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Article 4
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Reviews of listed company financial reports are categorized as either formality reviews or substantive reviews. Formality reviews of annual, semi-annual, and quarterly financial reports apply to all listed companies. For substantive reviews, selective audits are employed; based on the following criteria, at least 10 percent of listed companies will be selected for reviews of annual financial reports, at least five percent will be selected for reviews of semi-annual and third-quarter financial reports, and at least three percent will be selected for reviews of first-quarter financial reports. A listed company (listings of Taiwan Depository Receipts excluded) shall be selected for review at least once every 5 years.
1. The following criteria shall be used for selection:
(1) Financial criteria:
1. A significant year-on-year decline in operating revenues, operating income, or pre-tax income.
2. Investment losses on an equity-method investee company that reach a specified percentage of the company's current operating income, or total holdings by a subsidiary of parent company equity that reach a specified percentage of parent company equity.
3. Total current purchases (or sales) with related parties equaling 20 percent or more of total purchases (or sales) of the listed company, or, a year-on-year increase in the same of 50 percent or more, in an amount that also equals three percent or more of shareholder equity.
4. A period-end balance of receivables from related parties or advance payments to related parties equaling ten percent or more of shareholder equity, or that increases by 50 percent or more from the beginning of the period while also reaching three percent or more of shareholder equity.
5. Accumulated current asset trades (excluding purchase and sale transactions) with related parties accounting for three percent or more of total assets at period end.
6. A current-quarter increase in loans to others that equals three percent or more of shareholder equity, or accumulated loans to others at period end equal to ten percent or more of shareholder equity.
7. A current quarter increase in endorsements and guarantees equaling ten percent or more of shareholder equity, or accumulated endorsements and guarantees at period end equaling 30 percent or more of shareholder equity.
8. Poor financial ratios.
9. Non-current equity investment that accounts for 60 percent or more of shareholder equity.
10. Low net worth per share.
(2) Non-financial items:
1. Resignation of the chief financial officer.
2. Resignation of the chief 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 internal accounting firm adjustments).
6. A change in director or supervisor shareholdings.
7. A change of directors or supervisors (including independent directors), or resignation of the chairperson or general manager.
8. A level of director or supervisor compensation found to be unreasonable according to screening criteria in cases where the board of directors is authorized to set compensation according to industry standards.
9. Information filed for the most recent month showing share pledges by directors and supervisors equaling or exceeding 50 percent of total collective director/supervisor shareholdings.
10. Litigation during the preceding year that materially affects the company's finances or business.
11. A financial officer or accounting officer within the second degree of kinship with any director or supervisor.
Any company selected for a review in the previous quarter pursuant to the aforementioned criteria may be exempted from selection in the current quarter.
2. A company selected for review according to any of the following criteria may be exempted if analysis indicates the review is not necessary:
(1) Irregularities are found at the company based on the formality review of its financial reports.
(2) There has been a material change in the managerial control of the company (such as a change in one more than one third of its directors).
(3) There has been a material change in the company's principal line of business.
(4) After becoming a public company, the company's financial reports for the five consecutive preceding years have been audited and certified by the same certified public accountant.
(5) The company has had deficits for the three preceding consecutive years or accumulated deficits have accounted for 50 percent or more of the capital stock listed in its financial reports.
(6) The company shows a year-on-year increase in pre-tax losses equal to 30 percent or more of the capital stock listed in the financial reports.
(7) The company meets any of the criteria specified in subparagraphs 3, 4, and 8 of the preceding paragraph, where the amount in question is material and the company's financial ratios are poor, and the company has also not received a special audit in the previous quarter.
(8) The company has issued corporate bonds whose payment at maturity is uncertain.
(9) The company's cash and cash equivalents account for too high a percentage of the capital stock listed in its financial reports, and it has no capital expenditure plan.
(10) The amounts of the company's prepayments, or changes therein, are material or unusual.
(11) The amount of current period unrealized losses in derivatives trades reaches NT$100 million and accounts for three percent or more of shareholder equity, or the amount of current period open interests for trading purposes accounts for 40 percent or more of the capital stock listed in the financial reports.
(12) The CPA issues an opinion in an annual financial report that reflects divided responsibility and adopts too high a percentage of audit work from other CPAs.
(13) The company has been newly added to the current-quarter Public Bulletin Board of Companies Whose Financial Status Requires Special Attention.
(14) The company is selected as one whose consolidated financial statement risk indicators are comparatively high.
(15) A review of the company is required by the TWSE due to other reasons.
3. During each selection, the TWSE will also randomly choose companies for review according to the following criteria:
(1) Companies that have not been subject to routine regulation, regulation by exception, or substantive review of financial reports during the preceding three years.
(2) Companies with comparatively high non-audit fees (for annual reports).
Formality review of financial forecasts also applies to all listed companies. Selective audits are used for substantive reviews. A company will be selected for review when any of the following circumstances applies, and a test audit may also be performed in each quarter as deemed necessary depending on the circumstances:
1. For listed companies that publicize complete financial forecasts:
(1) The statement is not updated in the current quarter, but in the following quarter.
(2) There is a decline of at least 30 percent in pre-tax income in the updated (or corrected) financial forecast relative to the original financial forecast, where the amount of decline also exceeds NT$200 million.
(3) A company's own un-audited figure for pre-tax income or CPA audited and attested pre-tax income, reported after fiscal year end, declines by at least 20 percent from the figure for pre-tax income in the most recently published financial forecast, while the amount of decline reaches NT$30 million and five-thousandths of the capital stock listed in the financial reports, and also declines by at least 30 percent from the pre-tax income in the original financial forecast and in an amount in excess of NT$200 million.
(4) Pre-tax income in the updated (or corrected) financial forecast changes from surplus to deficit, where the amount of discrepancy also exceeds NT$200 million or the updated (or corrected) pre-tax losses reach NT$50 million.
(5) Questions are raised by external parties about a change in basic accounting assumptions.
2. For listed companies that publish summary financial forecasts:
(1) Pre-tax income in the current quarter, as audited or reviewed by a CPA, has declined by at least 10 percent from pre-tax income for the current quarter in the most recently published financial forecast, with an amount of decline in excess of NT$50 million.
(2) There is a decline of at least 10 percent in pre-tax income for the current quarter in the updated (or corrected) financial forecast relative to the same figure in the original financial forecast, where the amount of decline also exceeds NT$50 million.
(3) Pre-tax income for the current quarter in the updated (or corrected) financial forecast changes from surplus to deficit, where the amount of the discrepancy also exceeds NT$100 million or the updated (or corrected) pre-tax losses for the current quarter reach NT$50 million.
3. Where pre-tax income forecast is presented in interval estimates, calculation of the decline in pre-tax income for companies selected pursuant to the preceding paragraph will use the arithmetic mean of the upper and lower limits of the intervals representing pre-tax income for 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 or adjust the criteria as circumstances require.
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