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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 incremental amount of loss before tax in the current fiscal year as compared to the loss or income before tax in in the same period of the preceding fiscal year reaches 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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