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Title: Taiwan Stock Exchange Corporation Rules for Regulating Primary Listed Foreign Issuers
Date: 2010.05.20 ( Announced )
Date: 2017.04.11 ( Amended )

Article Content

 
Chapter I Compliance Matters for TWSE Primary Listed Companies
Article 1     These Rules are adopted pursuant to Article 22 of the Regulations Governing Stock Exchanges and Article 2 of the Listing Agreement for Securities, , in order to regulate matters for compliance by TWSE primary listed companies and the operating procedures for auditing by the TWSE of the financial reports, financial forecasts, annual reports, and internal control systems of primary listed companies.
Article 2     After listing on the TWSE, a TWSE primary listed company shall publish its financial reports on the information reporting website designated by the TWSE and additionally file the hardcopy versions.
    For a TWSE primary listed company preparing financial reports, in the case of shares having no par value or a par value other than NT$10, where the calculation of 5 percent of paid-in capital under Article 6 of the Regulations Governing the Preparation of Financial Reports by Securities Issuers applies, 2.5 percent of equity attributable to owners of the parent shall be used instead; for the calculation of 20 percent of paid-in capital under Article 17 thereof, 10 percent of equity attributable to owners of the parent shall be used instead.
Article 3     The preparation and publication of financial forecasts of a TWSE primary listed company shall be handled in compliance with the TWSE Standards for Determining Whether a TWSE Listed Company Shall Publish Complete Financial Forecasts.
Article 4     In the listing year and in the following 2 fiscal years, a TWSE primary listed company, when submitting the hardcopies of the annual report, shall also publish the CPA special audit report of the previous year on the TWSE-designated information reporting website and file the hardcopy version.
    The provisions of the preceding paragraph shall apply mutatis mutandis to a TWSE primary listed company if, after the expiration of the time period set out in the preceding paragraph, it voluntarily engages a CPA to conduct a special audit of its internal control system.
    A CPA engaged to conduct a special audit of the internal control system of a TWSE primary listed company shall conduct the audit in compliance with the provisions of Chapter III, Section III of the Regulations Governing the Establishment of Internal Control Systems by Public Companies.
Article 5     Pursuant to Article 28-7 of the Taiwan Stock Exchange Corporation Rules Governing Review of Securities Listings, a TWSE primary listed company shall add to its articles of incorporation, organizational documents, or important financial or business documents any important matters designated by the TWSE in connection with the protection of shareholder equity. If the company amends its articles of incorporation, organizational documents, or important financial or business documents in connection with the protection of shareholder equity, it shall submit the draft amendment with a lawyer's opinion to the TWSE 15 days before the notice or public announcement of the shareholders meeting. If the TWSE deems that the draft amendment is likely to impair shareholder equity, it may issue an opinion opposing the draft amendment, and demand that it be corrected within a specified time limit.
Article 6     A TWSE primary listed company shall comply with Article 28-4 of the TWSE Rules Governing Review of Securities Listings regarding the continuous maintenance of independent directors and an audit committee or supervisors.
    Article 4 of the TWSE Operating Guidelines Governing the Establishment of Independent Directors by Listed Companies shall apply mutatis mutandis with respect to TWSE primary listed companies.
Article 6-1     After expiration of the period during which a TWSE primary listed company continuously engages a lead securities firm subsequent to listing, the company shall further engage an agent for litigious and non-litigious matters to assist the company to collect information, in the places where the company has its major operations, with a material effect on the company's shareholder equity or share prices, and to handle public disclosures of related material information.If the agent for litigious and non-litigious matters referred to in the preceding paragraph discovers that the TWSE primary listed company is unable to make a timely disclosure of material information in accordance with regulations, it shall immediately take the initiative to inform the TWSE.
    A TWSE primary listed company shall, pursuant to paragraph 3, Article 6 of the Regulations Governing the Offering and Issuance of Securities by Foreign Issuers, engage a lead securities underwriter in the accounting year when the offering in subparagraphs 1 to 3 of paragraph 1 of such article is completed and in the subsequent two accounting years to assist it in complying with ROC securities laws and regulations, TWSE rules and regulations, and the listing contract.
