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Title: Taipei Exchange Procedures for the Review of Financial Reports of TPEx Listed Companies
Date: 2009.04.10 ( Announced )
Date: 2017.04.11 ( Amended )

Article Content

 
Article 1     These Procedures are adopted to raise the quality of financial information disclosure by TPEx listed companies.
Article 1-1     Unless otherwise provided by law or regulation, TPEx review of TPEx listed company financial reports is carried out pursuant to these Procedures.
    Unless otherwise provided, TPEx review of financial reports of companies with TPEx primary listings shall be governed, mutatis mutandis, by the provisions of these Procedures concerning TPEx listed companies.
    TPEx review of financial reports of TPEx secondary listed companies shall be governed by Articles 15 to 19 of these Procedures.
Article 2     These Procedures shall apply to review of the financial reports of TPEx listed companies that are publicly announced or filed pursuant to Article 36 of the Securities and Exchange Act or restated pursuant to Article 6 of the Securities and Exchange Act Enforcement Rules, and the financial forecasts and relevant information of TPEx listed companies prepared, updated, corrected, or restated pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies ("the Financial Forecast Regulations").
Article 3     The scope of review for financial reports shall be the CPA audit or review reports and the financial statements. The scope of review for the financial reports of a TPEx secondary listed company additionally shall include a review report by an ROC CPA and the working papers of the reviewing CPA.
    The scope of review for financial forecasts shall be the CPA review reports, projected financial statements, financial forecast statements, significant accounting policies, and summary explanations of basic assumptions.
Article 4     Reviews of TPEx listed company financial reports are categorized as either formal reviews or substantive reviews. Formal reviews apply to all TPEx listed companies. Substantive reviews are selective audits, and apply to all TPEx listed companies, provided that a TPEx listed company that is a financial or stock management enterprise is not within the scope of selection for substantive reviews.
    Substantive reviews will be conducted based on the criteria listed below. At least 10 percent of annual financial reports will be selected for audit, and at least 3 percent of first-quarter financial reports, and at least 5 percent of second-quarter and third-quarter financial reports. Each TPEx listed company must be selected as an audited company at least once every 5 years. However, for TPEx primary listed companies, at least 35 percent of annual and second-quarter financial reports shall be selected for audit, and at least 15 percent of first-quarter and third-quarter financial reports shall be selected for audit.
  1. Selection is based on the following criteria:
    1. Financial criteria:
      1. A relatively large change in operating revenues, operating income, or pre-tax income compared to the same period of the preceding year.
      2. Share of loss of associates and joint ventures accounted for using the equity method reach a certain monetary amount or reach a certain percentage of the company's current operating income, or total holdings of parent company equity by a subsidiary that reach a certain percentage of the parent company's equity.
      3. Combined purchases from (or sales to) related parties in the current period equaling 20 percent or more of the total combined purchases (or sales), or that have increased by 50 percent or more from the same period of the preceding year while also equaling 3 percent or more of equity.
      4. A period-end balance of amounts receivable from related parties or prepayments to related parties equaling 10 percent or more of equity, or a current quarter balance that increases by 50 percent or more while also reaching 3 percent of equity.
      5. Cumulative asset transactions (excluding purchase and sale transactions) with related parties in the current period equaling 3 percent or more of total assets at period end.
      6. An increase in endorsements and guarantees in the current quarter equal to 10 percent or more of equity, or cumulative endorsements and guarantees at period end equaling 30 percent or more of equity.
      7. An increase in funds lent to other parties in the current quarter equaling 3 percent or more of equity, or funds lent to other parties that reach 10 percent or more of equity by period end.
      8. Poor financial ratios.
      9. Non-current equity investment accounts for a relatively high proportion of equity.
      10. Low net worth per share.
    2. Non-financial criteria:
      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. A change of certified public accountants (other than internal accounting firm reassignments).
      6. A change in director or supervisor shareholdings (including shares held by their spouses and minor children and shares held under the names of other parties).
      7. A change of director or supervisor (including independent directors), or resignation of the chairperson or general manager.
      8. Unreasonable director and supervisor compensation, based on screening criteria, at companies where the board of directors is authorized to pay director and supervisor compensation based on industry standards.
      9. Pledges of shares by directors and supervisors, according to information filed in the most recent month, that equal 50 percent or more of the combined total shareholdings of all directors and supervisors (including pledges of shares held by their spouses and minor children and shares held under the names of other parties).
      10. Litigation during the preceding year that materially affects company finance or business.
      11. A financial officer or accounting officer related within the second degree of kinship with any director or supervisor.
    A company selected for audit in the previous quarter pursuant to the aforementioned criteria may be exempted from selection in the current quarter.
