Section I Review of Financial Reports and Financial Forecasts |
| Article 7 | When a TWSE primary listed company and a TIB primary listed company prepares or restates annual, first quarter, second quarter, or third quarter financial reports under the mutatis mutandis application of Article 36 of the Securities and Exchange Act pursuant to Article 165-1 of the same Act or pursuant to Article 6 of the Enforcement Rules for the same Act, or when it prepares, updates, corrects, or restates financial forecasts pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies, the TWSE may conduct a review of the relevant data.
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| Article 8 | The scope of review by the TWSE in connection with the financial reports listed in the preceding article shall be CPA audit or review reports and financial statements. In the case of financial forecasts, it shall be CPA reports with assurance provided, pro forma financial reports, financial forecast statements, summaries of significant accounting policies, and summaries of major accounting assumptions.
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| Article 9 | Reviews of financial reports and financial forecasts of TWSE primary listed companies and TIB primary listed companies are categorized as either formal reviews or substantive reviews. Formal reviews apply to all TWSE primary listed companies and TIB primary listed companies; substantive reviews are conducted pursuant to paragraphs 2 and 3.
In the TWSE’s substantive review ofa TWSE primary listed company’s or a TIB primary listed company’s financial reports, the case selection rate is in principle at least as follows: 35 percent for annual financial reports,25 percent for each period of each of second-quarter and third-quarter financial reports, , and 15 percent for first-quarter financial reports. A TWSE primary listed company or a TIB primary listed companymust be selected for an audit at least once every 5 years. The specific criteria for selecting companies to be audited are as follows:
- Financial reports for the relevant period shall be selected based on the following criteria:
- Financial Items:
- There is a relatively substantial year-on-year change in operating revenue, operating income, or profit before tax.
- The share of losses by associates and joint ventures accounted for using the equity method reaches a certain monetary amount or a certain percentage of the company's current operating income, or total holdings of parent company equity by subsidiaries reaches a certain percentage of the parent company's equity.
- The total amount of purchases from (or sales to) related parties in the current period reaches 20 percent or more of the total amount of purchases (or sales) in the financial report, or shows a year-on-year increase for the current period of 50 percent or more and the amount also reaches 3 percent or more of equity.
- The period-end balance of receivables from related parties and advance payments to related parties reaches 10 percent or more of equity, or increases by 50 percent or more from the beginning of the period and also reaches 3 percent of equity.
- The cumulative amount of assets traded (excluding purchases and sales of goods) 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 period end 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 period end 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. "Net worth" refers to 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 great 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 or supervisors, including those of their related parties as mentioned inparagraph 3, Article 22-2 of the Securities and Exchange Act.
- Change of directors or supervisors (including independent directors), or resignation of the chairperson or general manager.
- The board of directors is authorized to pay compensation for directors and supervisors in accordance with industry standards, and the compensation paid is found to be unreasonable according to the screening criteria.
- The information filed for the most recent month shows that directors and supervisors' pledges account for 50 percent or more of the actual shareholdings of all directors and supervisors, or the pledges of the chairperson and the general manager account for 50 percent or more of their actual shareholdings,including pledges and shareholdings of their related parties as mentioned in paragraph 3, Article 22-2 of the Securities and Exchange Act.
- The financial operations of the company have been materially affected by any litigation in the most recent year.
- The financial officer or accounting officer is related within the second degree of kinship to a director or supervisor.
If a company selected for auditing pursuant to the aforementioned criteria was selected in the previous quarter, it may be excluded from selection during the current quarter.
- A company that meets any of the following criteria shall be listed as a company requiring an audit. However, if implementation of the audit is deemed unnecessary after analysis, it need not be listed:
- A company for which any irregularities are discovered by a formal review of its financial report.
- There is a change in managerial control.
- There is any material change in its business scope.