Article 6-2     (Deleted)
Chapter II Administrative Measures Governing Primary Listed Companies
Section I Review of Financial Reports and Financial Forecasts
Article 7     When a TWSE primary listed company prepares or restates annual, first quarter, second quarter, or third quarter financial reports under the mutatis mutandis application of Article 36 of the Securities and Exchange Act pursuant to Article 165-1 of the same Act or pursuant to Article 6 of the Enforcement Rules for the same Act, or when it prepares, updates, corrects, or restates financial forecasts pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies, the TWSE may conduct a review of the relevant data.
Article 8     The scope of review by the TWSE in connection with the financial reports listed in the preceding article shall be CPA audit or review reports and financial statements. In the case of financial forecasts, it shall be CPA review reports, pro forma financial reports, financial forecast statements, summaries of significant accounting policies, and summaries of major accounting assumptions.
Article 9     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:
  1. Financial reports for the relevant period shall be selected based on the following criteria:
    1. Financial Items:
      1. There is a relatively substantial year-on-year change in operating revenue, operating income, or net income before tax.
      2. 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.
      3. 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.
      4. 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.
      5. 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.
      6. 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.
      7. 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.
      8. Financial ratios are poor.
      9. The amount of non-current equity investment accounts for a great share of equity.
      10. Net worth per share is too low. "Net worth" refers to equity attributable to owners of the parent.
    2. Non-financial Items:
      1. Resignation of a financial officer.
      2. Resignation of an accounting officer.
      3. Resignation of an internal audit officer.
      4. Resignation of a research and development officer.
      5. Change of certified public accountant (other than an internal adjustment at the accounting firm).
      6. 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.
      7. Change of directors or supervisors (including independent directors), or resignation of the chairperson or general manager.
      8. 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.
      9. 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.
      10. The financial operations of the company have been materially affected by any litigation in the most recent year.
      11. 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.
  2. 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:
    1. A company for which any irregularities are discovered by a formal review of its financial report.
    2. There is a change in managerial control.
    3. There is any material change in its business scope.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. There is uncertainty about the company's ability to make repayment at maturity for corporate bonds issued by it.
    9. 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.
    10. There is a material irregularity in the amount of prepayments or their volatility.
    11. 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.
    12. A company newly added to the current-quarter Public Bulletin Board of Companies Whose Financial Operations Require Special Attention.
    13. Receivables and inventory amounts in the financial report account for too high a percentage of equity.
    14. 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.
    15. There is change in the accounting policies or accounting estimates stated in the financial report.
    16. The amount of the current change in intangible assets accounts for 3% or more of the total assets.
    17. 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.
    18. An audit is required by the TWSE for other reasons.
  3. During each selection, the TWSE will additionally randomly choose companies for review based on the following criteria:
    1. Companies that have not had a substantive review of their financial reports for the most recent 3 years.
    2. Companies having disposed securities in the most recent quarter as announced by the TWSE.
    3. 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:
  1. For TWSE primary 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 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.
    3. 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.
    4. 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.
    5. Questions are raised by external parties about a change in basic assumptions.
  2. For TWSE primary listed companies that publicly disclose summary financial forecasts:
    1. 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.
    2. 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.
    3. 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.
  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 paragraphs 2 and 3 as it deems necessary.
Article 10     During review of the financial reports of a TWSE primary listed company, items on the formal examination checklist and substantive examination checklist shall be checked item-by-item to ascertain whether their accounting treatment violates any relevant laws or generally accepted accounting principles. The following matters shall also be checked:
  1. Whether investment in derivatives products is duly disclosed.
  2. Whether there are any irregularity in trading with related parties.
  3. Whether there are any loans granted to others due to financing needs not arising out of company business transactions.
  4. Whether there are any irregularities in the purchase and sale of block assets.
  5. Whether there are any endorsements and guarantees for others due to needs not arising out of company business transactions.
  6. Whether the board of directors is operating in accordance with regulations.
  7. The status of improvement in deficiencies noted in previous reviews or follow-up review of previously noted irregularities.
