected to have a greater impact on mid-tier and small firms than
the Big Four.

“Under the new CPA Law, accounting firms are
allowed until the end of 2009 to decide which status they will
take,” Shih remarks. “Accounting firms are waiting, no one has made
any announcements yet. They are thinking of their taxation exposure
as they could be liable to pay business tax. At present accountants
just pay personal income tax.”

The NFCPAA is currently campaigning for the
government to waive business income tax.

Neighbourly relations

Meanwhile, Taiwan’s policy of
developing closer relations with China is encouraging the growth of
closer ties between the Taiwanese and Chinese accounting

This process is expected to continue as
economic co-operation between Taiwan and the mainland expands. An
economic co-operation agreement between the two countries is due to
be signed this year.

The government is also reviewing Taiwan’s
taxation system, including corporate tax rates and incentives.
Corporate tax will be reduced from 25 percent to 20 percent from 1
January 2010 as part of government efforts to attract investment to
Taiwan and encourage Taiwanese companies to list their China
operations in Taiwan.

Cross-border ties

The Big Four and some mid-tier
accounting firms in Taiwan and China already offer cross-border
services to clients with business activities in both territories.
Development of ties by Taiwan and China’s accounting professions is
one of the topics discussed by NFCPAA and its CPA association
members during regular meetings with the Chinese Institute of
Chartered Public Accountants (CICPA) and the provincial CPA
organisations across China.

“At present it is not possible for Taiwanese
and mainland accounting firms to join or merge, but some accounting
firms in Taiwan and China have co-operation arrangements for client
referral, information sharing and other matters,” Shih explains.
“Some Taiwanese accounting firms doing this are linked to a
mid-tier international practice.”

The Taiwanese government has no restriction on
Taiwanese accounting firms’ relations with mainland Chinese
accounting firms but the Taiwanese government does not accept
Chinese accounting firms’ audit reports except from the Big Four,
Shih says.

Of Taiwan’s estimated 2,100 CPAs, about 1,800
work in the capital, Taipei. Most of the remaining 300 are in

Almost 95 percent of CPAs are thought to be in
public practice. The Ministry of Finance, Ministry of Justice and
other government departments employ a combined total of about 100
accountants. Relatively few qualified CPAs work for industrial or
commercial organisations.

As a large number of manufacturing companies
have moved operations from Taiwan to China during the past decade,
the accounting profession’s workload has declined.

“There is an oversupply of accountants in
Taiwan,” Shih notes.

“Sole practitioner accounting firms now do
various jobs – they consult for private companies, do tax work,
also personal finance, teach in schools and other things.

“They do not specialise in one area. They do
many things.”

Another reason competition among accounting
practices has intensified is accountants in Taiwan share the
accounting market with bookkeeping specialists who do bookkeeping,
tax work and accounting.

“They cannot do audit but they can do
consulting for tax and accounting. Their market share is growing as
they are cheaper than accountants,” Shih explains.

Many bookkeepers are early retirees from
government departments who have good connections with government
agencies and find it easy to attract private clients.

“Their clients think they can solve problems
for them because of their connections in government. Since 2003
they must be licensed. They were not licensed before,” Shih


Most prospective accountants study
accounting at local universities. About 40 universities offer
accounting courses. Graduates then join an accounting firm for a
minimum of two years in an accounting related position to get a CPA
licence. The final CPA exam pass rate is about 16 percent each

With a pass rate that low, the profession may
be over staffed and under-worked, but at least there are no floods
of new entrants.

The profession will be looking forward with
hope that the improved business environment will give them room to


The changing shape of the

The Taiwanese accounting profession
is represented by three associations operating under an umbrella
federation. There are local government plans to consolidate this
into one body, but this is receiving opposition from China.

The umbrella organisation is the National
Federation of CPA Associations of the Republic of China (NFCPAA),
which was founded in Nanjing, China, in 1946.

The three groups the NFCPAA is comprised of
are the Taiwan Provincial CPA Association, Taipei City CPA
Association and Kaohsiung City CPA Association.

CPA members pay an annual fee to the
associations, which in turn fund the NFCPAA. There is no government
funding. The three associations also appoint delegates to the
NFCPAA’s committees.

The Taiwan Provincial CPA Association was set
up in 1950 and covers the whole of Taiwan including the capital,
Taipei, in the north and the second-largest city, Kaohsiung, in the

Following two decades of economic development
that caused rapid growth in Taipei and Kaohsiung, Taipei CPA
Association was set up in 1970 followed by Kaohsiung CPA
Association in 1979. Practising CPAs must register with two of the
three associations, which allows them to practice either in Taipei
and other areas excluding Kaohsiung, or Kaohsiung and other areas
excluding Taipei.

CPAs must register with all three associations
to practice throughout the whole of Taiwan.

The role of NFCPAA includes overseeing the
education of accountants and acting as a communications channel
between the accounting profession and the government.

The associations provide staff for service
centres in the offices of the Ministry of Finance, the Ministry of
Economic Affairs, the Taipei and Kaohsiung national tax
administration offices, and the main national tax administration
offices throughout Taiwan.

Practising accountants are regulated by the
Commercial Department of the Ministry of Economic Affairs. In
addition, the government’s Financial Commission controls CPAs that
audit listed companies. Consequently, some accountants are
regulated by two organisations.

The Taiwanese government has plans to
reorganise the accounting profession’s current structure, replacing
the NFCPAA and three CPA associations with a single unified body
representing Taiwan’s accounting profession. However, this remains
stalled due to opposition from Beijing.

“It is impossible to merge as we have to have
relations with China’s accounting profession and China wants to
deal with three local accountant associations in Taiwan and not one
island-wide body,” explained Roger Shih, an international affairs
and audit committee member at Taipei Provincial CPA

Staying in favour with the Chinese profession
is important as the Taiwanese organisations undertake joint
activities with the Chinese Institute of CPAs (CICPA) and want this
to continue, Shih said.

The NFCPAA meets with the CICPA annually and
also meets regularly with CICPA provincial associations.

“Most of the issues we discuss are how we
should co-operate in business to serve Taiwanese companies in
China; also, the tax situation, labour laws, customs regulations
and other matters, and their impact on business,” Shih said.