- The normal trading method is reinstated for the company's listed securities because it has satisfied applicable requirements set forth in the TWSE Operating Rules after the trading of its securities was suspended or placed under an altered trading method due to a change in the company's managerial control and a material change to its business scope.
- There have been consecutive deficits in the most recent 3 years and incremental amount of current profit before tax as compared to the same period of the preceding fiscal year reaches30 percent or more of the amount of share capital stated in the financial report. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, 15 percent of equity shall be used for calculation instead of the above-mentioned 30 percent of share capital.
- The amount of increase in loss before tax relative to the same period in the preceding year reaches 30 percent or more of the share capital stated in the financial report. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, 15 percent of equity shall be used for calculation instead of the above-mentioned 30 percent of share capital.
- Any of the criteria specified in subparagraphs c, d, and h of item A of the preceding subparagraph is met, while at the same time the sum in question is large 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 the share capital stated in the financial report, and there is no capital expenditure plan.
- There is a material irregularity in the amount of prepayments or their volatility.
- 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 case of a foreign issuer with shares having no par value or a par value other than NT$10, 20 percent of equity shall be used in calculation instead of the above-mentioned 40 percent of share capital.
- A company newly added to the Key Financials and Transactional Information Section of the Market Observation Post System in the current quarter.
- Receivables and inventory amounts in the financial report account for too high a percentage of equity.
- The receivables past due for one year or more in the financial report reach a certain monetary amount or reach a certain percentage of equity.
- There is change in the accounting policies or accounting estimates stated in the financial report.
- 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 operatingrevenue reaches 5% or more.
- The audit committee or remuneration committee is unable to hold meetings as a result of the dismissal of the independent directors.
- A company for which audit is required by the TWSE for other reasons.
- During each selection, the TWSE will additionally randomly choose companies for review based on the following criteria:
- Companies that have not had a substantive review of their financial reports for the most recent 3 years.
- Companies having disposed securities in the most recent quarter as announced by the TWSE.
- Other criteria for random selection.
Substantive reviews of financial forecasts are selective audits. In addition to being subject to audit under any of the following circumstances, a company may be subject to a spot audit in any quarter as circumstances require:
- For TWSE primary listed companies and TIB primary listed companies that publicly disclose complete financial forecasts:
- Explanatory text for the quarter is not updated in that quarter, but is updated the following quarter.
- There is a decline of 30 percent or more in comprehensive income in the updated (or corrected) financial forecast relative to the original forecast, while the amount of the decline is also in excess NT$200 million.
- A company's own un-audited figure for comprehensive income or its CPA audited and attested figure for comprehensive income, reported after fiscal year end, declines by 20 percent from the figure for comprehensive income in the most recent publicly disclosed and filed financial forecast, while at the same time the amount of decline reaches NT$30 million and 0.5 percent of the share capital stated in the financial reports, and in addition, relative to the figure in the originally prepared financial forecast, also declines by 30 percent and in an amount in excess of NT$200 million. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, 0.25 percent of equity shall be used for calculation instead of the above-mentioned 0.5 percent of share capital.
- Comprehensive income in the updated (or corrected) financial forecast changes from surplus to deficit, while at the same time the amount of the difference exceeds NT$200 million or the updated (or corrected) figure for comprehensive losses reach NT$50 million.
- Questions are raised by external parties about a change in basic assumptions.
- For TWSE primary listed companies and TIB primary listed companies that publicly disclose summary financial forecasts:
- A decline in the CPA audited or reviewed figure for the current quarter's comprehensive income, relative to the figure in the most recent publicly disclosed and filed financial forecast, of 10 percent or more, when the amount of decline also exceeds NT$50 million.
- A decline in the figure for the current quarter's comprehensive income in the updated (or corrected) financial forecast, relative to the original financial forecast, of 10 percent or more, when the amount of decline also exceeds NT$50 million.
- Comprehensive income for the current quarter in the updated (or corrected) financial forecast changes from surplus to deficit, while at the same time the amount of the difference exceeds NT$100 million or the updated (or corrected) comprehensive losses for the current quarter reach NT$50 million.
