| 7 |
Review procedures:
1. After they have been delegated an OTC listing case, the case handlers shall complete the following review procedures:
(1) Application Documents:
Case handlers shall check all application documents received and complete an "Application Document Receipt Record for OTC Trading of Securities." (Appendix 1).
(2) Preliminary prospectus:
Case handlers shall check each item of the content of the preliminary prospectus against the Directions for the Particulars to be Recorded in Prospectuses for Initial OTC Listing of Securities and other relevant regulations, and re-examine the Checklist of Legal Issues to be Examined upon Application by Issuers for OTC Listing of Stock (Appendix 2) completed by the securities underwriter.
(3) The recommending securities firm's assessment report:
Case handlers shall review the underwriter's assessment report and its abstract and check whether each item was assessed in accordance with the rules and regulations of the GreTai and whether it draws clear and definitive conclusions, and enter an opinion in the "remarks" column for the GreTai in the "Abstract of the Underwriter's Assessment Report" (Attachment 3). Any matters relating to the requirements of the If there exists any of the matters set forth in the GreTai's Regulations for Handling Deficiencies in an Assessment Report or Related Information Submitted by a Recommending Securities Firm, the matter shall be referred to a meeting of the Administration Department Review Committee for Compliance convened by the president of the GreTai and attended by GreTai-related personnel (“Administration Department Review Committee”) for passage of a resolution which shall serve as the basis for subsequent implementation. The Regulations for Handling Deficiencies in an Assessment Report or Related
Information Submitted by a Recommending Securities Firm shall be separately promulgated by the GreTai.
(4) Internal Control Systems:
(i) Case handlers shall examine whether the applicant company's written accounting system and its implementation are in compliance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers or the Regulations Governing the Preparation of Financial Reports by Securities Firms.
(ii) Case handlers shall gain an understanding of, and compile and collate, comprehensive opinions, including the results and attached assessment opinion from the CPA's internal control system investigation, the recommendations as stated in the recommendation report, and the attached internal control system data in Item 2 of the Questionnaire for OTC Listing of Stock (Appendix 4) in compiling the Record of the Internal Control System Formal review (Appendix 5).
(iii) Case handlers shall carry out the review in accordance with the Operating Procedures for Review of Internal Control Systems Inspection Reports Issued by CPAs, and fill out the "Chart for Review of the Internal Control System Audit Reports."
(5) Comprehensive Analysis of Financial Information:
Case handlers shall review the content of the Questionnaire for OTC Listing of Stocks and the annexed survey report for related industries, explanations of major changes in accounting items published in the prospectus, analytical data from the CPA's permanent records, and the recommending securities firm's assessment report to ascertain and assess the financial condition and trends of the applicant company and excerpt any important items or irregularities to compile the "Comprehensive Analysis of Financial Data" (Appendix 6).
(6) Certified public accountant auditing procedures and financial report:
Case handlers shall review the CPA's permanent files, the working papers for the internal accounting control system for the most recent fiscal year and the audit working papers for the two years immediately preceding the date of application and re-examine the "Certified Public Accountant Audit and Attestation Procedure Checklist" (Attachment 7) completed by the CPA to ensure compliance with published in the Statement on Auditing Standards No. 3 ("Audit Working Paper Standards")Statement on Auditing Standards No. 5 ("Investigation and Assessment of Internal Accounting Control Systems"), the Regulations for Auditing and Attestation of Financial Statements by Certified Public Accountants, and all other applicable regulations. Include excerpts or photocopies of important or irregular items in the report. Examine the content of the Questionnaire for OTC Listing of Stocks and supporting documentation, and the audit reports from a CPA for the most recent two fiscal years and the notes and itemized breakdowns of each accounting item therein to ensure that the content of the applicant company's financial reports is in compliance with Regulations Governing the Preparation of Financial Reports by Securities Issuers, the Regulations Governing the Preparation of Financial Reports by Securities Firms, Generally Accepted Accounting Principles, and all other applicable regulations. [After completion of the above] the case handlers shall note their opinion in the opinion column of the Certified Public Accountant Auditing Procedure Checklist. If the applicant company is found in violation of any of the requirements of the Regulations for Handling Deficiencies in Certified Public Accountants' Reviews of OTC Stock Listing Applications, the case handlers shall refer the matter to the Review Committee and execute the resolution passed by the committee. The above-mentioned Regulations for Handling Deficiencies in Certified Public Accountants' Reviews of OTC Stock Listing Applications shall be separately promulgated by the GreTai.
