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 4|| The TWSE selects at least 10 percent of annual financial reports, at least 5 percent of Q2 and Q3 financial reports, and at least 3 percent of Q1 financial reports as companies to be audited. A listed company (excluding listed Taiwan Depository Receipts) shall be selected at least once every 5 years as a company to be audited.
After selecting the companies subject to audit, within 20 days after the deadline for the submission of financial reports, the TWSE shall submit the company names and the reasons for writing any special reports to the competent authority for recordation, and shall complete the special reports within 45 days thereafter, and then submit the reports to the competent authority for recordation. If, however, the audit case is complex and requires a longer period of time, the TWSE may file with the competent authority for approval to extend the audit period, provided that the extension may not be longer than 1 month.
If any of the following circumstances is found to exist after the audit is conducted, it shall be handled immediately:
- Any material irregularity or violation of securities-related law or regulation shall be reported to the competent authority for further handling.
- Any violation of the TWSE Operating Rules shall be handled in accordance with the Operating Rules.
|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 prepayments 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 lending funds to others in the current quarter reaches 3 percent or more of equity; or the cumulative amount of lending funds 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 profit before tax 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.
|Article 6|| The following items shall be included in an audit:
Attention shall be given to the following matters in the audit:
- An explanation of the impact on the company of the reasons for which it was subject to the audit, and the company's response measures.
- The attesting CPA's opinions on relevant matters, when necessary.
- Any violation of the securities-related laws or regulations found during the audit.
- Any measures adopted by the TWSE.
- Suggestions to the competent authority.
If any violation of securities-related laws or regulations is found during the audit, [the TWSE] shall issue a letter notifying the listed company to make improvements. If the circumstances are severe, the TWSE may issue a letter requiring the company to send personnel to attend education classes held by an organization designated by the competent authority, and forward a copy of the letter to the organization. If the company does not send the personnel to attend the classes, the TWSE may, depending on the nature of the deficiencies, list the company as a priority subject for auditing in subsequent substantive reviews of financial reports, routine regulation or regulation by exception, or internal control system audit.
- Whether investment in derivatives is duly disclosed.
- Whether there is any irregularity in trading with related parties.
- Whether there is any lending to others for any reason other than as necessary for company business transactions.
- Whether there is any irregularity in the purchase or sale of block assets.
- Whether any endorsement or guarantee is made for others for any reason other than as necessary for company business transactions.
- Whether the operations of the board of directors comply with regulations.
- Progress on improving any deficiencies, or follow-up review of any irregularities, listed in the previous review.
|Article 7|| The TWSE shall continue to follow and ascertain any changes in the operation condition of audited companies after they produce a special audit report, and list them as companies for priority test audit for the verification of material information for each quarter.