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Article NO. Content

Title:

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

Amended Date: 2021.03.31 (Articles 1, 4, 5, 6, 9, 10 amended,English version coming soon)
Current English version amended on 2020.03.02 
Categories: Primary Market > Review
5     Business circumstances:
  1. Summary of business:
    1. obtain information about the top 10 clients or clients whose business amount accounts for 5% or more of the annual net operating revenue in the most current term and the most recent three fiscal years and their sales contracts, check on a random basis the relevant evidence to verify the absence of major discrepancies in the sales price and trading conditions with the clients, and verify through written certification or on-site observation to ascertain these clients' operation status, their relationship with the issuing company, trading purposes and the necessity of the transactions, to evaluate if there is any inflated profit;
    2. for the top 10 clients or clients whose business amount accounts for 5% or more of the annual net operating revenue in the most current term and the most recent three fiscal years, verify and analyze if there are any irregularities in significant additions or reductions of the issuing company's sales amount with them, and evaluate if there are sales concentration risks;
    3. interview the sales managers of the issuing company to ascertain the issuing company's sales policy;
    4. obtain information about the top 10 suppliers or suppliers whose purchase amount accounts for 5% or more of the annual net purchase amount in the most current term and the most recent three fiscal years and their supply contracts, check on a random basis the relevant evidence to verify the absence of major discrepancies in the purchase price and trading conditions of raw materials purchased from the suppliers, and verify through written certification or on-site observation to ascertain these supplier' operation status, their relationship with the issuing company, trading purposes and the necessity of the transactions, to evaluate if there is any false sales invoice;
    5. for the top 10 suppliers or suppliers whose purchase amount accounts for 5% or more of the annual purchase amount in the most current term and the most recent three fiscal years, verify and analyze if there are any irregularities in significant additions or reductions of the issuing company's purchase amount with them, and evaluate if there are risks of centralized purchasing;
    6. obtain information about the annual purchase quantity and unit price of the main raw materials of the issuing company's major products for the most current term and the most recent three fiscal years and collect general market information for comparison to see if there are any significant irregularities;
    7. obtain copies of the issuing company's long-term supply contracts in the most current term and the most recent three fiscal years, and information about supply shortage or interruptions, to evaluate if the supply contracts contain any major qualifying clauses and if there are risks in concentration of sources of supply;
    8. obtain the issuing company's consolidated and individual financial reports for the most current term and most recent three fiscal years to analyze the fairness of changes in accounts receivable, and describe the policy for provision of allowance for losses in the parent company and subsidiaries and the evaluation of adequacy of allowance, and also possibility of recovery of accounts receivable, and compare with peer companies in the same sector of business.
  2. Summary of inventory:
  3. Obtain the issuing company's consolidated and individual financial reports for the most current term and the most recent three fiscal years, to analyze the fairness of changes in net balance of inventory, describe the policy of the parent company and subsidiaries for allowance for inventory valuation and obsolescence loss and the evaluation of adequacy of allowance, and compare with peer companies in the same sector of business.
  4. Summary of business performance in the most current term and most recent three fiscal years
    1. based on the issuing company's internal information and reports and information about the industry collected, analyze if there are any irregular changes in the business performance for the most current term and most recent three fiscal years, and evaluate if there are any circumstances where listing of its shares is advised against;
    2. analyze changes in the operating revenue, operating costs and gross operation profits by product line or by department for the most current term and most recent three fiscal years;
    3. for changes in business revenue or gross profit that are more than twenty percent (20%) in the most current term and most recent three fiscal years, cost-volume-profit analysis should be performed to analyze if these changes are reasonable.
  5. In case of a merger of another company for less than a full fiscal year, evaluate factors such as purpose, effects and fairness of the merger transaction.