- If forecasted comprehensive income is presented in interval estimates, calculation of the decline in comprehensive income for companies selected pursuant to the preceding paragraph will use the arithmetic mean of the upper and lower limits of the intervals for current quarter comprehensive income in the original and updated (or corrected) financial forecasts.
The competent authority may adjust the selection of companies for audit on the basis of paragraphs 2 and 3 as it deems necessary.
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| Article 10 | During review of the financial reports of a TWSE primary listed companyor a TIB primary listed company, items on the formal examination checklist and substantive examination checklist shall be checked item-by-item to ascertain whether their accounting treatment violates any relevant laws or generally accepted accounting principles. The following matters shall also be checked:
- Whether investment in derivatives products is duly disclosed.
- Whether there are any irregularity in trading with related parties.
- Whether there are any loans granted to others due to financing needs not arising out of company business transactions.
- Whether there are any irregularities in the purchase and sale of block assets.
- Whether there are any endorsements and guarantees for others due to needs not arising out of company business transactions.
- Whether the board of directors is operating in accordance with regulations.
- The status of improvement in deficiencies noted in previous reviews or follow-up review of previously noted irregularities.
During review of financial forecasts, items in the formal examination checklist and the substantive examination checklist shall be reviewed and checked item-by-item. In addition, the following matters shall also be checked:
- Whether there is any irregularity in the CPA conclusion with assurance provided.
- Whether the basic accounting assumptions in the financial forecasts are reasonable.
- Whether there is any irregularity in the point in time at which the financial forecasts were updated (or corrected).
- Whether all necessary items are included in the summaries of major accounting assumptions in the financial forecasts.
- The status of improvement in deficiencies noted in previous reviews or follow-up review of previously noted irregularities.
The following rules shall be observed in evaluating whether a listed company delays the updating (or correction) of financial forecasts:
- The discrepancy between the estimated figures before the update and the company's own un-audited figures shall be monitored on a monthly basis, and if the discrepancy has reached the standard for the time for an update, the cause and the basis leading to the discrepancy with the actual time of the update shall be ascertained.
- The time of occurrence of the cause for a financial forecast correction shall be monitored in order to ascertain the cause and basis for the discrepancy with the actual time of the correction.
- The supporting materials and the rationality of the company's explanation for the cause of an update (or correction) shall be analyzed.
Attention shall be given to the following matters when assessing the rationality of basic accounting assumptions in financial forecasts:
- Comparing any material differences between the financial forecasts before and after the update (or correction), ascertaining the main cause for the differences, and analyzing item-by-item the rationality of the evaluation materials relating to the basic accounting assumptions.
- Analyzing the historical financial information of the company reviewed for the most recent 2 years and the financial forecasts of the current year to see if there are any material differences, and ascertaining their causes and rationality.
- Obtaining relevant analysis reports for the company's industry belongs to, and comparing financial reports prepared by companies in the same industry in order to understand changes related to the industry's business cycles.
- Ascertaining whether revenues are overestimated or expenditures underestimated in the pro forma statement of non-operating income and expenses. If the company being reviewed plans to dispose non-current financial assets or major assets, it shall obtain a definite and objective price reference or appraisal report in order to determine whether there is a reasonable basis for the figures it prepares. When figures for the company's share of profits or losses of associates and joint ventures recognized under the equity method were adopted for the estimate, materials related to relevant industries, the same industry, or securities market fluctuations shall also be obtained to facilitate analysis and judgment.
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| Article 11 | When necessary during the substantive review of financial reports or financial forecasts, a CPA shall be hired to provide opinions and the CPA's working papers may be requisitioned. When a company is listed as requiring a review pursuant to Article 9, paragraph 2, subparagraph 2, item E, the CPA's working papers shall be requisitioned, in order to ascertain whether the certifying CPA audited or reviewed the company pursuant to the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and in accordance with Accounting Service Case Standard Provided by Certified Public Accountants.