  2. A company that meets any criterion below must be subject to audit, provided that a company may be exempted if analysis shows the audit to be unnecessary:
    1. Irregularities are found at the company based on the formal review of its financial reports.
    2. There has been a change in managerial control of the company.
    3. There has been a material change in the company's scope of business.
    4. The normal trading method is reinstated for the company's TPEx listed securities because it has satisfied applicable requirements set forth in the Taipei Exchange Rules Governing Securities Trading on the TPEx after the trading of the securities was suspended or placed under an altered trading method due to a change in its managerial control and a material change to its business scope.
    5. Any of the criteria under sub-items c, d, and h of item A of the preceding subparagraph apply, while the sum in question is also large, and the company has not undergone a special audit in the previous quarter.
    6. The company has had consecutive deficits for the preceding 3 years, and the 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 share capital stated in the financial report. However, in the case of a company whose shares have no par value or a par value other than NT$10, 15 percent of equity shall be substituted for the calculation of the aforesaid 30 percent of share capital.
    7. The incremental amount of net loss before tax as compared to that in the same period of the preceding fiscal year reaches 30 percent or more of the share capital stated in its financial report. However, in the case of a company whose shares have no par value or a par value other than NT$10, 15 percent of equity shall be substituted for the calculation of the aforesaid 30 percent of share capital.
    8. The company's ability to repay its corporate bonds at maturity is uncertain.
    9. Cash and cash equivalents account for too high a percentage of share capital as stated in the financial reports, and there is no capital expenditure plan.
    10. The amount or percentage of change in prepayments is material or unusual.
    11. Current period unrealized losses in derivatives trades reach NT$100 million and account for 3 percent or more of equity, or current period open interests for trading accounts for 40 percent or more of the share capital stated in the financial reports. However, in the case of a company whose shares have no par value or a par value other than NT$10, 20 percent of equity shall be substituted for the calculation of the aforesaid 40 percent of share capital.
    12. The CPA, in the annual financial report, with respect to equity investment in another enterprise, uses and gives too much weight to audit work of other CPAs. The interim financial report, with respect to equity investment in another enterprise, uses and gives too much weight to review work of other CPAs or to material that has not been reviewed by a CPA.
    13. The company is newly listed on the current-quarter Key Financials Section
    14. Changes in accounting policies or accounting estimates, as stated in the financial report.
    15. Receivables or inventory account for a relatively high proportion of equity.
    16. The receivables past due for 1 year or more reach a certain monetary amount or reach a certain percentage of the equity.
    17. The increase or decrease in current intangible assets reaches NT$100 million or more, and accounts for 20 percent of the total assets or more.
    18. The discrepancy between the published operating revenue and the figure as audited (or reviewed) by the CPA reaches 5 percent or more.
    19. Audit is required by the TPEx for other reasons.
  3. When selecting companies for audit, the TPEx additionally chooses random companies for audit based on the following criteria:
    1. Companies that have not undergone routine regulation, regulation by exception, or substantive review in the preceding 3 fiscal years.
    2. Companies whose securities, during the most recent quarter, have been announced by the TPEx as being under dispositive measures.
    3. Other criteria for random selection.
    Formal reviews of financial forecasts also apply to all TPEx listed companies, while substantive reviews of financial forecasts are selective audits. In addition to being subject to audit if any one of the following circumstances exist, a company may be subject to a spot audit in any quarter, depending on circumstances:
  1. For TPEx listed companies that publicly disclose complete financial forecasts:
    1. Explanatory text for the quarter is not updated in that quarter, but is updated the following quarter.
    2. There is a decline of 30 percent or greater in comprehensive income in the updated (or corrected) financial forecast relative to the original forecast, where the amount of decline also exceeds NT$150 million.
    3. A company's own un-audited figure for comprehensive income or CPA audited and attested comprehensive income, reported after fiscal year end, declines by 20 percent from the figure for comprehensive income in the most recent publicly announced and filed financial forecast, and the amount of decline reaches NT$30 million and 0.5 percent of the share capital stated in the financial reports, and also declines by 30 percent from the comprehensive income in the originally prepared financial forecast and in an amount in excess of NT$150 million. However, in the case of a company whose shares have no par value or a par value other than NT$10, 0.25 percent of equity shall be substituted for the calculation of the aforesaid 0.5 percent of share capital.
    4. Comprehensive income in the updated (or corrected) financial forecast changes from surplus to deficit, where the amount of discrepancy also exceeds NT$100 million or the updated (or corrected) comprehensive losses reach NT$50 million.
