I General Principles
|Article 1|| These Procedures are adopted in accordance with Articles 47, 48, and 53 of the Taiwan Stock Exchange Corporation (TWSE) Operating Rules and Article 2 of the TWSE Contract for the Listing of Stock to strengthen regulation of the financial and business affairs of listed companies.
|Article 2|| Except as otherwise provided by laws, regulations, or rules, regulation of the financial and business affairs of a listed company by the TWSE shall be conducted in accordance with these Procedures. If there is a change to any article of law or regulation on which a provision of these Procedures is based, the new provision shall govern.
Document review procedures regarding filings for effective registration, or applications, by listed companies to offer and issue securities shall be separately prescribed.
These Procedures do not apply to listed companies in the financial, insurance, and securities industries or to foreign issuers.
II Routine Regulation
|Article 3|| For purposes of these Procedures, routine regulation means TWSE’s regulation of the financial and business affairs of a listed company in accordance with Chapter II or with securities related laws and regulations as well as regulations and public notices of the TWSE.
For purposes of these Procedures, regulation by exception means TWSE’s regulation of the financial and business affairs of a listed company to which a material event as in Article 8 has occurred.
|Article 5|| The TWSE shall select companies subject to audit based on the following criteria:
- Selection is based on the following criteria:
If a company that is selected as subject to audit pursuant to the aforementioned criteria was selected for audit in the previous quarter, the company may be excluded from the selection list.
- Financial items:
- There is a relatively substantial year-on-year change in operating revenue, operating income, or net profit before tax.
- The share of the losses of associates and joint ventures accounted for using the equity method reaches a certain monetary amount or reaches a certain percentage of the company's current operating income, or a subsidiary's total holdings of the parent company's equity reaches a certain percentage of the parent company's equity.
- The total amount of purchases from (or sales to) related parties for the current period reaches 20 percent or more of the total amount of the purchases (or sales) in the financial report, or shows a year-on-year increase of 50 percent or more and reaches 3 percent or more of equity.
- The ending balance of receivables from related parties and advance payments to related parties reaches 10 percent or more of equity, or increases by 50 percent in the current quarter and reaches 3 percent of equity.
- The cumulative amount of assets traded (excluding purchase and sale transactions) with related parties in the current period accounts for 3 percent or more of the total assets at period-end.
- The increase in the amount of loans to others in the current quarter reaches 3 percent or more of equity; or the cumulative amount of loans to others at the end of the period reaches 10 percent or more of equity.
- The increase in the amount of endorsements and guarantees in the current quarter reaches 10 percent or more of equity; or the cumulative amount of endorsements and guarantees at the end of the period reaches 30 percent or more of equity.
- Financial ratios are poor.
- The amount of non-current equity investment accounts for a great share of equity.
- Net worth per share is too low; the net worth means the equity attributable to owners of the parent.
- The amount of increase or decrease in non-current equity investment of the current period accounts for a greater share of equity.
- Non-financial items:
- Resignation of a financial officer.
- Resignation of an accounting officer.
- Resignation of an internal audit officer.
- Resignation of a research and development officer.
- Change of certified public accountant (other than an internal adjustment at the accounting firm).
- Change in shareholdings of directors/supervisors, including those of their related parties as mentioned in Article 22-2, paragraph 3 of the Securities and Exchange Act.
- Change of directors/supervisor (including independent directors), or resignation of the chairperson or general manager.
- The board of directors is authorized to pay compensation for directors/supervisors in accordance with standards in the same industry, and the compensation paid is found to be unreasonable according to the screening criteria.
- The filed report of the most recent month shows that pledges created by directors/supervisors exceed 50 percent or more of the actual shareholdings of all directors/supervisors, including pledges and shareholdings of their related parties as mentioned in Article 22-2, paragraph 3 of the Securities and Exchange Act.
- The financial operations of the company are materially affected by any litigation in the most recent year.
- The financial officer or accounting officer is related within the second degree of kinship with any of the directors/supervisors.
