| Title： |
Taiwan Stock Exchange Corporation Procedures for Review of Financial Reports of Listed Companies(2009.03.30) |
| Date： |
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Article 1
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These Procedures are adopted pursuant to Article 34, paragraph 1, subparagraph 7 of the Regulations Governing Stock Exchanges, 16 May 1995 Letter No. (84)-Taiwan-Finance-Securities-(VI)-01214, 29 July 1995 Letter No. (84)-Taiwan-Finance-Securities-(VI)-31749, 12 February 1997 Letter No. (86)-Taiwan-Finance-Securities-(VI)-76219, 26 April 1997 Letter No. (86)-Taiwan-Finance-Securities-(VI)-02787, 6 May 1997 Letter No. (86)-Taiwan-Finance-Securities-(VI)-28073, 8 October 1998 Letter No. (87)-Taiwan-Finance-Securities-(VI)-02515, 4 February 1999 Letter No. (88)-Taiwan-Finance-Securities-(VI)-108824-1 in order to improve the quality of information disclosure for listed companies.
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Article 2
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These Procedures govern the review of the annual, semi-annual, and quarterly financial reports forwarded pursuant to Article 36, paragraph 4 of the Securities and Exchange Act, or restated pursuant to Article 6 of the Securities and Exchange Act Enforcement Rules, and of the financial forecasts and relevant documents prepared, updated, corrected, or restated pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies ("the Regulations") by a listed company. These Procedures do not apply to foreign issuers.
Except for Article 11, these procedures shall apply to the financial forecasts submitted for review by a listed company for its initial public offering.
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Article 3
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The scope of review for the financial reports as mentioned in the preceding paragraph shall be certified public accountant's audit reports, financial statements, charts of major accounts, and important notes on the audit in the case of annual financial reports; certified public accountant's audit reports, financial statements, charts of major accounts, and important notes on the audit in the case of semi-annual financial reports; certified public accountant's audit reports, and financial statements in the case of quarterly financial reports; CPA review report, expected financial reports, financial forecast declaration, summary of significant accounting policies, and summary of major basic accounting assumptions in the case of financial forecasts.
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Article 4
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The review of financial reports of a listed company can be categorized into formal examination and substantive examination. The formal examination of annual, semi-annual, and quarterly financial reports applies to all listed companies; substantive examination adopts a method of selective audits, and the following criteria shall apply in the selection of at least 10 percent of listed companies for annual financial reports, at least 5 percent of listed companies for semi-annual and Q3 financial reports, and at least 3 percent of listed companies for Q1 financial reports for review. A listed company (excluding listed Taiwan Depository Receipts) shall be selected for review at least once every 5 years.
1. The following criteria shall apply to the selection process:
(1) Financial items:
1. The operating revenue, operating income, or income before tax has a significant year-on-year decline.
2. The investment loss of an equity-method investee company reaches a certain percentage of the company's current operating income, or the subsidiaries' total holding of the mother company's equities reaches a certain percentage of the mother company's equities.
3. The total amount of current purchase (or sale) with related parties reaches 20 percent or more of the total amount of purchase (or sale) of the listed company, or there is a year-on-year increase of 50 percent or more and the increase reaches 3 percent or more of shareholders' equity.
4. The ending balance of amounts receivable from related parties and advance payment to related parties reaches 10 percent or more of shareholders' equity, or increases by 50 percent or more from the beginning of the period and reaches 3 percent or more of shareholders' equity.
5. The accumulated amount of current asset trading (excluding purchase and sale transactions) with related parties accounts for 3 percent or more of the total assets at the end of the period.
6. The amount of loans to others at the current quarter increases by 3 percent or more of the shareholders' equity; or the accumulated amount of loans to others at the end of the period reaches 10 percent or more of shareholders' equity.
7. The amount of endorsements and guarantees at the current quarter increases by 10 percent or more of shareholders' equity; or the accumulated amount of endorsements and guarantees at the end of the period reaches 30 percent or more of shareholders' equity.
