These Operational Guidelines are adopted pursuant to Article 7 of the Taiwan Stock Exchange Corporation Operational Rules for Audits of Securities Firms.
For the purposes of these Operational Guidelines, "securities firm audit deficiency" means a following matter found in a general audit (including routine and selective audits) of a securities firm conducted by the Taiwan Stock Exchange Corporation (TSEC) or a routine audit of a securities firm conducted by the GreTai Securities Market (GTSM): a violation of a law or a regulation applicable to the centralized securities market, a deficiency in finances or operations, or a rating of the securities firm's internal auditing operations (including self-auditing operations at a securities firm's branch office) as "substandard".
Follow-up, assessment, and guidance with respect to deficiencies in finances and operations:
- When a deficiency in a securities firm's finances or operations is found in an audit, the TSEC may dispatch personnel to provide on-site guidance as it deems necessary in view of the seriousness of the deficiency.
- From the date a securities firm receives a letter of disposition from the competent authority or the TSEC, it shall compile a report on its corrective and preventive measures with respect to the deficiencies found. It shall also list those deficiencies as additional auditing items for daily tracking by its internal auditing department for the next 10 successive business days and prepare a respective comprehensive auditing report, to include an audit statement, an itemized audit report, and audit working papers, to be presented with the aforementioned report to the competent authority for recordation. When the deficiencies involve centralized custody operations, the Taiwan
- The TSEC shall review the report of the preceding subparagraph, submitted by letter by the securities firm, and gain an understanding of the firm's corrections in regard to the deficiencies. When any matter has not been carried out in accordance with the preceding subparagraph or has not been reported fully and accurately, the TSEC shall dispatch personnel to conduct on-site guidance.
- When a deficiency in finances or operations of a securities firm is serious and when a related targeted examination is already being performed, guidance of the securities firm shall be performed in accordance with the Regulations Governing Targeted Examinations of and Guidance to Securities Firms.
Follow-up, assessment, and guidance with respect to a rating of "substandard" for internal auditing operations:
- When a securities firm's internal auditing operations have been rated as "substandard," the TSEC shall notify the securities firm to issue a warning disposition to its internal auditors or self-auditing personnel in accordance with relevant regulations (the managerial officers at a branch office of a securities firm conducting self-audits and the internal auditing personnel of the firm's head office responsible for their supervision shall also bear responsibility for lack of appropriate supervision), and in addition, shall require that the securities firm submit within one week a self-assessment report on internal auditing operations, which shall include concrete measures for correction and which shall be submitted to the TSEC for recordation after being signed or chopped by the securities firm's responsible person and its internal auditors.
- The TSEC shall send personnel to the securities firm within one month to perform detailed verification of the self-assessment report of the preceding paragraph, and shall step up guidance of the securities firm in implementation of the internal auditing procedures adopted by the securities firm as well as redoubling the rate and scope of test audit items, which shall be rigorously performed.
- If a securities firm's internal auditing operations have been rated "substandard," but repeated guidance and assessment do not achieve correction and a related targeted examination is already being performed, guidance of the securities firm shall be performed in accordance with the Regulations Governing Targeted Examinations of and Guidance to Securities Firms.
The TSEC shall produce a report, to be kept on file for reference, for each instance of follow-up, assessment, and guidance with respect to an audit deficiency of a securities firm.
When there has been no correction in a securities firm's audit deficiency following provision of guidance, the TSEC may impose more serious penalties against the securities firm or its relevant personnel in accordance with applicable regulations, and shall report the same to the competent authority.
These Operational Guidelines, and any amendments hereto, shall be announced and implemented following submission to and approval by the competent authority.