- A company that meets any of the following criteria is required to be listed as a company subject to audit, provided that it need not be listed if, after analysis, implementation of the audit is deemed unnecessary:
- A company for which any irregularities are discovered by a formality review of its financial report.
- There is a change in managerial control.
- There is a material change to its scope of business.
- A company for which the normal trading method is reinstated for its TWSE listed securities because it has satisfied applicable requirements set forth in the TWSE Operating Rules after the trading of the securities was suspended or placed under an altered trading method due to a change in its managerial control and a material change to its business scope.
- There have been consecutive deficits in the most recent 3 years and the incremental amount of current pre-tax income as compared to the same period of the preceding fiscal year reaches 30 percent or more of the amount of share capital stated in the financial report. In the case of shares having a par value other than NT$10, for the calculation of the aforementioned 30 percent of share capital, 15 percent of equity shall be substituted.
- The incremental amount of net loss before tax as compared to that in the same period of the preceding fiscal year reaches 30 percent or more of the share capital stated in the financial report. In the case of shares having a par value other than NT$10, for the calculation of the aforementioned 30 percent of share capital, 15 percent of equity shall be substituted.
- Any of the criteria specified in item 1, sub-items 3, 4, and 8 of the preceding subparagraph is met, and the sum in question is large, the financial ratio is poor, and the company has not undergone a special audit in the previous quarter.
- There is uncertainty about the company's ability to make repayment at maturity for corporate bonds issued by it.
- Cash and cash equivalents account for too high a percentage of share capital stated in the financial report, and there is no capital expenditure plan.
- The amount of prepayments, or the volatility thereof, is large or irregular.
- The amount of unrealized loss in the trading of derivatives reaches NT$100 million and amounts to 3 percent or more of equity, or the amount of open interest held for trading purposes in the period amounts to 40 percent or more of the share capital stated in the financial report. In the case of shares having a par value other than NT$10, for the calculation of the aforementioned 40 percent of share capital, 20 percent of equity shall be substituted.
- The CPA, in the annual financial report, with respect to equity investment in another enterprise, uses and gives too much weight to audit work of other CPAs. The interim financial report, with respect to equity investment in another enterprise, uses and gives too much weight to review work of other CPAs or to material that has not been reviewed by a CPA.
- A company newly added to the Key Financials Section [of the Market Observation Post System] in the current quarter.
- The receivables and amount of inventory in the financial report account for too high a percentage of equity.
- The receivables past due for 1 year or more in the financial report reach a certain monetary amount or reach a certain percentage of equity.
- A company whose financial report indicates a change in accounting policy or accounting estimates.
- The amount of the current change in intangible assets accounts for 3% or more of the total assets.
- The discrepancy between the company's own unaudited (unreviewed) figures and the accountant's audited (reviewed) figures of the current operating revenue reaches 5% or more.
- A company for which audit is required by the TWSE for other reasons.
- During each selection, the TWSE also randomly chooses companies for review based on the following criteria:
- Companies that have not undergone routine regulation, regulation by exception, or substantive review of financial report for the most recent 3 years.
- Companies that have been announced as disposition securities in the the most recent quarter by the TWSE.
- Other criteria for random selection.
III Regulation by Exception
IV Penal and Supplementary Provisions
|Article 12|| An audited company shall provide the materials required for routine regulation or regulation by exception in accordance with Article 47, paragraph 1, subparagraph 6 and Article 53, paragraph 1 of the TWSE Operating Rules. If the audited company, without legitimate reason, does not provide relevant materials within the time limit, the TWSE may, impose a monetary penalty in the amount of NT$30,000 on the audited company; if the cumulative number of penalties imposed within the most recent one year reaches two or more, or if the circumstances of an individual case are due to willful misconduct or gross negligence, the TWSE may, depending on the seriousness of the circumstances, impose a monetary penalty in the amount of NT$50,000 to NT$5,000,000 per instance, or alter the trading method or suspend the trading of the listed securities in accordance with Articles 49 or 50 of the TWSE Operating Rules.
An audited company on which monetary penalty has been imposed shall pay the penalty to the Finance Department of the TWSE within five days of receipt of the TWSE notice.