8. The financial ratio is deficient.
9. The amount of non-current equity investment accounts for 60 percent or more of shareholders' equity.
10. Net worth per share is too low.
(2) Non-financial items:
1. Resignation of the financial officer.
2. Resignation of the accounting officer.
3. Resignation of the internal audit officer.
4. Resignation of the research and development officer.
5. Change of certified public accounts (other than an internal adjustment at the accounting firm).
6. Change of directors/supervisors' shareholding.
7. Change of directors/supervisor (including independent directors), and resignation of the chairperson or general manager.
8. Where the board of directors is authorized to pay compensatory fees for directors/supervisors in accordance with the trade average, the compensatory fee is found to be unreasonable according to the screening criteria.
9. The filed report of the most recent month shows that the directors/supervisors' creation of pledge exceeds 50 percent or more of the number of shares actually held by all the directors/supervisors.
10. The financial operations of the company are materially affected by any litigation in the most recent year.
11. The financial officer or accounting officer is within the second degree kinship with any of the directors/supervisors.
If a company selected for review pursuant to the aforementioned criteria has been selected for review in the previous quarter, the company may be excluded from the selection.
2. A company that meets any of the following criteria shall be listed as one of the companies that must be reviewed, but may be excluded from the review if an analysis thereof indicates no necessity for the examination:
(1) A company that is found to have irregularities according to the formal examination of its financial reports.
(2) A company whose managerial control is materially changed (such as one third or more of its directors are changed).
(3) A company whose principal line of business is materially changed.
(4) A company that has been in deficit for the most recent 3 consecutive years, or whose accumulated deficit for the most recent 3 years accounts for 50 percent or more of the capital stock listed in the financial reports.
(5) A company whose amount of loss before tax has a year-on-year increase of 30 percent or more of the capital stock listed in the financial reports.
(6) A company that meets any of the criteria as specified in subparagraphs 3, 4, and 8 of the preceding paragraph, where the amount in question is huge and the financial ratio is deficient, and the company has not received special audits in the previous quarter.
(7) A company that issues corporate bonds, and whose repayment ability at maturity is uncertain.
(8) A company whose cash and cash equivalents account for too high a percentage of the capital stock listed on the financial reports, and who has no capital expenditure plan.
(9) A company whose amount of prepayment, or the volatility thereof, is huge or unusual.
(10) The amount of unrealized loss in the trading of derivatives products reaches NT$100 million and accounts for 3 percent or more of the shareholders' equity, or the amount of current open interests for trading purposes accounts for 40 percent or more of the capital stock listed on the financial reports.
(11) The CPA produces an opinion of apportionment of responsibility in the annual financial reports, and the audit works adopted from other CPAs account for too high a percentage.
(12) A company newly added to the current-quarter Public Bulletin Board of Companies Whose Financial Operations Require Special Attention.
(13) A company with higher risk indicator for consolidated financial statement.
(14) The receivables and amount of inventory in the consolidated financial statement account for too high a percentage of the shareholder's equity.
(15) A company as required for review by the TWSE due to other reasons.
3. During each selection, the TWSE also randomly chooses companies for review according to the following criteria:
(1) A company that has not conducted routine regulation, regulation by exception, or substantive review of financial report for the most recent 3 years.
(2) Other criteria for random selection.
The formal examination of financial forecasts also applies to all listed companies. Substantive examination adopts a method of selective audits. A company with any of the following matters shall be selected for review, and a test check shall also apply in each quarter depending on the circumstances.
1. A listed company that publicizes complete financial forecasts:
(1) The statement is not updated at the current quarter, but at the following quarter.
(2) The updated (or corrected) financial forecasts decline by at least 30 percent from the income before tax in the original financial forecast, and the amount of decline exceeds NT$200 million.
(3) A company's own un-audited figures of the income before tax, or the income before tax audited and certified by the CPA for reporting after the end of the accounting year declines by at least 20 percent from the income before tax in the financial forecasts publicized most recently, and the amount of decline reaches NT$30 million and 5 thousandth of the capital stock listed in the financial reports, and declines by at least 30 percent from the income before tax in the original financial forecasts and the amount exceeds NT$ 200 million.
(4) The income before tax in the updated (or corrected) financial forecasts changes from surplus to deficit, and the discrepancy exceeds NT$200 million, or the updated (or corrected) loss before tax reaches NT$50 million.
(5) The change of basic accounting assumption is questionable.
