CSBC Corporation, Taiwan
Directions for Supervision and Management of Subsidiaries
Enacted under the Document of Chuan-Ci-Zih-Di No. 0970000658 dated Feb. 15, 2008
Amended under the Document of Chuan-Ci-Zih-Di No. 0990001623 dated Jul. 15, 2010
Amended and circulated under the Document of Chuan-Ci-Zih-Di No. 1000002624 dated Dec. 14, 2011
Enacted under the Document of Chuan-Ci-Zih-Di No. 1010000592 dated Apr. 9, 2012
Chuan-Ci-Zih-Di No. 1010001999 dated Nov. 30, 2012
Chuan-Ci-Zih-Di No. 1020001511 dated Nov. 10, 2013
1. Purpose
These Directions are provided particularly for the necessary control over the
subsidiary and to enhance management between the parent company and
subsidiary and reasonably ensure the compliance to the three major goals of
internal control.
2. Application
These Directions apply to the subsidiaries of and other business entities that in
practice are regarded as same economic entity as the CSBC Corporation, Taiwan
(hereinafter referred to as CSBC).
3. Definition
A parent-subsidiary relationship is constituted and subject to the governance of
these Directions if a divestment qualifies as type one divestment with control
power as defined by Item 1, Paragraph 2, Point 4 of the CSBC’s Directions for
New Business Development and Management.
4. These Directions comply with the Regulations Governing Establishment of Internal
Control Systems by Public Companies and govern the control operations listed
below:
(1) Supervision of business management;
(2) Supervision of finance and business information; and
(3) Supervision of audit management.
5. The CSBC’s supervision on the business management of its subsidiary shall be:
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(1) Supervision of critical personnel responsible for operation and management.
i. Unless otherwise stipulated by the Company Act, the appointment and
removal of the directors, supervisors, and positions above vice president of
a subsidiary shall be reported to the board of directors of CSBC for
approval.
ii. If a subsidiary is listed in the “List of reinvested private enterprises by
government-invested private enterprises or government-donated corporate
bodies which should report to the competent department for approval
before selection and appointment of the person-in-charge or managers”,
then report shall be made and approval shall be obtained from the
competent department first before recommending or appointing the
person-in-charge and managers of the subsidiary.
iii. The appointment and removal of the head of level one units of a subsidiary
shall be reported to the subsidiary’s Board of Directors for approval.
iv.The compensation for the directors, supervisors, and positions above vice
president of a subsidiary shall be reported to the board of directors of CSBC
for approval.
v. The performance of the Company-designated directors, supervisors, and
vice presidents or above of a subsidiary shall be reviewed periodically by
the CSBC.
(2) Business plans and goals
i. The overall operation strategy, risk management policy, operation procedure
and guideline of the subsidiary that shares the business nature similar to the
CSBC shall be subject to the regulations of the CSBC, and compliance is
mandatory.
ii. The overall operation strategy, risk management policy, operation procedure
and guideline of the subsidiary that has the business nature different from
the CSBC shall be defined by the chairman of the board and critical
personnel of the said subsidiary and subject to the approval of the CSBC
and may not deviate from the CSBC’s operation goals and major plans.
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iii. A subsidiary is required to submit to the Department of Planning two
months before the end of a fiscal year the operation strategy, risk analysis
and major business plans for the next fiscal year, to which the CSBC may
adjust at its discretion and demand compliance by the subsidiary.
(3) Business discipline divide and operation procedure
i. The policies and procedures concerning business segmentation, order
handling, procurement, inventory, terms and conditions for receivable and
payable, and bill handling of a subsidiary that shares the business nature
similar to the CSBC shall comply with the regulations of the CSBC.
ii. The business scope and operation procedure of a subsidiary that has the
business nature different from the CSBC shall follow the internal control
system, administrative measures and operation manual of the said
subsidiary.
(4) Policies and procedures for major finance and business
A subsidiary’s policies and procedures concerning major finance and business,
including business plan and budget, the total amount and standard of employee’s
incentives and bonuses, major equipment and divestment, borrowing, capital loan,
endorsement/guarantee,
commitment
to
debts,
investment
in
negotiable
instruments and derivatives, major contracts, and major changes of property, as
well as the procedural management of matters to which international accounting
standards are applicable, professional judgment, important accounting policies and
changes of estimation should be approved by CSBC.
