| Article 1 |
These Directions are adopted under Article 2 of the Contract for TPEx Trading of Securities between the Taipei Exchange (TPEx) and TPEx listed companies and Article 2 of the TPEx Primary Stock Listing Agreement for Foreign Issuers for the purposes of promoting faithful implementation of internal control systems by TPEx listed companies and TPEx primary listed companies and to ascertain whether these companies are implementing internal control systems in compliance with relevant rules and regulations.
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| Article 2 |
Except where otherwise prescribed by law or regulation, these Directions apply to all TPEx audits of the implementation of internal control systems of TPEx listed companies. Where any applicable provision of law on which these Directions are based is amended, the amended provision shall govern.
Provisions regarding TPEx listed companies apply mutatis mutandis when the TPEx conducts an audit of the internal control system of a TPEx primary listed company.
These Directions do not apply to financial, insurance, or securities enterprises, or companies whose stock is traded as managed stock.
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| Article 3 |
The ratio of cases selected each quarter for TPEx audits of the implementation of audit plans by internal auditors of TPEx listed companies may be flexibly adjusted as needed, provided that each year at least 8 percent of companies are selected for audits. The TPEx shall, where necessary, carry out on-site audits and compliance testing. On-site audits shall be conducted on at least one-fourth of audited companies, and on any company when any circumstance under subparagraphs 1 to 8 of Article 4 applies to that company.
Within one month after the end of each quarter, the TPEx shall compile and submit the audit reports or follow-up reports for that quarter to the competent authority for recordation.
In principle, the TPEx each quarter will randomly select a minimum of 25 percent of TPEx primary listed companies for audits.
The TPEx may use the CPA engagement report from the previous year that has been issued by a TPEx primary listed company under Article 8 of Taipei Exchange Operation Directions for the Administration of TPEx Primary Listed Companies in place of an audit of that company. Further, when a fiscal year in which the TPEx selects a primary listed company for audit is the first fiscal year in which that company is listed, the period to be covered by the internal control system engagement report may be determined pursuant to the Taipei Exchange Procedures for the Review of Internal Control System Engagement Reports Issued by Certified Public Accountants.
If a material unforeseen event occurs with respect to a TPEx listed company, or the competent authority or the TPEx deems necessary for another reason, the TPEx may conduct an audit of the design and operating effectiveness of the internal control system of the TPEx listed company.
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| Article 4 |
The TPEx will select a company for audit by the following criteria:
- Where an Internal Control System Statement is issued with a statement other than "no material deficiency" in the internal control system.
- Where an Internal Control System Statement containing a statement of material deficiency has been issued within the most recent three years.
- Where the Internal Control System Statement has been changed from the original "compliance with all laws and regulations" to "compliance with major laws and regulations."
- Where there has been a failure to file an auditors list, audit plan, audit plan implementation report, report on correction of deficiencies and irregularities, or Internal Control System Statement under the Regulations for the Establishment of Internal Control Systems by Public Companies.
- Where any material deficiency is found in the implementation of the internal control system under the Taipei Exchange Handling Procedures for Routine Regulation and Regulation by Exception of Financial and Business Affairs of TPEx listed Companies or the Taipei Exchange Procedures for the Review of Financial Reports of TPEx listed Companies.
- Where, without reasonable cause, any change is made during the year to an already-filed annual audit plan.
- Where any serious instance of material non-compliance was found during the previous internal control system audit.
- Where, without reasonable cause, there has been a change in financial or internal audit executives.
- Random selection will be made from among TPEx listed companies whose internal control system has not been audited during the most recent three years. However, a company may be exempted from selection if during the preceding year the company obtained corporate governance certification from an independent and objective external institution, provided that if any material deficiency is found in the company's internal control, an audit of its internal control shall still be conducted.
- Where an audit is necessary for other reasons.
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| Article 5 |
When auditing the internal control system of a TPEx listed company, the TPEx, in addition to auditing one or more audit items selected from the annual audit plan formulated by the audited company, will also list the following matters as requisite audit items. However, the relevant audit items may be subject to modification according to a specified supervisory purpose:
- Acquisition or disposal of assets.
- Trading in derivatives.
- Lending funds to others.
- Providing endorsements or guarantees for others.
- State of operations of the board of directors.
- Such other audit items as the competent authority or the TPEx may deem necessary.