    5. Questions are raised by external parties about a change in basic assumptions.
  2. For TPEx listed companies that publicly disclose summary financial forecasts:
    1. A decline in comprehensive income in the current quarter, as audited or reviewed by a CPA, of at least 10 percent from the figure for the current quarter given in the most recent publicly announced and filed financial forecast, where the amount of decline exceeds NT$50 million.
    2. There is a decline of 10 percent or more in comprehensive income for the current quarter in the updated (or corrected) financial forecast relative to the same figure in the original financial forecast, and the amount of decline also exceeds NT$50 million.
    3. Comprehensive income for the current quarter in the updated (or corrected) financial forecast changes from surplus to deficit, and the amount of the difference exceeds NT$80 million or the updated (or corrected) comprehensive losses for the current quarter reach NT$30 million.
  3. 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 the above paragraphs as it deems necessary.
Article 5     When reviewing the financial reports of TPEx listed companies, each item set out in the formal review checklist (form in Attachment 1) and substantive review checklist (form in Attachment 2) shall be checked in detail with respect to whether its accounting treatment violates relevant laws or generally accepted accounting principles, and the following matters shall also be noted:
  1. Whether investments in derivatives products have been duly disclosed.
  2. Whether there are any irregularities in related party transactions.
  3. Whether or not funds were loaned to another party for any reason other than margin loans necessary for company business transactions.
  4. Whether there are any irregularities in the purchase or sale of block assets.
  5. Whether any endorsement or guarantee was made for others for any reason other than as necessary for company business transactions.
  6. Whether board of directors operations comply with regulations.
  7. The improvement of any deficiencies or follow-up review of any irregularities listed in the previous review.
    When reviewing the financial forecast, each item in the formal review checklist (form in Attachment 3) or substantive review checklist (form in Attachment 4) shall be thoroughly audited, and the following matters shall also be noted:
  1. Whether there are any irregularities in the CPA review.
  2. Whether the basic assumptions in the financial forecast are reasonable.
  3. Whether there are any irregularities in the timing of the update (correction) or restatement of the financial forecast.
  4. Whether all necessary items are included in the summary of major basic assumptions in the financial forecast.
  5. The improvement of any deficiencies or follow-up review of any irregularities listed in the previous review.
    The following matters shall be noted in evaluating whether the TPEx listed company has delayed the updating (or correction) of its financial forecast:
  1. The difference between audited companies' pre-update estimates and their own un-audited figures shall be monitored each month. If the difference between those figures meets the standard for the timing of updates, the cause of the difference between the standard and actual update times, and its basis, shall be ascertained.
  2. The time of occurrence of the cause for a financial forecast correction shall be monitored in order to ascertain the cause of the difference between the time of its occurrence and the actual time of the correction, and the basis of the cause.
  3. Supporting evidentiary information and the reasonableness of the explanation of the reason for the update by the audited company shall be analyzed.
    The following matters shall be noted when assessing the reasonableness of the basic assumptions of the financial forecasts:
  1. Material differences between the audited company's financial forecasts before and after the update (or correction) shall be compared, the main cause of the differences shall be ascertained, and the reasonableness of the materials for evaluation of basic assumptions shall be analyzed item-by-item.
  2. Historical financial information on the audited company for the preceding 2 years shall be analyzed to determine if there are material discrepancies with the financial forecasts for the current year, and their cause and reasonableness shall be ascertained.
  3. A relevant analysis report for the audited company's industry shall be obtained, and financial reports of other companies in the industry shall be compared in order to understand trends in the industry's business cycle.
  4. It shall be ascertained whether the audited company's revenues have been overestimated or expenditures underestimated in the pro forma statement of non-operating revenues and expenditures. If the audited company plans disposal of non-current financial assets or major assets, then an objective and accurate price reference or appraisal report shall be obtained as a basis for determining the reasonableness of the figures prepared by the company. When an evaluation uses estimates made according to share of loss of associates and joint ventures accounted for using the equity method, then materials related to changes in relevant industries, the same industry, or the securities markets shall also be obtained to facilitate analysis and judgment.
Article 6     If necessary, a CPA shall be engaged to provide opinions during the period of substantive reviews of financial reports or financial forecasts, and the CPA's working papers will be subject to requisition. When a company is listed as an audited company pursuant to Article 4, paragraph 2, subparagraph 2, item F, the CPA's working papers shall be requisitioned in order to ascertain whether the certifying CPA has audited or reviewed the company pursuant to the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants as well as generally accepted auditing standards or relevant Statements of Auditing Standards.
    If an audit finds that a CPA has violated the aforementioned provisions, the CPA shall be reported to the competent authority for disciplinary action pursuant to the CPA Act, Securities and Exchange Act, and relevant regulations.
