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Taiwan Stock Exchange Corporation Rules for Regulating Primary Listed Foreign Issuers(2017.04.10) |
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Article 9
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Reviews of financial reports and financial forecasts of TWSE primary listed companies are categorized as either formal reviews or substantive reviews. Formal reviews apply to all TWSE primary listed companies; substantive reviews are conducted pursuant to paragraphs 2 and 3.
In performing substantive reviews of annual financial reports and second-quarter financial reports, the TWSE will in principle make random selections of at least 35 percent of TWSE primary listed companies for review of financial reports under each of the respective two periods, and at least 15 percent of TWSE primary listed companies respectively for reviews of financial reports for the first-quarter period and the third-quarter period. A TWSE primary listed company must be selected for an audit at least once every 5 years. The specific criteria for selecting companies to be audited are as follows:
- Financial reports for the relevant period shall be selected based on the following criteria:
- Financial Items:
- There is a relatively substantial year-on-year change in operating revenue, operating income, or net income before tax.
- The share of losses by associates and joint ventures accounted for using the equity method reaches a certain monetary amount or a certain percentage of the company's current operating income, or total holdings of parent company equity by subsidiaries reaches a certain percentage of the parent company's equity.
- The total amount of purchases from (or sales to) related parties in the current period reaches 20 percent or more of the total amount of purchases (or sales) in the financial report, or shows a year-on-year increase for the current period of 50 percent or more and the amount also reaches 3 percent or more of equity.
- The period-end balance of receivables from related parties and advance payments to related parties reaches 10 percent or more of equity, or increases by 50 percent or more from the beginning of the period and also reaches 3 percent of equity.
- The cumulative amount of assets traded (excluding purchases and sales of goods) with related parties in the current period accounts for 3 percent or more of the total assets at period end.
- The increase in the amount of loans to others in the current quarter reaches 3 percent or more of equity, or the cumulative amount of loans to others at period end reaches 10 percent or more of equity.
- The increase in the amount of endorsements and guarantees in the current quarter reaches 10 percent or more of equity, or the cumulative amount of endorsements and guarantees at period end reaches 30 percent or more of equity.
- Financial ratios are poor.
- The amount of non-current equity investment accounts for a great share of equity.
- Net worth per share is too low. "Net worth" refers to equity attributable to owners of the parent.
- Non-financial Items:
- Resignation of a financial officer.
- Resignation of an accounting officer.
- Resignation of an internal audit officer.
- Resignation of a research and development officer.
- Change of certified public accountant (other than an internal adjustment at the accounting firm).
- Change in shareholdings of directors or supervisors, including those of their related parties as mentioned in paragraph 3, Article 22-2 of the Securities and Exchange Act.
- Change of directors or supervisors (including independent directors), or resignation of the chairperson or general manager.
- The board of directors is authorized to pay compensation for directors and supervisors in accordance with industry standards, and the compensation paid is found to be unreasonable according to the screening criteria.
- The information filed for the most recent month shows that pledges created by directors and supervisors exceed 50 percent or more of the actual shareholding of all directors and supervisors, including pledges and shareholdings of their related parties as mentioned in paragraph 3, Article 22-2 of the Securities and Exchange Act.
- The financial operations of the company have been materially affected by any litigation in the most recent year.
- The financial officer or accounting officer is related within the second degree of kinship to a director or supervisor.
If a company selected for auditing pursuant to the aforementioned criteria was selected in the previous quarter, it may be excluded from selection during the current quarter.
- A company that meets any of the following criteria shall be listed as a company requiring an audit. However, if implementation of the audit is deemed unnecessary after analysis, it need not be listed:
- A company for which any irregularities are discovered by a formal review of its financial report.
- There is a change in managerial control.
- There is any material change in its business scope.
- The normal trading method is reinstated for the company's listed securities because it has satisfied applicable requirements set forth in the TWSE Operating Rules after the trading of its securities was suspended or placed under an altered trading method due to a change in the company's managerial control and a material change to its business scope.
