Section 3 Executing the Operating Procedures |
| Article 9 | An expert shall properly devise the specific tasks and steps to be implemented, execution timeline, personnel deployment, and place of execution, etc. in accordance with the contents set out in the power of attorney.
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| Article 10 | An expert shall record accurately in the working paper of the case the relevant execution procedures, data collected, and essential matters for drawing conclusions.
The source and reasonableness of information pertaining to a case under review shall be verified if the information is provided by the principal or related party.
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| Article 11 | An expert shall base its opinion on the following in accordance with the contents of engagement:
- appraisal of the value of the object under review by itself;
- adoption of other expert’s report or the principal’s self-appraisal report;
- verification of the results of the principal’s evaluation.
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| Article 12 | To draw a conclusion of its opinion, an expert shall evaluate by the applicable circumstances whether each of the following complies with relevant regulations in order to examine the degree of consistency and reliability between the work executed and the opinion:
- whether the opinion fully reflects the scope of work which should be covered by the engagement.
- completion, correctness, and reasonableness of the operation procedures.
- adequacy and relevance of the information used and examinations, inquiries, calculations, or other necessary analyses conducted.
- relevance and reasonableness of material assumptions made.
- appropriateness and reasonableness of the method of appraisal or valuation employed and parameters used.
- pre-adjustment value and reasons, basis, relevance and appropriateness of any adjustment to a discount or premium.
- appropriateness and reasonableness of analysis, judgement, inference procedures, and conclusions conducted or reached, and whether they can be substantiated.
- reasonableness of a revision to a conclusion made upon an explanation with the principal or an approved related party prior to the issuance of an opinion.
- completeness of the contents of a working paper, the appropriateness and reasonableness of raw data used, and the degree to which the expert supports the opinion.
- whether any material subsequent events and their impact which exist after the record date of evaluation and before the issuance of the opinion have been appropriately addressed.
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| Article 13 | An expert who bases its opinion on the value of the object under review that is appraised by the expert itself shall obtain relevant data of the object on the basis of price determination from the principal, collect necessary information, and perform the following procedures and in accordance with Articles 14 to 18:
- obtain basic information of the object under review, such as location of real estate, use restrictions, the business, product, financial data and prospective financial information of the company under review.
- analyze the past and present operational or use condition of the object under review and, when necessary, understand its planning for future operation or use.
- understand information on macroeconomics, the industry, capital market, and laws and regulations.
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| Article 14 | An expert shall adopt an appropriate appraisal or valuation method according to the purpose of engagement, nature of the object under review, and status of data collection, etc. to ensure the conclusion in the opinion is drawn from the appraisal or valuation method that best reflects the value of the object.
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| Article 15 | When an expert evaluates the appropriateness and reasonableness of the appraisal or valuation method adopted, and where the adoption of two or more appraisal or valuation methods are required according to the Regulations on Real Estate Appraisal, Statements on Standards for Valuation, or international conventions it refers to, the expert shall have sufficient reasons for only using a single appraisal or valuation method.
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| Article 16 | An expert shall make a comprehensive comparison of the results derived from different appraisal or valuation methods, re-examine those with a noticeable discrepancy in amounts, and consider the degree of similarity of pricing factors based on the reliability of the data collected from different appraisal or valuation methods and the differences in the purpose or conditions of transaction to draw a final conclusion of the evaluation, and shall detail the reasons for its determination.
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| Article 17 | An expert shall evaluate the level of future operating income and profitability of the object under review and take at least the following into account when adopting the income approach:
- future benefit flow
- obtaining historical financial information and making the necessary routine adjustments thereto.
- considering the industrial prosperity, market conditions, and the past operation or use conditions of the object under review.
- analyzing the reasonableness of assumptions made in the analysis of key factors concerning prospective financial information, comparing projected values and historical values of the material financial information items on which the prospective financial information is based, and analyzing the reasons for and reasonableness of material discrepancies (if any) between those values, with relevant supporting material obtained.
- increased capital expenditure and financial cost to accommodate future operational needs.
- determination and basis of the number of periods(forecast period and perpetual period) for estimating future income.
