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Amendments

Title：

Taiwan Stock Exchange Corporation Assessment and Auditing Procedures for Securities Underwriter Handling Initial Listing Applications  CH

Amended Date： 2023.04.24 
Categories： Primary Market > Review
Article Content Content Search Article No. Search Legal Basis Amended Article Legislative History Chinese

Title： Taiwan Stock Exchange Corporation Assessment and Auditing Procedures for Securities Underwriter Handling Initial Listing Applications(2014.10.16)
Date：
3     General review of the assessment report
  1. Description of the total number of shares underwritten
  2. The securities underwriter shall specifically describe the basis and method of how the offer price is determined jointly by the underwriter and the issuing company, including at least the following details:
    1. method, principle and calculation for determining the offer price, and comparison against the applicable internationally accepted market approach, costing method and income approach;
    2. comparison of financial positions, profitability and P/E ratios of the issuing company against its peer companies that are listed companies;
    3. where the financial expert's opinion or appraiser's appraisal report has been referred to in the determination of the offer price, the contents and conclusions of the expert's opinion and appraisal report shall be explained;
    4. average stock price and trading volume of the securities of the issuing company listed on the emerging stock market in the most recent month;
    5. assessment opinion on the fairness of the offer price jointly determined by the securities underwriter and the issuing company.
  3. Risk factors of underwriting:
    4. List and describe the risks associated with this underwriting (e.g., excessive changes in stock prices, price stabilization strategies, relevant costs of this underwriting and fee rate of the underwriting services, dilution of profits due to capital-based growth caused by underwriting of new shares).
  4. Conclusion:
    1. Based on its own assessment results and experts' opinion (of which the underwriter shall make its own assessment to determine whether or not it may be used as the basis for assessing the overall risks of the issuing company; more assessment efforts shall be made if necessary), the underwriter shall in the conclusion of its assessment describe the operating risks, financial risks and potential risks, among others, as investment risk disclosure for investors;
    2. When concluding its assessment of the risks associated with the initial listing application by the foreign issuer, the underwriter shall perform field research to ascertain the operation of the foreign issuer or its subordinate companies, or consult experts for opinions or collect and analyze relevant information to ascertain the macro economy, changes in political and economic environments, foreign exchange control, taxes and relevant legal requirements in the jurisdiction where the issuer was incorporated and countries where it has its main operation activities, and whether or not a final and conclusive civil judgment issued by a R.O.C. court will be recognized there and other risks, and describe the adequacy of the response measures adopted by the foreign issuer;
    3. whether or not listing of shares of the issuing company should be recommended shall be based on the outcome of the underwriter's overall assessment of the issuing company.
4     Industrial circumstances and operational risks:
  1. Operational risks of the sector in which the issuing company runs its business:
    1. collect reports and information on the relevant industry to ascertain the current circumstances of the industry sector the issuing company belongs to;
    2. interview the operating officers of the issuing company and use the information about the internal finance and business operation of the issuing company and information about the industry collected from external sources to ascertain the cyclical demand specific to the industry or substitution products and their impact, and analyze the major factors impacting the profitability of the industry sector the issuing company belongs to, and the niche for the issuing company in various influencing factors;
    3. collect and analyze information about the businesses at the upstream, middle stream and downstream of the industry sector the issuing company belongs to.
  2. Operational risks of the issuing company:
    1. Business activities:
      1. collect local and foreign reports and information about the relevant industry to ascertain the possible changes in supply and demand in the market, and use the information to analyze favorable and unfavorable factors that may affect the future development of the issuing company and the measures in response, to evaluate its ability to respond to changes in economic cycles;
      2. collect information about the market share of its major competitors to evaluate the competitive niche of the issuing company;
    2. Technological research and development and patents:
      1. the underwriter may obtain technological experts' assessment opinions as supporting evidence;
      2. obtain information about the history, organization, staff, education and work experiences, research accomplishments and future projects of the R&D department of the issuing company to ascertain major sources of technologies, how and how much compensations or royalties for technology are paid, and in which direction the R&D work will develop, and analyze information such as number of staff of the R&D department, the average seniority, employee turnover, and attrition rate for the current term and the most recent three fiscal years, to evaluate the operational risks of departure of the R&D staff to the issuing company;
      3. obtain major technological cooperation contracts and evaluate the operational risks of the contracts to the issuing company based on the terms and conditions thereof;
      4. for an applicant in technology-based enterprise, cultural and creative enterprise or information software enterprise, obtain information about the competitive advantage, life cycles, sustainability of the current major products and R&D projects for new products, and levels and resources of production and development technologies, to evaluate market positioning, demands and internal control and security measures for research and development;
      5. for an applicant in technology-based enterprise, cultural and creative enterprise or information software enterprise, obtain information about the background and experiences of the company's directors, supervisors, shareholders holding five percent or more of the total number of outstanding shares of the applicant company shares who have participated in business decision-making, shareholders contributing capital with patents or professional skills, and officers controlling manufacturing technologies and technical development, their shareholding ratios, share transfers by them within the most recent three fiscal years and the year of application, time actually spent on operation and how they are actually involved in operation, in order to evaluate the operational risks of the issuing company if these personnel discontinue their participation in the operation.
    3. Analysis of human resources:
      4. Obtain information about the total number of employees, number of former, laid off or retired employees, direct and indirect labor number, average age and average years of service, to evaluate changes in the attrition rate and the operational risks to the issuing company.
    4. Cost analysis of major products:
      1. obtain information about the costs of raw material, labor and manufacturing for the current term and most recent three fiscal years, and analyze the operational risks of changes in the percentage of individual cost elements to the issuing company;
