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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(2020.03.02)
Date：
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 in accordance with Article 4, paragraph 2 or 3, or Article 28-1, paragraph 5 or 6 of the Rules Governing Review of Securities Listings or 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 issuing company 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..
9     When performing evaluations according to the provisions under Article 9, Paragraph 1 of the Rules Governing Review of Securities Listings, the underwriter shall conduct random checks on relevant evidence and documents, except for Subparagraphs 1, 3 and 8 which require opinion provided by lawyer, and Subparagraph 6 which requires opinion provided by CPA, to evaluate if the domestic issuer has failed to comply with the requirements.
    When performing evaluations according to the provisions under the subparagraphs of Article 28-8 of the Rules Governing Review of Securities Listings, the underwriter shall conduct random checks on relevant evidence and documents, except for Subparagraphs 1 to 4 which require opinion provided by lawyer, to find out if the foreign issuer applying for initial listing or its subordinate companies have failed to comply with the requirements.
    For evaluations of lawyers under the first two paragraphs, the lawyers to be contacted may not be the same as the regular legal adviser to the issuing company or the lawyer or CPA appointed by the issuing company to complete the "Legal Matter Checklist for Share Listing Applied for by Issuer" and may not work for the firm that maintains a substantial cooperation relationship with such adviser, lawyer or CPA, so as to ensure independence of the lawyers' opinions.
    When evaluating if directors may independently perform their duties under Article 9, Paragraph 1, Subparagraph 9 and Article 28-4, Paragraph 3 of the Rules Governing Review of Securities Listings, the underwriter shall conduct an advanced evaluation on the independence of the independent directors. It shall further obtain the lists of directors and supervisors and minutes of meetings of the board of directors for the year of application and the most recent three years, and perform on-site observation to see if the formation is healthy, if the meetings convened are working effectively, if the important decisions or changes are well considered before they are made, if the procedures for submitting a proposal are reasonable, and describe its evaluation and results in a "securities underwriter’s assessment report."
    When evaluating the establishment of the compensation committee under Article 9, Paragraph 1, Subparagraph 9 and Article 28-4, Paragraph 4 of the Rules Governing Review of Securities Listings, the underwriter shall obtain the organizational regulations of the compensation committee created by the issuing company, ascertain the professional qualifications of its members and obtain the meeting minutes of the committee, to assess if its formation is regular and compliant with requirements, if the members of the committee are independent, if the meetings convened are working effectively, if the proposals submitted are reasonable, and the discussions of the above proposals at the meetings of the board of directors, and describe its evaluation and results in a "securities underwriter’s assessment report."
    When evaluating the circumstances in Article 9, Paragraph 1, Subparagraph 11, Item 2 and Article 28-8, Paragraph 7, Item 2 of the Rules Governing Review of Securities Listings, the underwriter shall obtain the following information and describe its evaluation and results in a “securities underwriter's assessment report:”
  1. With regard to the reduction of shareholding in the issuing company over the last three years, inspect the minutes of meetings of the audit committee, board of directors or shareholders of the TWSE/TPEx-listed company for the cause, expected reduction ratio, stock assignees or specific persons negotiated with, price and impact on the equity of the shareholders of the TWSE/TPEx-listed company; in the absence of an audit committee, examine whether consent of two-thirds or more of the directors has been procured.
  2. Where over the last three years the TWSE/TPEx-listed company has reduced its shareholding in the issuing company on account of a forfeiture of its subscription rights to shares issued by the issuing company for cash capital increase, inspect the minutes of meetings of the audit committee, special committee of board of directors of the issuing company on each such reduction for the assessment opinion by an independent expert on the fairness of the price of the new shares issued for each cash capital increase and reasonableness of the pricing and specific persons negotiated with etc. in each capital increase. The stock release procedures obtained of the issuing company that have been approved by the board of directors shall include specific person negotiated with and pricing basis etc. and information. Whether such procedures have been effectively implemented shall be assessed. Whether the composition, qualification, method of review, and other matters pertaining to the special committee are governed mutatis mutandis by the Regulations Governing the Establishment and Related Matters of Special Committees of Public Companies for Merger/Consolidation and Acquisition and, in the absence of an audit committee or special committee, whether consent of two-thirds or more of the directors has been procured, shall also be assessed.
11-1     If the applicant for initial listing is an offshore subsidiary of a local TWSE/TPEx-listed company, the underwriter shall take necessary evaluation and audit procedures to assess the legality of the policy-making procedure of the local TWSE/TPEx-listed company, whether the listing of shares may have a major adverse impact on its operation and financial position, and the proposed action plans.