    During review of financial forecasts, items in the formal examination checklist and the substantive examination checklist shall be reviewed and checked item-by-item. In addition, the following matters shall also be checked:
  1. Whether there is any irregularity in the CPA review opinion.
  2. Whether the basic accounting assumptions in the financial forecasts are reasonable.
  3. Whether there is any irregularity in the point in time at which the financial forecasts were updated (or corrected).
  4. Whether all necessary items are included in the summaries of major accounting assumptions in the financial forecasts.
  5. The status of improvement in deficiencies noted in previous reviews or follow-up review of previously noted irregularities.
    The following rules shall be observed in evaluating whether a listed company delays the updating (or correction) of financial forecasts:
  1. The discrepancy between the estimated figures before the update and the company's own un-audited figures shall be monitored on a monthly basis, and if the discrepancy has reached the standard for the time for an update, the cause and the basis leading to the discrepancy with the actual time of the update 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 and basis for the discrepancy with the actual time of the correction.
  3. The supporting materials and the rationality of the company's explanation for the cause of an update (or correction) shall be analyzed.
    Attention shall be given to the following matters when assessing the rationality of basic accounting assumptions in financial forecasts:
  1. Comparing any material differences between the financial forecasts before and after the update (or correction), ascertaining the main cause for the differences, and analyzing item-by-item the rationality of the evaluation materials relating to the basic accounting assumptions.
  2. Analyzing the historical financial information of the company reviewed for the most recent 2 years and the financial forecasts of the current year to see if there are any material differences, and ascertaining their causes and rationality.
  3. Obtaining relevant analysis reports for the company's industry belongs to, and comparing financial reports prepared by companies in the same industry in order to understand changes related to the industry's business cycles.
  4. Ascertaining whether revenues are overestimated or expenditures underestimated in the pro forma statement of non-operating revenues and expenditures. If the company being reviewed plans to dispose non-current financial assets or major assets, it shall obtain a definite and objective price reference or appraisal report in order to determine whether there is a reasonable basis for the figures it prepares. When figures for the company's share of profits or losses of associates and joint ventures recognized under the equity method were adopted for the estimate, materials related to relevant industries, the same industry, or securities market fluctuations shall also be obtained to facilitate analysis and judgment.
Article 11     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.
Article 12     During formal review of financial reports, if the TWSE discovers that a financial report was not submitted pursuant to the regulations, an incomplete set of documents was filed, or the CPA produced an opinion that was other than an unqualified opinion or was a non-standard audit review or opinion, affecting the fair presentation of the financial report to the extent that a restatement is required, or that the company's internal control system has significant deficiencies; or if, during the formal examination of a financial forecast, it is found that incomplete information was submitted or incomplete information was publicly released, or the date of public disclosure and filing or the date of preparation exceeded the deadline, or the CPA produced a non-standard audit opinion, the TWSE shall formulate a concrete method of handling or suggestions for handling the matter for inclusion in its related report to the competent authority.
    After reviewing a financial report, the TWSE shall explicitly express a review conclusion and an opinion on a concrete method of handling. If any case is found in which there are material deficiencies or omissions, the TWSE shall handle the matter pursuant to the Securities and Exchange Act, or, where there is a necessity to request the assistance of relevant agencies, the TWSE shall attach its review report with the given case, formulate an opinion on its handling, and report to the competent authority, or request that the competent authority transfer the case to the specific competent authority for the target industry for further investigation and handling.
    If common deficiencies are found during the review of financial reports, the TWSE may issue a circular letter to TWSE primary listed companies as a reference for improvement and forward a copy to the competent authority.
Article 13     If any TWSE primary listed companies fail to publicly disclose or file financial reports within the deadline prescribed by law and regulation, then the TWSE, by the third business day after the deadline, will compile and submit a list of those companies to the competent authority.
Article 14     If any of the matters listed in Article 12, paragraph 1 are found during the formal examination, then the TWSE, within 3 business days after the deadline for the submission of financial reports, will compile and report its findings to the competent authority.
    After the companies for review are selected pursuant to Article 9, the TWSE shall, within 20 days after the deadline for the submission of financial reports, submit the name of the companies, and the reason for writing special project reports to the competent authority for recordation. Special project reports shall be completed within 45 days thereafter and then submitted for the competent authority's recordation. If the case audited is complex and requires longer time, [the TWSE] may file with the competent authority for an approval to extend the auditing period, provided that the extension shall not be longer than one month.