Article 7     Concrete methods or suggestions for handling a case shall be summarized and reported to the competent authority if, during the formal review of financial reports, financial reports are not submitted pursuant to regulations, and the documents filed are incomplete and the CPA issues other than an unqualified opinion or issues a non-standard audit or review opinion, and where these facts affect fair presentation of the financial report such that a restatement is required or where there are significant deficiencies in the internal control system; or if, during formal revue of a financial forecast, the documents submitted are incomplete, publicly announced information is incomplete, the date of its preparation and public announcement or filing are past the deadline, or the CPA issues a non-standard audit opinion.
    After completing the review of financial reports, the TPEx shall clearly indicate its review conclusions and concrete opinions for handling the case. If irregularities such as material deficiencies or omissions are found and the TPEx is required to handle the matter pursuant to the Securities and Exchange Act or to seek the assistance of relevant agencies in handling the case, the TPEx shall submit the review report for each case and draft and submit to the competent authority an opinion on its handling, or suggest that the competent authority transfer the case for further investigation by the competent authority governing the relevant industry.
    When a company is found to have material deficiencies under the preceding paragraph, the TPEx may request that the company dispatch personnel to attend education classes at an organization designated by the competent authority and copy the aforementioned designated organization with the request. If the company fails to dispatch personnel, then depending on the nature of the deficiencies, the TPEx may give the company priority listing for substantive review of subsequent financial reports, routine regulation or regulation by exception, or internal control system audits.
    If financial reports that are reviewed are found to have common deficiencies, a circular letter shall be regularly sent to listed companies as a reference for improvement, with a copy forwarded to the competent authority.
Article 8     When any TPEx listed companies fail to publicly announce and file financial reports by the duly prescribed deadline, the TPEx shall summarize and submit a list of such companies to the competent authority within 3 business days after the deadline.
Article 9     If formal review finds any of the circumstances set forth in Article 7, paragraph 1, the TPEx shall file a summary report with the competent authority (form in Attachment 5) within 3 business days after the deadline for the submission of financial reports.
    Within 20 days after the deadline for the submission of financial reports, the TPEx shall submit to the competent authority for recordation the names of the companies selected for audit pursuant to Article 4, paragraph 2, along with the reasons for their selection. The TPEx shall subsequently complete special reports within 45 days. If more time is required for complex audit cases, the TPEx may file with the competent authority for an extension of the audit period, which shall not exceed 1 month.
    Financial forecasts or explanations of changes filed pursuant to the Financial Forecast Regulations shall be summarized and filed with the competent authority (form in Attachment 6) on the day when the TPEx listed company forwards its financial reports, or by the tenth day of the following month after the date of information filing. If the TPEx cannot complete the summary and file with the competent authority within the prescribed time limit, it may specify the reasons in the information summary, then complete the verification within 2 months and report it to the competent authority separately.
    The deadline for substantive review of a TPEx listed company's financial report not submitted pursuant to the aforementioned provisions, or its restated, corrected, or updated financial forecast, is calculated from the date of its submission.
Article 10     Review reports shall be retained for a period of 3 years, during which they may be requisitioned by the competent authority.
Article 11     When any of the following circumstances are found to apply to a TPEx listed company after the review of its financial forecast, the TPEx may give written notice that it has been issued a demerit and listed for consideration for routine regulation or regulation by exception, with a copy sent to the competent authority for recordation. If the circumstances are serious, the TPEx may also impose a penalty of NT$30,000.
  1. The company has not updated (or corrected) its financial forecast pursuant to the Financial Forecast Regulations.
  2. The basic assumptions of the financial forecasts have not undergone reasonable evaluation.
  3. The financial forecast has not been approved by the board of directors, except with legitimate reason.
  4. The company has not filed the relevant documentation pursuant to the Financial Forecast Regulations.
  5. The company fails to conduct public announcement and filing as required by the Financial Forecast Regulations and material errors or omissions exist.
  6. The company has been notified to make improvement or supplementation but fails to do so before the prescribed deadline.
Article 12     If a formal reviews reveals that the documents filed by a TPEx primary listed company are incomplete or the CPA produces an audit or review report with a non-unqualified opinion or produces a non-standard audit or review opinion, and this has a material effect on the financial report of the TPEx primary listed company, the TPEx may require the TPEx primary listed company to give explanatory information on related matters and submit a regulatory filing of the explanatory matters on the TPEx-designated information reporting website, and when necessary may require the TPEx primary listed company to hold an informational press conference.
