Section III Audits of Internal Control Systems |
| Article 17 | For audits of the implementation of audit plans by the internal auditors of a TWSE primary listed companyor a TIB primary listed company, the random case selection rate is at least 25 percent per quarter in principle.
Instead of conducting the audit referred to in the preceding paragraph, the TWSE may use the CPA internal control system audit report of the previous year presented by the company under Article 4 of these Rules. If the fiscal year for the selection of TWSE primary listed companies and TIB primary listed companies whose internal control systems are to be audited by the TWSE is the fiscal year of initial listing, the period covered by the internal control system audit report may be determined by the Procedures for Reviewing Internal Control System Audit Reports Issued by Certified Public Accountants.
Where a material unexpected incident occurs to a TWSE primary listed company or a TIB primary listed company,or where the competent authority or the TWSE deems it necessary for other reasons, the TWSE may examine the effectiveness of the design and implementation of said company’s internal controls.
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| Article 18 | For audits of the internal control systems of TWSE primary listed companies and TIB primary listed companies, the TWSE will select a company for audit by the following criteria:
- A company issues an Internal Control System Statement with a statement other than "No material deficiency in the internal control system."
- A company has had an Internal Control System Statement containing a statement of material deficiency issued within the most recent three fiscal years.
- A company's Internal Control System Statement has been changed from the original "compliance with all acts and regulations" to "compliance with major acts and regulations."
- A company has failed to file an auditors list, audit plan, audit plan implementation report, report on correction of deficiencies and irregularities, or Internal Control System Statement pursuant to the Regulations for the Establishment of Internal Control Systems by Public Companies.
- A material deficiency is found in the implementation of a company's internal control system during the review of financial reports by the TWSE.
- During the fiscal year, a company changes an already-filed annual audit plan with no legitimate reason.
- Material non-compliance was found during a previous audit of a company's internal control system.
- There is a change in a company's financial officer or internal audit executives, without reasonable grounds.
- A random selection will be made from among TWSE primary listed companies and TIB primary listed companies whose internal control systems have not been audited during the preceding three fiscal years; however, a TWSE primary listed company or a TIB primary listed company may be exempted from selection if during the preceding year the company obtained corporate governance certification from an external and independent and objective institution, provided that if any material deficiency is found in the company's internal control, an audit of its internal control will still be conducted.
- Where an audit is otherwise necessary.
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| Article 19 | When the TWSE audits the internal control system of a TWSE primary listed company or a TIB primary listed company, in addition to auditing one or more audit items selected from the annual audit plan formulated by the audited company, the following matters will also be listed as required audit items:
- The acquisition or disposal of assets.
- Derivatives trading.
- Loans of funds to others.
- Provision of endorsements or guarantees for others.
- The state of operation of the board of directors.
- Management of the operations of the remuneration committee.
- Management of application of the International Financial Reporting Standards.
- Procedures for professional accounting judgments and procedures for making changes in accounting policies and estimates.
- Such other audit items as the competent authority or the TWSE may deem necessary.
An audited company shall submit the following documents within the time limit designated by the TWSE:
- Internal Control System Statements for the most recent three fiscal years.
- The internal audit plan and the self-evaluation report, audit report, follow-up report, and related working papers for audit items as prepared for the given year.
- The internal control recommendations issued by a certified public accountant for the most recent period.
- Such other materials as the TWSE may deem necessary.
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| Article 20 | The TWSE carries out internal control system audits on TWSE primary listed companies and TIB primary listed companies in order to ascertain whether the internal auditors of audited companies have faithfully carried out auditing operations. The key points for each audit item include:
- Whether an internal control system has been adopted in compliance with applicable laws and regulations.
- Whether internal controls have been faithfully implemented in compliance with the internal control system.
- Whether internal audits have been faithfully implemented in compliance with the annual audit plan.
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| Article 21 | When conducting an audit of a TWSE primary listed company's or a TIB primary listed company’s internal control system, the TWSE shall note the following matters:
- Reviewing whether the spot-checked operations shown in the audited company’s self-evaluation reports, audit reports, follow-up reports, and relevant working papers have undergone proper approval, authorization, validation, adjustment, cross-checking, record checking, and division of functions.
- Ascertaining whether the audited company’s auditors conducted their audits in compliance with the annual audit plan that was formulated, and whether working papers, audit reports, or follow-up reports were prepared in accordance with it.
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| Article 22 | Audit reports prepared by TWSE auditors carrying out their auditing work must specify the following:
- The audit items.
- The audit findings.
- The implementation of follow-ups.
If audit findings reveal non-compliance by a TWSE primary listed company or a TIB primary listed company in the implementation of its internal control system, the audited company shall be requested to propose specific improvements or solutions and report them by letter to the TWSE for recordation. The TWSE will continue tracking the improvement of the deficiency and preparing follow-up reports until the deficiency is remedied. Where necessary, the TWSE may request that a certified public accountant issue an opinion on the related issues. The content of the follow-up reports must include the deficiency found in the previous audit and the status of its remedy in the current audit.
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| Article 23 | The TWSE will take prompt measures upon discovering any of the following circumstances when auditing the internal control system of a TWSE primary listed company or a TIB primary listed company:
- Upon discovery of a material irregularity for which an in-depth audit is necessary, the company shall be listed as an audit target for financial reports.
- Upon discovery of a material irregularity or violation of applicable provisions of the TWSE Operating Rules, the prescribed measures shall be taken and a report submitted to the competent authority.
- Upon discovery of a material deficiency or upon the occurrence of any event under the subparagraphs of Article 43 of the Regulations for the Establishment of Internal Control Systems by Public Companies, the TWSE, where necessary, may submit a report to the competent authority, which may request the audited company to engage a certified public accountant to conduct a special audit and issue an audit report. If the CPA is found upon review to have failed to abide by Section III (Special Audits by Certified Public Accountants) of Chapter III of the Regulations for the Establishment of Internal Control Systems by Public Companies, the TWSE may request the CPA in writing to pay attention and take action, with a copy forwarded to the competent authority.
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