CMC Magnetics and Ritek, the top two producers of optical discs in Taiwan, may observe a reduction in total value of assets as a result of the enforcement of new accounting and financial reporting criteria on January 1, 2005, according to local stock market analysts. For assets and liabilities reported, non-operating investment in subsidiaries or other enterprises is valued according to acquisition cost, i.e. using a cost approach, according to old accounting and financial reporting criteria. However, the new criteria require that the value of non-operating investments and intangible assets not exceed market value (as measured by stock prices or sale prices), equivalent to valuation based on a market approach, the analysts pointed out. In many cases, market value is less than the original acquisition cost, the analysts indicated.

The enforcement of the new criteria will require most companies to reassess their asset value, the analysts noted. This could have a seriously negative impact on CMC and Ritek, as both have large portions of their asset value based on non-operating investment in many subsidiaries, of which most still suffer operating losses, the analysts said.

According to estimates by institutional investors in the local stock market, Ritek will suffer a reduction of at least NT$1.5 billion in its asset value after reassessment, while CMC will lose around NT$1 billion.