(7) Equity distribution and custodial undertaking:
Case handlers shall examine the following items and complete an "Equity Distribution and Custodial Undertaking Chart" (Appendix 8):
(i) Whether, at the time of underwriting, the ratio of shares is in compliance with GreTai regulations.
(ii) Whether equity distribution is in compliance, after the underwriting is finished, with the provisions of the GreTai Regulations Governing Review of Securities Traded on Over-the-Counter Markets.
(iii) Whether the ratio of shares held by directors and supervisors is in compliance with the regulations of the competent authority.
(iv) Whether the percentage of shares to be placed in centralized custody by the directors, supervisors, and shareholders holding 10 percent or more of outstanding shares, and their related undertakings, are in accordance with GreTai regulations.
(8) Case handlers shall examine whether the applicant company is in compliance with each of the subparagraphs of Article 10, paragraph 1 of the GreTai Securities Review Regulations, and complete the "Checklist for Matters Set Forth under Article 10, Paragraph 1, of the Regulations for the Review of OTC Listings" (Appendix 9).
(9) During review, case handlers shall consolidate all the above review data and relevant documentation (Attachments 1 through 9) into a binder.
(10) To ascertain the actual status of the financial and business operations of the applicant company or gross irregularities left unresolved by the relevant review data, case handlers may conduct the following procedures:
(i) Briefings to ascertain the following:
The management approach and performance record of the applicant company's responsible person in recent years.
Changes in the shareholdings of directors, supervisors, and shareholders with a greater than 10 percent share of the company's total issued equity during the most recent three fiscal years and random checks of actual shareholdings when necessary.
Management and operational objectives of the company.
Financial structure and management policies.
Production processes.
Production status.
Analysis of sales income and costs and the state of competition in the industry.
Inventorying and stock valuation methods; warehousing management.
Dealings among affiliates.
Salary and benefit regime.
(ii) Inspection of factories, paying particular attention to the operational status of machinery and equipment.
(iii) Where on-site inspections are necessary to understand other significant irregularities discovered in the formal review, case handlers may draft an inspection plan and conduct an on-site inspection of the irregularities following approval of the inspection plan by the Listing Department.
(iv) Findings of on-site inspections shall be recorded in detail in the "On-Site Inspection Record" (Appendix 10).
(11) Case handlers may, subject to the signed approval of the GreTai's president, consult with experts in relevant fields to ascertain information with respect to the current status and future development prospects of the applicant company within the industry.
2. Compilation of Working Papers: Case handlers shall consolidate and record in detail all review items and findings of the review, together with all relevant information, and number them in order for cross-referencing. Upon completion of the review, case handlers shall compile all review information (Appendices 1 through 10) and supporting documentation in a binder as their working papers and file them together with other public issuance approval information and keep them in the custody of the Listing Department (for a minimum of five years) for future reference and case management.
3. After completion of the working papers, case handlers shall compile the key findings, the opinions of relevant experts, and other relevant information into a "Review Report" (Appendix 11) and annex it to the working papers for reference during the review and deliberation of the case.
4. Review Period: Applications for initial OTC stock listing submitted by the first day of the current month shall be submitted for deliberation by the OTC Securities Review Committee in the following month. Under extraordinary circumstances, however, the Listing Department may, based upon review requirements or at the request of the applicant company and prior to the Review Committee meeting, extend the deadline for submission to the Review Committee, subject to the signed approval of the president of the GreTai. Extensions granted at the request of the applicant company shall be limited to a maximum period of one month and shall not extend into the following year.
5. Effect of the OTC Listing Review: The findings of the review of an application for OTC listing reflect the financial and business condition of the applicant company during only during a specific period, and should not be taken as a reflection of the overall or future performance of the applicant company. The results also depend largely on whether the applicant company has made full disclosure of information relating to its financial and business condition. The review results do not provide a guarantee of the quality of the applicant company and shall not be taken as a substitute for the functions and status of [reports of] securities underwriters and CPAs. Therefore, case handlers reviewing initial applications for OTC listing shall:
(1) Case handlers shall carry out the review work with a positive service attitude and rely fully on all information and opinions provided by the applicant company, CPAs, and securities underwriters, except where any nondisclosure, fraud, falsehood, or error is discovered.