      2. for applicant satisfying the requirements under Article 16 of the Rules Governing Review of Securities Listings, obtain updates on current prices of the local (neighboring) area, information about peer companies, and the price ratio of land and building available from the government authority (such as ratio of assessed present value and declared present value, or ratio of building construction price and land price, etc.), to evaluate if the allocation ratio of the issuing company and landowner is reasonable in case of a sale of building under a joint construction project, distribution of building under a joint construction project, or distribution of profit under a joint construction project;
    5. Exchange rate changes:
      6. Obtain information about the ratio of exchange gains or losses to operating profits and the ratio of domestic and export sales and domestic and overseas purchases for the current term and most recent three fiscal years, to analyze the operational risks of exchange rate changes to the issuing company and its risk aversion measures.
6     Financial circumstances:
  1. Prepare an analysis of the issuing company's financial ratios for the most current term and most recent three financial years, compare changes against at least three listed companies and unlisted companies in the same industry sector, and explain why these companies are chosen for the comparison. For an applicant for listing of shares as a technology-based enterprise or cultural and creative enterprise, obtain information about the equity belonging to the owner of the parent company for the most recent financial year and as in the current financial statement, and ascertain the details of the issuing company's business plan for the upcoming year, to evaluate the possibility that the equity belonging to the owner of the parent company in the upcoming year continues to exceed two-thirds of its paid-in capital. For issuers of shares with no par value or with a par value per share that is not NT$10, the underwriter shall evaluate the possibility that the equity belonging to the owner of the parent company in the upcoming year drops below two-thirds of the sum of stock capital and capital reserve - share premium.
  2. Review the financial reports certified by a CPA and obtain the issuing company's statements or attorney letters to ascertain if there are any major litigations or financial difficulties in the current term and most recent three fiscal years; also obtain the endorsements and guarantees, major undertakings and lending to others, trading of derivatives and major assets transactions of the issuing company and all its subsidiaries (including transactions between parent company and subsidiaries) for the current term and the most recent three fiscal years, to evaluate their impact on the financial position of the issuing company.
  3. Obtain information about the issuing company's plant expansion plans as of the current term of the application year, evaluate its funding sources, expected benefits, and feasibility, and ascertain the progress of work.
  4. Reinvested enterprises and major investment projects:
    1. general information about enterprise reinvested by the issuing company and any of its subsidiaries (including transactions between parent company and subsidiaries):
      1. obtain the financial statements of the reinvested enterprises and relevant information to ascertain their major business activities and general operation;
      2. obtain minutes of meetings of the board of directors of the issuing company to ascertain its purpose of investment, years of investment, original investment amounts, number of shares and its shareholding ratio in the invested companies;
      3. review the issuing company's financial reports and account books to ascertain how share of profits and losses of its subsidiaries, affiliate and joint ventures is recognized by using the equity method;
      4. review information such as financial reports and account books for the current term and the most recent three fiscal years to evaluate if there is any violation of Article 13 of the Company Act;
      5. where the issuing company in the fiscal year in which it applies for listing satisfies, or its subsidiaries in the preceding fiscal year satisfied, any of the criteria of important subsidiaries as in Article 2-1, Paragraph 2 of the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants, the underwriter shall send its staff to provide on-site counseling services and evaluate how its internal control measures are implemented;
        1. In regard to important subsidiaries meeting the above criteria, the underwriter shall additionally perform the following evaluation and examination procedures respecting the implementation of their internal control systems:
        2. Ascertain the organization, production, business and other operations of these important subsidiaries; obtain introductions and operating procedures about the cycles of collection of sales payments, cycles of payments for procurement, cycles of production and warehousing, and cycles of research and development; and perform on-site random inspections on information about the above cycles to ascertain if they are being operated in a reasonable way according to the written accounting system and evaluate if there are any major defects and if the cycles are effectively implemented.
        3. Ascertain the operating procedures for procurement by these important subsidiaries of real properties, plants and factories, equipment, and real estate for investment purposes, perform on-site random inspections on the relevant procurement information, and evaluate if there are any major defects.
        4. Visit the important subsidiaries to inspect their maintenance of inventories and properties, and obtain catalogues of the inventories, real properties, plants and factories, equipment, and real estate for investment purposes of these companies, to conduct random inspections on the real properties, plants and factories, equipment, real estate for investment purposes, and inventories.
    2. Major investment projects:
      1. review information about the purposes, starting time and expected completion dates of the investment projects in the minutes of meetings of the board of directors, and obtain information about the operation of the investment projects;
      2. funding sources of the investments: in case of loans, the underwriter shall evaluate the impact on the future operation of the issuing company; in case of own funds, the underwriter shall calculate the lost interest income or returns on reinvestment;
      3. collect supply-and-demand information about the markets of the products of the enterprises in the investment projects to ascertain if the projected market supply and demand is reasonable, and based on the projected operation plan calculate the returns on investment and period of recovery of costs;
      4. obtain the financial reports of the invested companies or operation reports of the projects to ascertain their operation and financial positions;
      5. ascertain the estimated investment benefits based on business or technology experts' evaluation opinions.
  5. If a public enterprise applies for listing of shares and the financial reports it submitted has not been certified by a CPA, the underwriter shall obtain and ascertain the CPA's comments on the difference in applying the Generally Accepted Accounting Principles against certification by an auditing agency, and its impact on the financial reports.
  6. The underwriter shall evaluate the fairness of the regulations governing issue of employee subscription warrants and equity securities by the applicant that is a foreign company according to the laws and regulations of the jurisdiction where it was incorporated, and the impact on the shareholders' equity.