2. A listed company that publicizes summary financial forecasts:
(1) The income before tax of the current quarter audited or reviewed by the CPA declines by at least 10 percent from the income before tax of the current quarter in the financial forecasts published most recently, and the amount of decline exceeds NT$50 million.
(2) The income before tax of the current quarter in the updated (or corrected) financial forecasts declines by at least 10 percent from the income before tax of the current quarter in the original financial forecasts, and the amount of decline exceeds NT$ 50 million.
(3) The income before tax of the current quarter in the updated (or corrected) financial forecasts changes from surplus to deficit, and the discrepancy exceeds NT$100 million, or the updated (or corrected) loss before tax of the current quarter reaches NT$50 million.
3. Where the forecast of income before tax is presented in intervals, the calculation for the decline of income before tax for the company selected pursuant to the preceding paragraph shall use the arithmetic average of the upper and lower limits for the intervals of the income before tax of the current quarter in the original and updated (or corrected) financial forecasts.
The competent authority of the companies selected for review pursuant to the preceding paragraphs may change/adjust the criteria depending on the circumstances.
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Article 5
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During the review of the annual, semi-annual, and quarterly financial reports of a listed company, the items listed on the formal examination checklist and substantive examination checklist shall be checked item-by-item to find out if the accounting treatment thereof violates any relevant laws or the generally accepted accounting principles; the following matters shall also be checked:
1. Whether the investment in derivatives products is duly disclosed.
2. Whether there is any irregularity in the trading with related parties.
3. Whether there is any loan granted to others due to a financing need not arising out of company business transactions.
4. Whether there is any irregularity in the purchase and sale of block assets.
5. Whether there is any endorsement and guarantee for others due to a need not arising out of company business transactions.
6. Whether the board of directors is duly operated.
7. The improvement progresses of the deficiencies, or the follow-up review of irregularities listed in the previous review.
Financial forecasts shall be reviewed and checked item-by-item for the items listed in the formal examination checklist and the substantive examination checklist; in addition, the following matters shall also be checked:
1. Whether there is any irregularity in the CPA review.
2. Whether the basic accounting assumptions in the financial forecasts are reasonable.
3. Whether there is any irregularity in the timing for updating (or correcting) or restating the financial forecasts.
4. Whether the summary of major basic accounting assumptions in the financial forecasts include all the necessary items.
5. The improvement progresses of the deficiencies, or the follow-up review of irregularities as listed in the previous review.
The following rules shall be observed in evaluating whether a listed company delays the updating (or correction) of financial forecasts:
1. Monitoring on a monthly basis the discrepancy between the estimated figures before the update and its own un-audited figures, and, if such discrepancy has reached the timing for a new update, finding out the cause and basis for such discrepancy with the actual timing for an update.
2. Monitoring the time when the cause for a financial forecast correction occurs in order to find out the cause and basis for its discrepancy with the actual timing for a correction.
3. Analyzing the supporting materials and the rationality of the company's explanation on the cause of an update (or correction).
The following matters shall be observed during the assessment of the rationality of the basic accounting assumptions in the financial forecasts:
1. Comparing the major differences between the financial forecasts before and after the update (or correction), finding out the main cause for such differences, and analyzing item-by-item the rationality of the evaluation materials in the basic accounting assumptions.
2. 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 major differences, and finding out their causes and rationality.
3. Obtaining an analysis report related to the industry that the company belongs to, and comparing the financial reports prepared by companies in the same industry in order to find out the business cycle of the industry.
4. Finding out whether the revenue is overestimated or the expenditure is underestimated in the pro forma statement of non-operating revenues and expenditures. If the company being reviewed plans to dispose non-current financial assets or major assets, it shall obtain an objective and accurate price reference or appraisal report to serve as the basis for the determination of the reasonableness of the figures that it prepares. When an evaluation adopts the estimated figures of investment profits/losses recognized under the equity method, 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 6
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During the substantive review of annual, semi-annual, or quarterly reviews, or financial forecasts, a CPA shall be hired to provide opinions and the CPA's working papers may be requisitioned, when necessary. When a company is listed as a company that must be reviewed pursuant to Article 4, paragraph 2, subparagraph 2, item 4, the CPA's working papers shall be requisitioned, in order to find out whether the certifying CPA audits or reviews the company pursuant to the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants, and generally accepted auditing principles, or relevant Statements of Auditing Standards.