    Substantive reviews address the changes, in financial reports of companies with TPEx primary listings, in major accounting items or financial ratios and in material information of the most recent fiscal year. If a material irregularity exists in the financial or material information, the TPEx may require such a company, its CPA, lead recommending securities firm, and its litigious and non-litigious agent in Taiwan or its independent directors to explain any irregularities. The TPEx may also, depending on circumstances, require a company with a TPEx primary listing to report the explanation on the TPEx-designated information reporting website When necessary, the TPEx may require a company with a TPEx primary listing to convene a press conference to provide explanations.
    When the TPEx deems necessary, a company with a TPEx primary listing shall be required to cooperate with the TPEx or lawyers, CPAs, or professional institutions designated by the TPEx to conduct a special audit covering a scope designated by the TPEx. The fees for hiring the aforementioned professionals or institutions, and all expenses paid by the TPEx or by the aforementioned professionals or institutions, shall be borne by the given TPEx primary listed company.
    When the TPEx or TPEx-designated professionals or institutions perform audits on a TPEx primary listed company pursuant to the preceding paragraph, the TPEx primary listed company may not refuse, impede, or evade any examinations performed, and shall provide account books, statements, documents, and any other required materials to the TPEx or the aforementioned professionals or institutions within the designated time limit.
    The TPEx-designated professionals or institutions conducting a special audit under paragraph 3 shall prepare a special audit report and submit it to the TPEx along with the related materials set out in the preceding paragraph, and the TPEx, after undertaking an analysis, will report to the competent authority.
Article 13     (deleted)
Article 14     (deleted)
Article 15      The TPEx, within 3 business days from the deadline for public announcement and filing of financial reports of TPEx secondary listed companies, shall individually review each item in the publicly announced and filed content of the financial reports, based on the items to be reviewed in the Checklist for Formal Review of Financial Reports of TPEx Secondary Listed Companies (form in Attachment 7), and shall further requisition the reviewing CPA's working papers, then individually review each item in the content of the working papers based on the items to be reviewed in the Checklist for Formal Review of the Reviewing CPA's Working Papers for Financial Reports of TPEx Secondary Listed Companies (form in Attachment 8).
Article 16     The TPEx shall regularly, by the tenth day of each month, summarize and report to the competent authority the status of the formal review of the public announcement and filing of financial reports of TPEx secondary listed companies for the preceding month, and shall by the tenth day of each following month, summarize and report to the competent authority the results of its formal review of the working papers of the CPA that performed the secondary review.
Article 17     If any of the following circumstances applies to the financial reports of a TPEx secondary listed company or the ROC CPA's review report, the TPEx may contact the TPEx secondary listed company for an explanation. If, after analysis, the TPEx finds that the explanation is obviously unreasonable or contains material irregularities, the TPEx may require the TPEx secondary listed company to hire a CPA of the place of its original listing to provide an opinion on the TPEx's inquiries, or to conduct a special audit and prepare a report. However, with good cause and with the approval of the TPEx, the TPEx secondary listed company may engage another CPA to perform the above-mentioned matters.
  1. The TPEx secondary listed company does not publicly announce and file financial reports as required.
  2. The CPA of the place of the original listing issues other than an unqualified opinion on the audit or review report.
  3. The ROC CPA that performed the review issues a non-standard report, or there is a material difference between the financial reports before and after reconciliation.
  4. There is a material change in the company's financial or operating condition.
  5. The competent authority or the TPEx deems it necessary for other reasons.
    A TPEx secondary listed company shall submit to the TPEx, within the time limit prescribed by it, the opinions or special audit reports of the preceding paragraph and other related information.
Article 18     When the TPEx reviews the financial reports of a TPEx secondary listed company and the ROC CPA's review report, the provisions of Article 12, paragraphs 3 to 5 herein shall apply mutatis mutandis.
Article 19     When any of the following circumstances applies to a TPEx secondary listed company, the TPEx may notify it by letter to make supplementation or correction within a prescribed deadline:
  1. The financial report publicly announced and filed, after formal review, is found not to have been filed in accordance with the requirements of laws and regulations.
  2. The company fails to provide a reasonable explanation pursuant to Article 17 or fails to provide an explanation within the deadline.
  3. The company fails to engage a CPA pursuant to Article 17, or the engaged CPA fails to provide an opinion or issue a special audit report within the deadline, or material irregularities are found through the opinion or the special audit.
  4. The company fails to cooperate with the TPEx or the TPEx-designated professionals or institutions in conducting a special audit pursuant to Article 18, or material irregularities are found through the special audit.
Article 20     These Procedures, and any amendments hereto, shall enter into force after submission to the competent authority for recordation. Any addition, deletion, or amendment to the attachments of these Procedures shall enter into force after approval by the president of the TPEx.