    Financial forecasts, or explanations of changes filed pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies, will be summarized and filed with the competent authority by the TWSE by the 10th day of the following month after the day when the TWSE primary listed company forwards its financial reports or the day when the information is filed. If the TWSE is unable to complete the summary and file it with the competent authority within the prescribed time limit, it may specify the reasons in the information summary and complete its verification within 2 months, then separately report to the competent authority.
    When a TWSE primary listed company does not forward its financial reports, or its restated, corrected, or updated financial forecasts within the time limit prescribed in the preceding paragraph, the time limit for the substantive examination by the TWSE shall commence from the day the company forwards the reports or forecasts.
Section II Review of Annual Reports to Shareholders
Article 15     The TWSE shall receive all the annual reports of TWSE primary listed companies by 20 July at the latest. The items in the checklist for review of annual reports will be checked individually within five days thereafter to ascertain whether the annual reports were prepared pursuant to the Regulations Governing Information to be Published in Annual Reports of Public Companies, and the TWSE will produce a review conclusion.
Article 16     The TWSE will submit the review conclusion to the competent authority by the end of July each year. If any common deficiency is found during the review of annual reports, the TWSE may send a letter to notify the TWSE primary listed company for their reference and improvement and forward a copy to the competent authority.
Section III Audits of Internal Control Systems
Article 17     For audits of the implementation of audit plans by the internal auditors of a TWSE primary listed company, the TWSE in principle selects at random at least 35 percent of TWSE primary listed companies for each of the annual and second-quarter periods, and at least 15 percent of TWSE primary listed companies for each of the first-quarter and third-quarter periods.
    Instead of conducting the audit referred to in the preceding paragraph, the TWSE may use the CPA special audit report of the previous year presented by a TWSE primary listed company under Article 4 of these Rules. If the fiscal year for the selection of TWSE primary listed companies whose internal control systems are to be audited by the TWSE is the fiscal year of initial listing, the period covered by the special audit report for the internal control systems may be determined by the Procedures for Reviewing Internal Control System Audit Reports Issued by Certified Public Accountants.
Article 18     For audits of the internal control systems of TWSE primary listed companies, the TWSE will select a company for audit by the following criteria:
  1. A company issues an Internal Control System Statement with a statement other than "No material deficiency in the internal control system."
  2. A company has had an Internal Control System Statement containing a statement of material deficiency issued within the most recent three fiscal years.
  3. A company's Internal Control System Statement has been changed from the original "compliance with all acts and regulations" to "compliance with major acts and regulations."
  4. A company has failed to file an auditors list, audit plan, audit plan implementation report, report on correction of deficiencies and irregularities, or Internal Control System Statement pursuant to the Regulations for the Establishment of Internal Control Systems by Public Companies.
  5. A material deficiency is found in the implementation of a company's internal control system during the review of financial reports by the TWSE.
  6. During the fiscal year, a company changes an already-filed annual audit plan with no legitimate reason.
  7. Material non-compliance was found during a previous audit of a company's internal control system.
  8. There is a change in a company's financial officer or internal audit executives, without reasonable grounds.
  9. A random selection will be made from among TWSE primary listed companies whose internal control systems have not been audited during the preceding three fiscal years; however, a TWSE primary listed company may be exempted from selection if during the preceding year the company obtained corporate governance certification from an external and independent and objective institution, provided that if any material deficiency is found in the company's internal control, an audit of its internal control will still be conducted.
  10. Where an audit is otherwise necessary.
Article 19     When the TWSE audits the internal control system of a TWSE primary listed company, in addition to auditing one or more audit items selected from the annual audit plan formulated by the audited company, the following matters will also be listed as required audit items:
  1. The acquisition or disposal of assets.
  2. Derivatives trading.
  3. Loans of funds to others.
  4. Provision of endorsements or guarantees for others.
  5. The state of operation of the board of directors.
  6. Management of the operations of the remuneration committee.
  7. Management of application of the International Financial Reporting Standards.
  8. Procedures for professional accounting judgments and procedures for making changes in accounting policies and estimates.