- There have been consecutive deficits in the most recent 3 years and incremental amount of current pre-tax income as compared to the same period of the preceding fiscal year reaches 30 percent or more of the amount of share capital stated in the financial report. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, 15 percent of equity shall be used for calculation instead of the above-mentioned 30 percent of share capital.
- The amount of increase in net pre-tax losses relative to the same period in the preceding year reaches 30 percent or more of the share capital stated in the financial report. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, 15 percent of equity shall be used for calculation instead of the above-mentioned 30 percent of share capital.
- Any of the criteria specified in subparagraphs c, d, and h of item A of the preceding subparagraph is met, while at the same time the sum in question is large and the company has not undergone a special audit in the previous quarter.
- There is uncertainty about the company's ability to make repayment at maturity for corporate bonds issued by it.
- Cash and cash equivalents account for too high a percentage of the share capital stated in the financial report, and there is no capital expenditure plan.
- There is a material irregularity in the amount of prepayments or their volatility.
- The amount of unrealized loss in the trading of derivatives reaches NT$100 million and amounts to 3 percent or more of equity, or the amount of open interest held for trading purposes in the period amounts to 40 percent or more of the share capital stated in the financial report. In case of a foreign issuer with shares having no par value or a par value other than NT$10, 20 percent of equity shall be used in calculation instead of the above-mentioned 40 percent of share capital.
- A company newly added to the current-quarter Public Bulletin Board of Companies Whose Financial Operations Require Special Attention.
- Receivables and inventory amounts in the financial report account for too high a percentage of equity.
- The receivables past due for one year or more in the financial report reach a certain monetary amount or reach a certain percentage of equity.
- There is change in the accounting policies or accounting estimates stated in the financial report.
- The amount of the current change in intangible assets accounts for 3% or more of the total assets.
- The discrepancy between the company's own unaudited (unreviewed) figures and the accountant's audited (reviewed) figures of the current operating revenue reaches 5% or more.
- An audit is required by the TWSE for other reasons.
- During each selection, the TWSE will additionally randomly choose companies for review based on the following criteria:
- Companies that have not had a substantive review of their financial reports for the most recent 3 years.
- Companies having disposed securities in the most recent quarter as announced by the TWSE.
- Other criteria for random selection.
Substantive reviews of financial forecasts are selective audits. In addition to being subject to audit under any of the following circumstances, a company may be subject to a spot audit in any quarter as circumstances require:
- For TWSE primary listed companies that publicly disclose complete financial forecasts:
- Explanatory text for the quarter is not updated in that quarter, but is updated the following quarter.
- There is a decline of 30 percent or more in comprehensive income in the updated (or corrected) financial forecast relative to the original forecast, while the amount of the decline is also in excess NT$200 million.
- A company's own un-audited figure for comprehensive income or its CPA audited and attested figure for comprehensive income, reported after fiscal year end, declines by 20 percent from the figure for comprehensive income in the most recent publicly disclosed and filed financial forecast, while at the same time the amount of decline reaches NT$30 million and 0.5 percent of the share capital stated in the financial reports, and in addition, relative to the figure in the originally prepared financial forecast, also declines by 30 percent and in an amount in excess of NT$200 million. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, 0.25 percent of equity shall be used for calculation instead of the above-mentioned 0.5 percent of share capital.
- Comprehensive income in the updated (or corrected) financial forecast changes from surplus to deficit, while at the same time the amount of the difference exceeds NT$200 million or the updated (or corrected) figure for comprehensive losses reach NT$50 million.
- Questions are raised by external parties about a change in basic assumptions.
- For TWSE primary listed companies that publicly disclose summary financial forecasts:
- A decline in the CPA audited or reviewed figure for the current quarter's comprehensive income, relative to the figure in the most recent publicly disclosed and filed financial forecast, of 10 percent or more, when the amount of decline also exceeds NT$50 million.
- A decline in the figure for the current quarter's comprehensive income in the updated (or corrected) financial forecast, relative to the original financial forecast, of 10 percent or more, when the amount of decline also exceeds NT$50 million.