If the CPA is found to have violated the aforementioned regulations after review, relevant factual evidence shall be submitted to the competent authority on a case-by-case basis for further disciplinary actions pursuant to the CPA Act, Securities and Exchange Act, and relevant regulations.
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Article 7
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During the formal examination of annual, semi-annual, and quarterly financial reports, where financial reports are not submitted pursuant to the regulations, the documents filed are incomplete, or the CPA produces a non-unqualified opinion or a non-standard auditor's review or opinion, affecting the fair presentation of the financial reports to the extent that a restatement is required, or the internal control system has significant deficiencies; or during the formal examination of financial forecast, the documents submitted are incomplete, the documents publicly released are incomplete, the day of public announcement/report and/or the day of preparation are overdue, and the CPA produces a non-standard auditor's opinion, the concrete handling method or handling suggestions shall be summarized and reported to the competent authority.
After reviewing the financial reports, [the TWSE] shall explicitly express opinions on the review conclusion and the concrete handling method. If any significant deficiencies or omissions are found, the TWSE shall handle the matter pursuant to the Securities and Exchange Act, or where there is a necessity to request the assistance of relevant organizations, the TWSE shall affix review reports case-by-case, and draft a handling opinion to be reported to the competent authority, or suggest that the competent authority transfer the case to the competent authority for the industry concerned for further investigation.
The TWSE may issue a letter requiring the company found to have significant deficiencies under the preceding paragraph to send personnel to attend education classes organized by an organization designated by the competent authority, and forward a copy of such letter to the aforementioned organization. If a company does not send personnel to attend the classes, the TWSE may, depending on the nature of the deficiencies, list such company as the first priority for auditing in the subsequent substantive examination of financial reports, routine regulation or regulation by exception, or internal control system audit.
If common deficiencies are found during the review of financial reports, a circular letter shall be regularly sent to the listed companies for their reference and improvement, and a copy thereof shall be forwarded to the competent authority.
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Article 8
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If a listed company fails to publicly report or file its financial reports within the duly prescribed deadline, [the TWSE] shall, within 3 business days after the deadline, summarize and submit the list of failing companies to the competent authority.
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Article 9
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If, after the formal examination, any of the matters listed in Article 7, paragraph 1 is found, [the TWSE] shall, within 3 business days after the deadline for the submission of financial reports, summarize and report such finding to the competent authority.
After the companies for review are selected pursuant to Article 4, paragraph 2, [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 by the end of the following month in the case of annual financial reports, within 2 months in the case of Q1 financial reports, and within 1 month in the case of semi-annual and Q3 financial reports, 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 1 month.
Financial forecasts, or the explanation of changes filed pursuant to the Regulations, shall be summarized and filed with the competent authority on the day when the listed company forwards its financial reports, or by the 10th day of the following month after the day when the information is filed. If [the TWSE] cannot summarize and file with the competent authority within the prescribed time limit, it may specify the reasons in the information summary, and complete the verification within 2 months, and report to the competent authority separately.
Where a listed company does not forward its financial reports, or the restated, corrected, or updated financial forecasts within the time limit as prescribed by the preceding paragraph, the time limit for the substantive examination shall commence from the day the company forwards the reports or forecasts.
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Article 10
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The review reports shall be preserved for 3 years, and the competent authority may requisition the reports within the preservation time.
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Article 11
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If a listed company is found to have any of the following circumstances after the revision of such company's financial forecasts, the TWSE may issue a letter imposing a demerit on such listed company. Where the circumstance is serious, such company may also be imposed with a default penalty of NT$30,000, and become a potential candidate to be selected for routine regulation; the case shall be submitted for the competent authority's recordation.
1. The company does not update (or correct) the financial forecasts pursuant to the Regulations.
2. The basic accounting assumptions in the financial forecasts are not reasonably evaluated.
3. The financial forecasts have not been approved by the board of directors due to illegitimate reasons.
4. The company does not report relevant documents pursuant to the Regulations.
5. Any material mistake or omission occurs in a public announcement/report made pursuant to the Regulations.
6. The matters that need to be improved or corrected are not improved or corrected within the time limit.
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Article 12
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These Procedures, and any amendments thereto, shall take effect following approval for recordation by the competent authority.
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