An audited company shall submit the following documents within the time limit designated by the TPEx:
- The internal audit plan for the given year as well as the self-assessment report, audit report, follow-up report, and relevant working papers on audit items prepared for the given year.
- Internal control recommendations issued by a certified public accountant (CPA) for the most recent period.
- Such other materials as the TPEx deems necessary.
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| Article 6 |
The TPEx carries out internal control system audits on TPEx listed companies with to the aim of checking whether the internal auditors of audited companies have faithfully carried out their respective auditing operations. The key points for each audit item include:
- Whether an internal control system has been adopted in compliance with the relevant securities laws and regulations and the related laws and regulations of the relevant industry.
- Whether internal controls have been faithfully implemented in compliance with the internal control system.
- Whether internal audits have been faithfully implemented in compliance with the annual audit plan.
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| Article 7 |
When conducting an audit of the internal control system of a TPEx listed company, the TPEx shall give attention to the following matters:
- Reviewing whether the spot-checked operations shown in the audited company's self-assessment 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.
- Determining whether the audited company's auditors have conducted audits in compliance with the formulated annual audit plan and prepared working papers, audit reports, or follow-up reports accordingly.
- Examining whether the audited company received a disposition from the competent authority of the relevant industry; if a disposition was received, the audited company shall be requested to provide an explanation or an improvement plan.
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| Article 8 |
TPEx auditors shall prepare audit reports on their implementation of auditing work, which specify the following:
- Audit items.
- Audit findings.
- Follow-up activities.
If the audit findings reveal non-compliance by a TPEx listed company in the implementation of its internal control system, the audited company shall be requested to propose specific improvements or solutions and report the same in writing to the TPEx for recordation. In the event of material non-compliance, the TPEx may request, in writing, the audited company to dispatch personnel to participate in guidance courses held by a body designated by the competent authority, and issue a copy of the letter to the designated body. If the audited company fails to dispatch personnel for this purpose, the TPEx may, based on the nature of the deficiency, list it as a "first target" for substantive review of the financial report, routine supervision, exceptional supervision, or internal control system audit to be administered at a later time. In addition, the TPEx will continue tracking the amelioration of the deficiency and preparing follow-up reports until the deficiency is remedied. Where necessary, a CPA may be engaged to issue an opinion on relevant matters. The content of the follow-up report shall include the deficiency found in the previous audit and the status of its remedy in the current audit.
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| Article 9 |
Corresponding action shall be taken promptly upon discovery of the following during an audit:
- Upon discovery of a material irregularity for which an in-depth audit is necessary, the company shall be listed as an audit target for routine supervision or exceptional supervision.
- Upon discovery of a material irregularity or violation of the TPEx rules and regulations, the prescribed measures shall be taken and a report shall be submitted to the competent authority.
- Upon discovery of a material deficiency or upon occurrence of an event under any subparagraph of Article 43 of the Regulations for the Establishment of Internal Control Systems by Public Companies, where necessary, the TPEx may submit a report to the competent authority requesting the audited company to engage a CPA to conduct a special internal control system audit and issue an audit report. If the TPEx audit finds that a CPA conducting such a special audit has failed to comply with Chapter III, Section III (Special Audits by Certified Public Accountants) of the Regulations Governing Establishment of Internal Control Systems by Public Companies, a letter may be issued instructing the CPA to take note of the failure and take appropriate action, and a copy of the letter sent to the competent authority.
When any of the circumstances in the preceding paragraph occurs with respect to a TPEx listed company, the TPEx may impose a penalty of from NT$30,000 to NT$200,000 depending on the specific irregularity or deficiency, provided, if there is a material impact on shareholders’ equity, the TPEx may impose a penalty of from NT$200,000 to NT$5 million. If the TPEx orders the company to correct the irregularity or deficiency within a time limit, the company shall do so within the time limit designated by the TPEx. If the company fails to make the corrections within the time limit, the TPEx may impose a penalty of from NT$50,000 to NT$5 million per each instance until the day the corrections have been made.
A TPEx listed company on which a penalty is imposed shall pay the penalty to the TPEx's Management Department within 5 days from receiving notice from the TPEx.
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| Article 10 |
These Directions, and any amendments hereto, shall be publicly announced and enter into force after submission to and recordation by the competent authority. Any addition to, deletion from, or amendment to the relevant attachments or schedules hereto shall enter into force upon ratification by the president of the TPEx.
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