If, during a substantive review of a TWSE primary listed company'sor a TIB primary listed company’s financial report regarding major accounts or changes in financial ratios, or substantive review of its material information published during the preceding year, any material irregularity is found in its financial information or material information, the TWSE may require that the company or its CPA, lead underwriter, agent for litigious and non-litigious matters in Taiwan, or independent directors to give explanatory information on specified matters, and in consideration of circumstances, may require the company to submit a report with related explanations through the TWSE-designated information reporting website. When necessary, the TWSE may require the company to hold an informational press conference.
If the review shows that the CPA is in non-compliance with the provisions of paragraph 1, the TWSE may request the CPA in writing to pay attention and take action and may submit the factual evidence relevant to the given case to the competent authority for further disciplinary actions pursuant to the CPA Act, Securities and Exchange Act, or other relevant regulations.
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| Article 12 | During formal review of financial reports, if the TWSE discovers that a financial report was not submitted pursuant to the regulations, an incomplete set of documents was filed, or the CPA produced an audit report not with an unqualified opinion or review report not with unqualified conclusions, affecting the fair presentation of the financial report to the extent that a restatement is required, or that the company's internal control system has significant deficiencies; or if, during the formal examination of a financial forecast, it is found that incomplete information was submitted or incomplete information was publicly released, or the date of public disclosure and filing or the date of preparation exceeded the deadline, or the CPA produced an assurance report with a modified conclusion, the TWSE shall formulate a concrete method of handling or suggestions for handling the matter for inclusion in its related report to the competent authority.
After reviewing a financial report, the TWSE shall explicitly express a review conclusion and an opinion on a concrete method of handling. If deficiencies or omissions are found, the TWSE shall request the company to rectify and, in the event of any irregular case with material deficiencies or omissions which requiresthe TWSEto handle the matter pursuant to the Securities and Exchange Act or to request the assistance of relevant agencies, the TWSE shall attach its review report with the given case, formulate an opinion on its handling, and report to the competent authority, or request that the competent authority transfer the case to the specific competent authority for the target industry for further investigation and handling.
If common deficiencies are found during the review of financial reports, the TWSE may issue a letter to the company as a reference for improvement and forward a copy to the competent authority.
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| Article 13 | If any TWSE primary listed companies or TIB primary listed companies fail to publicly disclose or file financial reports within the deadline prescribed by law and regulation, then the TWSE, by the third business day after the deadline, will compile and submit a list of those companies to the competent authority.
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| Article 14 | If any of the matters listed in Article 12, paragraph 1 are found during the formal examination, then the TWSE, within 3 business days after the deadline for the TWSE primary listed company’s or the TIB primary listed company’s submission of financial reports, will compile and report its findings to the competent authority.
After the companies for review are selected pursuant to Article 9, the TWSE shall, within 20 days after the deadline for the submission of financial reports, submit the name of the companies, and the reason for writing special project reports to the competent authority for recordation. Special project reports shall be completed within 45 days thereafter and then submitted for the competent authority's recordation. If the case audited is complex and requires longer time, [the TWSE] may file with the competent authority for an approval to extend the auditing period, provided that the extension shall not be longer than one month.
Financial forecasts, or explanations of changes filed pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies, will be summarized and filed with the competent authority by the TWSE by the 10th day of the following month after the day when the TWSE primary listed company or the TIB primary listed company forwards its financial reports or the day when the information is filed. If the TWSE is unable to complete the summary and file it with the competent authority within the prescribed time limit, it may specify the reasons in the information summary and complete its verification within 2 months, then separately report to the competent authority.
When a TWSE primary listed company or a TIB primary listed company does not forward its financial reports, or its restated, corrected, or updated financial forecasts within the time limit prescribed in the preceding paragraph, the time limit for the substantive examination by the TWSE shall commence from the day the company forwards the reports or forecasts.
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