- Comprehensive income for the current quarter in the updated (or corrected) financial forecast changes from surplus to deficit, while at the same time the amount of the difference exceeds NT$100 million or the updated (or corrected) comprehensive losses for the current quarter reach NT$50 million.
- If forecasted comprehensive income is presented in interval estimates, calculation of the decline in comprehensive income for companies selected pursuant to the preceding paragraph will use the arithmetic mean of the upper and lower limits of the intervals for current quarter comprehensive income in the original and updated (or corrected) financial forecasts.
The competent authority may adjust the selection of companies for audit on the basis of paragraphs 2 and 3 as it deems necessary.
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Article 11
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When necessary during the substantive review of financial reports or financial forecasts, a CPA shall be hired to provide opinions and the CPA's working papers may be requisitioned. When a company is listed as requiring a review pursuant to Article 9, paragraph 2, subparagraph 2, item E, the CPA's working papers shall be requisitioned, in order to ascertain whether the certifying CPA audited or reviewed the company pursuant to the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and in accordance with generally accepted auditing principles or relevant Statements of Auditing Standards.
If, during a substantive review of a TSE primary listed company's financial report regarding major accounts or changes in financial ratios, or substantive review of its material information published during the preceding year, any material irregularity is found in its financial information or material information, the TWSE may require that the primary listed company or its CPA, lead underwriter, agent for litigious and non-litigious matters in Taiwan, or independent directors to give explanatory information on specified matters, and in consideration of circumstances, may require the TWSE primary listed company to submit a report with related explanations through the TWSE-designated information reporting website. When necessary, the TWSE may require the primary listed company to hold an informational press conference.
If the review shows that the CPA is in non-compliance with the provisions of paragraph 1, the TWSE shall submit the factual evidence relevant to the given case to the competent authority for further disciplinary actions pursuant to the CPA Act, Securities and Exchange Act, or other relevant regulations.
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Article 24
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If any of the following material events occurs to a TWSE primary listed company, the TWSE shall conduct verification and public disclosure operations following its Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities. The TWSE shall analyze and collect relevant information on the material event, and when necessary prepare an analysis report:
- Finances
- The TWSE primary listed company's financial statements for the current period show serious loss, such that the equity attributable to owners of the parent is lower than the share capital stated in the financial report.
In the case of shares having no par value or a par value other than NT$10, the "share capital" refers to the sum of the share capital plus capital reserves minus, the original issue premium. - The CPA issues an audit or review report expressing an opinion that is other than an unqualified opinion or is a non-standard audit or review report, and the circumstances are material.
- The TWSE primary listed company or its parent company or any of its subsidiaries has experienced a loss of creditworthiness.
- A principal debtor of the listed company has filed for bankruptcy or experienced any other similar event, or a principal debtor in favor of whom the company has made an endorsement or guarantee is unable to settle a debt or obligation when due.
- From financial information submitted by the TWSE primary listed company it is found that the company has provided any endorsement or guarantee for a company with which it does not do business, or that it has provided company assets as collateral for loan borrowings of another person.
- The cumulative actual amounts of expenditures and construction progress in connection with a cash capital increase or issuance of corporate bonds both lag behind projected amounts by 25 percent or more.
- Assets (excluding all types of domestic stocks and open-end bond funds) acquired or disposed of by the TWSE primary listed company or its subsidiaries reach 20 percent or more of the share capital stated in the company's financial report, or NT$300 million or more.
In the case of shares having no par value or a par value other than NT$10, 10 percent of the equity attributable to owners of the parent shall be used for calculation instead of the aforesaid 20 percent of share capital. - The amount of open interest in derivatives held for trading purposes in the current month shows a month-on-month increase of 10 percent or more of the share capital stated in the financial report, or the combined amount of realized and unrealized losses shows a month-on-month increase of NT$100 million or more. In the case of shares having no par value or a par value other than NT$10, 5 percent of the equity attributable to owners of the parent shall be used for calculation instead of the aforesaid 10 percent of share capital.