6. CSBC’s Supervision on its Subsidiaries’ Finance and Business Information shall
be:
(1) A subsidiary shall establish its own finance and business information systems
and subsidiaries’ finance and business situation shall be supervised by the
CSBC.
(2) The finance/accounting information of a subsidiary shall adopt the generally
accepted accounting principles and comply with the laws and regulations
stipulated by the competent authorities.
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The said generally accepted accounting principles refer to the International
Financial Reporting Standards (IFRS), International Accounting Standards
(IAS), IFRIC Interpretations and SIC Interpretations approved by the
Financial Supervisory Commission, R.O.C.
(3) A subsidiary shall report to the CSBC its major financial and business matters
before such matters are put to actions. If filing and disclosing such matters to
the competent authorities is required by laws and regulations and may
practically influence the rights and security prices of the CSBC, the
subsidiary shall report to the CSBC immediately when such matters
happened.
(4) A subsidiary shall produce monthly management reports to the CSBC at least
on a quarterly basis, including operation reports, monthly sales volume
reports, monthly balance sheets, monthly income statements, monthly cash
flow statements, analyses of age of receivables and detailed list of overdue
receivables, inventory age analysis, and monthly report on fund lending and
endorsement, etc. to allow the CSBC to conduct all sorts of statistics, analysis,
and review.
(5) A subsidiary must cooperate with the CSBC and promptly provide financial
statements reviewed or audited by a CPA and all business information if the
CSBC is required by laws and regulations to disclose or file related financial
information within a specific time.
(6) An effective financial and business communication system between the CSBC
and a subsidiary shall be established to allow prompt access to each other’s
information as reference for decision making.
7. CSBC’s Supervision on its Subsidiaries’ Audit Management shall be:
(1) A subsidiary may establish an internal audit unit and define the procedure and
method for the self-administered internal control system depending on its
business nature, operation scale and employment size. Its performance shall
be supervised by the CSBC’s Audit Office.
(2) An audit unit of a subsidiary shall define an internal audit system and
implementation rules, and submit the audit plan for the next fiscal year before
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the end of the current fiscal year to the responsible officer of the subsidiary
for approval and to the CSBC’s Audit Office for reference.
(3) A subsidiary shall periodically report its fiscal audit plan, status quo of audit
plan execution projects, shortfall of internal control system and abnormality
to the CSBC.
(4) The CSBC’s Audit Office shall reply to the subsidiaries regarding to their
respective audit report or self-administered review report, and keep track of
the improvement status of the respective shortfalls of internal control system
and abnormalities.
(5) The CSBC’s Audit Office may directly include the operations of a subsidiary
in its scope of audit provided no audit unit is established in such a subsidiary;
all units of such a subsidiary shall fully cooperate with the audit and provide
all necessary information.
8. Communication and coordination with other government-controlled enterprise in
case of joint venture by government-controlled enterprises.
If the chairman of the subsidiary is designated by the CSBC, important proposals to
be raised in the Board of Directors shall be communicated and coordinated with
other government-controlled enterprise in advance of the meeting to reach
consensus.
9. The CSBC may administer punishment on the responsible personnel, or, pursuant
to Point 5 of these Directions, reassign the position of the responsible officer of a
subsidiary accordingly, if such a subsidiary fails to comply with these Directions
for the supervision by the CSBC.
10. The CSBC shall urge its subsidiaries to establish their own internal control system.
A subsidiary may define its own internal control system, administrative measure
and operational manual, taking into consideration the government’s laws at its
locality, the nature of its actual operation, and the CSBC’s administrative
measures and control system, etc.
11. These Directions shall be promulgated after being approved by the board of
directors and the amendment shall follow the same procedure.
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*This English version is a translation of Articles of Directions for Supervision and Management of
Subsidiaries of CSBC Corporation in Chinese. In case of any discrepancy, the Chinese version shall
prevail.
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