  9. Such other audit items as the competent authority or the TWSE may deem necessary.
    An audited company shall submit the following documents within the time limit designated by the TWSE:
  1. Internal Control System Statements for the most recent three fiscal years.
  2. The internal audit plan and the self-inspection report, audit report, follow-up report, and related working papers for audit items as prepared for the given year.
  3. The internal control recommendations issued by a certified public accountant for the most recent period.
  4. Such other materials as the TWSE may deem necessary.
Article 20     The TWSE carries out internal control system audits on TWSE primary listed companies in order to ascertain whether the internal auditors of audited companies have faithfully carried out auditing operations. The key points for each audit item include:
  1. Whether an internal control system has been adopted in compliance with applicable laws and regulations.
  2. Whether internal controls have been faithfully implemented in compliance with the internal control system.
  3. Whether internal audits have been faithfully implemented in compliance with the annual audit plan.
Article 21     When conducting an audit of a TWSE primary listed company's internal control system, the TWSE shall note the following matters:
  1. Reviewing whether the spot-checked operations shown in the audited company's self-inspection reports, audit reports, follow-up reports, and relevant working papers have undergone proper approval, authorization, validation, adjustment, cross-checking, record checking, and division of functions.
  2. Ascertaining whether the audited company's auditors conducted their audits in compliance with the annual audit plan that was formulated, and whether working papers, audit reports, or follow-up reports were prepated in accordance with it.
Article 22     Audit reports prepared by TWSE auditors carrying out their auditing work must specify the following:
  1. The audit items.
  2. The audit findings.
  3. The implementation of follow-ups.
    If audit findings reveal non-compliance by a TWSE primary listed company in the implementation of its internal control system, the audited company shall be requested to propose specific improvements or solutions and report them by letter to the TWSE for recordation. The TWSE will continue tracking the improvement of the deficiency and preparing follow-up reports until the deficiency is remedied. Where necessary, the TWSE may request that a certified public accountant issue an opinion on the related issues. The content of the follow-up reports must include the deficiency found in the previous audit and the status of its remedy in the current audit.
Article 23     The TWSE will take prompt measures upon discovering any of the following circumstances when auditing the internal control system of a TWSE primary listed company:
  1. Upon discovery of a material irregularity for which an in-depth audit is necessary, the company shall be listed as an audit target for financial reports.
  2. Upon discovery of a material irregularity or violation of applicable provisions of the TWSE Operating Rules, the prescribed measures shall be taken and a report submitted to the competent authority.
  3. Upon discovery of a material deficiency or upon the occurrence of any event under the subparagraphs of Article 43 of the Regulations for the Establishment of Internal Control Systems by Public Companies, the TWSE, where necessary, may submit a report to the competent authority, which may request the audited company to engage a certified public accountant to conduct a special audit and issue an audit report.
Section IV Analysis and Management of Material Events
Article 24     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:
  1. Finances
    1. 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.
    2. 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.
    3. 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.
    4. The TWSE primary listed company or its parent company or any of its subsidiaries has experienced a loss of creditworthiness.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
  2. Business
    1. 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.
    2. 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.
    3. The company enters into an important contract, changes major content in its business plan, completes the development of a new product, is merged by others, 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.
    4. 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.
    5. A change in management rights or material change in the scope of business.
  3. Others
    1. 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.
    2. A serious deficiency occurs in any stock-related operations of the TWSE primary listed company (such as fraud by company insiders), affecting market order.
    3. 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.
    4. 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.
    5. A report is made by the Surveillance Department of the TWSE in accordance with the Procedures for Trading Index Early Warning Notification.
    6. 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.
    7. There is a material irregularity in a transaction between the TWSE primary listed company and a related party.
    8. 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.
    9. A material irregularity is found in the internal control system of the TWSE primary listed company in an audit.
    10. 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.
    11. A circumstance arises in which the primary listed company has no agent for litigious and non-litigious matters in Taiwan.
    12. 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.
    13. 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.
Article 25     If the TWSE deems necessary, with respect to financial reports, financial forecasts, annual reports to shareholders, internal control systems, and analysis and audits of material events the TWSE primary listed company shall conduct a special audit within or outside of Taiwan in full cooperation with the TWSE or with an attorney, CPA, or other professional individual or organization appointed by it, and shall provide all such information as may be required by the TWSE or the aforementioned professional individual or organization. The costs for hiring the professional individual or organization, and the fees and expenses incurred by the TWSE or the professional individual or organization, shall be the responsibility of the primary listed company.