- determination of the future benefit flow and final value and basis and reasonableness of the relevant parameters (such as growth rate, tax rate, inflation rate), which should be compared with the corresponding information of market participants.
- consistency between the growth or decline of the future benefit flow and the analysis of economic and market conditions and management’s anticipation of the future performance of the object under review, etc.
- discount rate
- parameters and basis used for the choice of the discount rate, and reasons therefor.
- consistency between the discount rate and basis of extrapolation of the future cash flow.
- the discount rate of an intangible asset is normally higher than the overall discount rate of the enterprise using said asset.
- provide data in support of a premium or discount, for example, obtain information of a professional database or professional study report or consult other experts, and, if a similar transaction is drawn on, evaluate the appropriateness and reasonableness of the information on the transaction used.
- conduct a sensitivity analysis of any change to an assumption of a key input value where necessary.
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| Article 18 | An expert shall take the following into account if it adopts the market approach:
- a comparable company or comparable transaction selected shall share similar metrics and a high risk association with the object under review. Lack of sufficient comparability necessitates a necessary adjustment. Factors to be evaluated in the selection of a comparable case include:
- similarity to the object under review, including in terms of quality and quantitative.
- quantity, verifiability, time effectiveness, and relevance of the comparable data.
- the price of the comparable transaction shall be that of an arm’s length transaction.
- The following shall be factored in in the selection, calculation, and adjustment of a value multiple:
- apply valuation multiples which can reasonably estimate the value of the object under review.
- a consistent basis and calculation method shall be employed in regard to valuation multiples used for comparison.
- evaluate the appropriateness and reliability of the comparable company or comparable transaction.
- identify factors that may affect the value of the object under review, assess and analyze each of them against the comparable company or comparable transaction to be drawn on, and, where necessary, adjust the reference valuation multiples or transaction price by the features of the object under review.
- provide reasonable data in support of a premium or discount.
- conduct a sensitivity analysis of any change to an assumption of a key input value where necessary.
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| Article 19 | An expert basing its opinion on other expert reports (such as real estate appraisal reports or valuation reports) or a self-valuation report of the principal shall at least implement the following procedures:
- consider the requirements governing use of information generated by management’s experts as set forth in ARDF Auditing Standards nos. 620, “Using the Work of an Auditor's Expert,” and 500, “Audit Evidence,” when evaluating the professional capability, competence, and objectivity of other experts or the personnel of the principal conducting the valuation.
- evaluate, in light of each of the following with regard to the object under review, whether the procedures by which the opinions and conclusions in other expert reports or a self-valuation report of the principal are developed are comprehensive, correct, and reasonable, and confirm said procedures are legally compliant and consistent with the Regulations on Real Estate Appraisal, relevant Statement on Standards for Valuation, or international convention being drawn on or applied: relevant information, scope of the appraisal or valuation report, appraisal or valuation method employed, major assumptions, parameters, adjustment and inference procedures, opinions and conclusions, sources of data used, examinations, inquiries, calculations, or necessary analyses conducted. The expert shall, where necessary, request the principal to obtain the working papers from other experts.
- analyze the reasons for and reasonableness of any discrepancy in the opinions and conclusions of the reports if two or more reports are relied on.
- evaluate whether such other expert reports or the principal’s self-valuation report make sufficient basis for the expert to form an opinion, and, where necessary, collect other related data and implement other procedures, and, upon obtaining sufficient and proper information, analyze whether the difference between the results of evaluation and contents of engagement (such as the estimated transaction price or share exchange ratio, acquisition price etc. of the object under review) substantiates a reasonable conclusion sufficiently.
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| Article 20 | An expert validating the principal’s evaluation results in accordance with Article 16 or 17 of the Acquisition and Disposal Regulations shall at least implement the following procedures:
- whether the evaluation method employed for validation is legally compliant;
- obtain raw data or collect data by itself to confirm the appropriateness and reasonableness of data used by the principal;
- verify the similarity between the object under review and like cases introduced by the principal and confirm neither party to the transaction is an interested party of the company;
- recalculate the evaluation results to verify their correctness;
- examine the difference between the evaluation results and estimated transaction price and evaluate whether such difference substantiates a conclusion that the latter is reasonable.
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