- There is a high year-on-year rate of increase or decline in operating revenue in the current month from the same month of the previous year or a high month-on-month changing rate in operating revenue in the current month from the previous month, or a high year-on-year rate of increase or decline in cumulative operating revenue as of the current month, with no reasonable cause for the change; or there is a material revision of the operating revenue of the current period or any previous period.
- There is a high year-on-year rate of increase or decline in cumulative operating revenue during a certain period, and in a direction opposite to that of the industry to which the company belongs.
- Business
- The financial statements of the TWSE primary listed company for the current period indicate a serious reduction in production, or a suspension of manufacturing operations in whole or in part, resulting in serious loss, and it is predicted that the circumstance cannot be improved within a short time.
- Any of the TWSE primary listed company's plants or major facilities has been rented out, or all or a substantial part of the company's major assets have been pledged, such that there is a likelihood of operational difficulties or suspension of operations.
- The company enters into an important contract, changes major content in its business plan, completes the development of a new product, acquires another enterprise, or signs or rescinds a cooperation plan with another company, resulting in an adverse effect on the company's finances or business.
- Any instance of major disaster, protest, strike, or environmental pollution occurs to the TWSE primary listed company and it is predicted that the business operations cannot be restored within a short time, or the predicted losses exceed 20 percent of the share capital stated on the financial report. In the case of shares having no par value or a par value other than NT$10, 10 percent of shareholders' equity shall be used for calculation instead of the aforesaid 20 percent of share capital.
- A change in management rights or material change in the scope of business.
- Other
- Elections for directors/supervisors of the TWSE primary listed company cannot be held as scheduled, or one-half or more of the original directors or supervisors cannot exercise their official powers.
- A serious deficiency occurs in any stock-related operations of the TWSE primary listed company (such as fraud by company insiders), affecting market order.
- Any matter involving litigious or non-litigious proceedings, an administrative disposition, or contentious administrative proceedings, with a material effect on the TWSE primary listed company's financial or business operations.
- The company enters into an important contract, changes important content in its business plan, or rescinds a cooperation plan with another company, with an adverse impact on the company's finances or business operations.
- Reorganization or bankruptcy proceedings of the TWSE primary listed company, its parent company, or any of its subsidiaries, and any events that occur in the course of such proceedings, including any application made by the company, any petition made by an interested party and known to the company, any notification or ruling made by a court, or any other matters related to reorganization or bankruptcy proceedings duly conducted in accordance with laws and regulations.
- A report is made by the Surveillance Department of the TWSE in accordance with the Procedures for Trading Index Early Warning Notification.
- The TWSE primary listed company issues any material information, or the press/media report any event with a material effect on the company's operations.
- There is a material irregularity in a transaction between the TWSE primary listed company and a related party.
- The TWSE primary listed company enters material information into the TWSE's Market Observation Post System, and its average closing stock price for the three days following the entry differs by 14 percent or more from the average closing stock price for the three days preceding the entry.
- A material irregularity is found in the internal control system of the TWSE primary listed company in an audit.
- An independent director's office that the TWSE primary listed company establishes in accordance with regulatory requirement becomes vacant for any reason other than illness, death, or other force majeure event, resulting in an insufficient number of independent directors, or as a result the company has no independent director with a household registration in Taiwan.
- A circumstance arises in which the primary listed company has no agent for litigious and non-litigious matters in Taiwan.
- Change of the company's financial officer, accounting officer, internal audit officer, research and development officer, or CPA, where the change is not an internal adjustment of an accounting firm.
- The competent authority or the TWSE otherwise deems necessary.
When any material event occurs to a TWSE primary listed company, the TWSE may require that the TWSE primary listed company, or its CPA, lead underwriter, agent for litigious and non-litigious matters in Taiwan, or independent director(s) give explanatory information on specified matters, and in consideration of the actual situation, may require the TWSE primary listed company to submit a regulatory filing of the explanatory matters on the TWSE-designated information reporting website or require the TWSE primary listed company to hold an informational press conference.
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