    When the TWSE or its appointed professional individual or organization conducts an audit of a TWSE primary listed company under the preceding paragraph, the TWSE primary listed company may not refuse, impede, or evade the audit and shall produce account books, forms/statements, documents, or all other information as may be required within the specified time limit to the TWSE or the aforementioned professional individual or organization.
    With respect to the implementation of the special audit referred to in paragraph 1, the TWSE-appointed professional individual or organization shall prepare special audit reports and submit them together with the relevant information and materials referred to in the preceding paragraph to the TWSE for reporting to the competent authority after analysis.
Chapter III Penal Provisions and Supplementary Provisions
Article 26     If any significant deficiency is found during a TWSE audit of a TWSE primary listed company's financial reports and internal control system, the TWSE may issue a letter requesting the audited company to dispatch personnel to participate in guidance courses held by an agency designated by the competent authority, with a copy of the letter to the designated agency. If the TWSE primary listed company fails to dispatch personnel for that purpose, the TWSE, based upon the nature of the deficiency, may list it as a first target for substantive reviews of subsequent financial reports or internal control system audits.
    If the TWSE discovers, in reviewing the annual report of a TWSE primary listed company, that the report was not prepared in accordance with the Regulations Governing Information to be Published in Annual Reports of Public Companies, it may issue a letter requiring the company to supplement or correct the report within five days after receipt of the letter, and to upload information relating to the supplementation or correction in the form of an electronic file to the TWSE-designated information reporting website. It shall also treat the discrepancy as an "other event having a material impact on shareholders' equity" under the TWSE Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities, and bring the matter to the attention of investors.
    If any of the following circumstances are found with respect to a TWSE primary listed company after TWSE review of the company's financial forecasts, the TWSE may issue a letter imposing a demerit on the company. When the circumstances are of a material nature, it may also impose a default penalty of NT$30,000, list the company as a potential candidate for substantive review of financial reports, and submit the matter for recordation by the competent authority:
  1. The company has not made timely updates (or corrections) of its financial forecasts pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies.
  2. The basic accounting assumptions in the financial forecasts have not been reasonably evaluated.
  3. The company has failed to have financial forecasts approved by the board of directors and can give no legitimate reason.
  4. The company has failed to report relevant documents pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies.
  5. There is a material mistake or omission in a public disclosure or filing made pursuant to the Regulations Governing the Publication of Financial Forecasts of Public Companies.
  6. The company has failed to make improvement or correction within the time limit after receiving notification to do so.
    Financial reports, financial forecasts, annual reports, and internal control system audit reports of TWSE primary listed companies shall be retained by the TWSE for three years, and may be provided for review at the request of the competent authority during the period of retention.
Article 27     If a TWSE primary listed company violates any provision of these Rules, the TWSE may, in addition to handling the violation pursuant to the provisions of the preceding Article, issue a letter requesting the TWSE primary listed company to take improvement action, and may further require the TWSE primary listed company or its CPA or lead underwriter to propose an improvement action plan in a response letter addressed to the TWSE. The TWSE may additionally impose a monetary penalty of NT$30,000 on the TWSE primary listed company commensurate with the circumstances of the particular case, and, if the violation is serious in nature, alter the trading method or suspend trading of the company's listed securities pursuant to Article 49-1, paragraph 1, subparagraph 10, or Article 50-3, paragraph 1, subparagraph 9 of the TWSE Operating Rules.
    With respect to the imposition of a monetary penalty under the preceding paragraph, if the cumulative number of penalties imposed on the TWSE primary listed company within the most recent one year reaches two or more (inclusive of the current penalty), or if the circumstances in an individual case are due to intent or material negligence, or have a material impact on shareholder equity or securities prices, the TWSE may impose a penalty of NT$50,000 to NT$5 million. The TWSE primary listed company shall pay the penalty to the TWSE Finance Department within 5 days after receiving notice from the TWSE.
Article 28     These Rules shall take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.