(2) Where information or statements of opinion provided by the applicant company, securities underwriter, or CPA are found to contain any nondisclosure, fraud, error, falsehood, or otherwise seriously violate applicable laws or GreTai rules and regulations, those responsible shall be held fully liable under the law, and the matter shall be duly reported to the competent authority after handling by the GreTai pursuant to relevant regulations. The GreTai undertakes only the review and deliberation of applications. Responsible personnel shall, at the time of processing applications, act in accordance with the provisions of the GreTai's Disciplinary Standards for OTC Listing Review Personnel or the GreTai's Directions Concerning Matters for Collective Compliance by OTC Listing Review Committee Members, and remain detached, impartial, and objective to ensure compliance with all the procedural requirements of these Directions and other applicable regulations. In the event of any violation or negligence, where verified by investigation, personnel shall be responsible for matters that fall within the scope of their duties.
(3) Where any concerns arise during the review period, case handlers shall contact the applicant company and securities underwriter and request that they take the initiative to collect relevant information in timely fashion and provide explanations.Review procedures:
1. After they have been delegated an OTC listing case, the case handlers shall complete the following review procedures:
(1) Application Documents:
Case handlers shall check all application documents received and complete an "Application Document Receipt Record for OTC Trading of Securities." (Appendix 1).
(2) Preliminary prospectus:
Case handlers shall check each item of the content of the preliminary prospectus against the Directions for the Particulars to be Recorded in Prospectuses for Initial OTC Listing of Securities and other relevant regulations, and re-examine the Checklist of Legal Issues to be Examined upon Application by Issuers for OTC Listing of Stock (Appendix 2) completed by the securities underwriter.
(3) The recommending securities firm's assessment report:
Case handlers shall review the underwriter's assessment report and its abstract and check whether each item was assessed in accordance with the rules and regulations of the GreTai and whether it draws clear and definitive conclusions, and enter an opinion in the "remarks" column for the GreTai in the "Abstract of the Underwriter's Assessment Report" (Attachment 3). Any matters relating to the requirements of the If there exists any of the matters set forth in the GreTai's Regulations for Handling Deficiencies in an Assessment Report or Related Information Submitted by a Recommending Securities Firm, the matter shall be referred to a meeting of the Administration Department Review Committee for Compliance convened by the president of the GreTai and attended by GreTai-related personnel (“Administration Department Review Committee”) for passage of a resolution which shall serve as the basis for subsequent implementation. The Regulations for Handling Deficiencies in an Assessment Report or Related
Information Submitted by a Recommending Securities Firm shall be separately promulgated by the GreTai.
(4) Internal Control Systems:
(i) Case handlers shall examine whether the applicant company's written accounting system and its implementation are in compliance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers or the Regulations Governing the Preparation of Financial Reports by Securities Firms.
(ii) Case handlers shall gain an understanding of, and compile and collate, comprehensive opinions, including the results and attached assessment opinion from the CPA's internal control system investigation, the recommendations as stated in the recommendation report, and the attached internal control system data in Item 2 of the Questionnaire for OTC Listing of Stock (Appendix 4) in compiling the Record of the Internal Control System Formal review (Appendix 5).
(iii) Case handlers shall carry out the review in accordance with the Operating Procedures for Review of Internal Control Systems Inspection Reports Issued by CPAs, and fill out the "Chart for Review of the Internal Control System Audit Reports."
(5) Comprehensive Analysis of Financial Information:
Case handlers shall review the content of the Questionnaire for OTC Listing of Stocks and the annexed survey report for related industries, explanations of major changes in accounting items published in the prospectus, analytical data from the CPA's permanent records, and the recommending securities firm's assessment report to ascertain and assess the financial condition and trends of the applicant company and excerpt any important items or irregularities to compile the "Comprehensive Analysis of Financial Data" (Appendix 6).
(6) Certified public accountant auditing procedures and financial report:
Case handlers shall review the CPA's permanent files, the working papers for the internal accounting control system for the most recent fiscal year and the audit working papers for the two years immediately preceding the date of application and re-examine the "Certified Public Accountant Audit and Attestation Procedure Checklist" (Attachment 7) completed by the CPA to ensure compliance with published in the Statement on Auditing Standards No. 3 |