The nation's stock market plans to enhance its monitoring of companies' financial records to head off potential crises similar to the one surrounding Procomp Infor-matics Ltd (博達科技), officials said yesterday.
"We'll draw up tighter monitoring rules as soon as possible to prevent incidents like the Procomp scandal, which has destabilized Taiwan's capital market," the new chairman of the Taiwan Stock Exchange Corp, Wu Nai-jen (吳乃仁), said yesterday.
Wu was inaugurated as chairman yesterday, taking over from Sean Chen (陳沖) as part of the Cabinet reshuffle following President Chen Shui-bian's (陳水扁) re-election in March.
"Forty-year-old rules are apparently unable to keep up with the nation's fast-changing capital market," Wu said.
As one of only a few economics professionals in the Democratic Progressive Party (DPP), Wu, 57, was appointed to revitalize the money-losing state-run Taiwan Sugar Co (Taisugar, 台糖) in 2002. Before taking the helm of Taisugar, Wu was the secretary-general of the DPP and also occupied other important positions in the party.
The exchange's new president, Chen Ming-tai (陳明泰), said as part of the efforts to enhance its monitoring functions, the exchange plans to revise regulations to enable it to conduct closer inspections of the accounts of some 670 companies traded on the TAIEX.
The Taiwan Stock Exchange Corp is taking an aggressive approach to the inspection of firms in poor financial shape, especially those with corporate bonds that are due within one year, according to an official speaking on condition of anonymity.
The exchange conducts routine inspections on a quarterly and half-yearly basis, but this is a selective examination of financial reports of publicly traded companies. Only 3 percent of the 670 firms listed on the TAIEX are inspected quarterly, while 5 percent are examined in the biannual checks.
The agency is likely to expand the inspection process by enlarging these ratios to 5 percent and 10 percent, respectively.
In the regular examinations, inspectors were unable to find any trace of wrongdoing in Procomp's labyrinth of payment arrangements. Procomp unexpectedly filed a restructuring proposal in a local district court and defaulted on a NT$2.98 billion corporate bond payment despite certified financial reports in March showing that it had NT$6.3 billion worth of financial derivatives in its foreign accounts. Those accounts were later frozen for unclear reasons.
Procomp chairwoman Sophie Yeh (葉素菲) was taken into custody last week on charges of breach of trust and embezzlement.
Wu Tang-chieh (吳當傑), the head of the newly-established Securities and Futures Bureau, said yesterday that the planned accounting regulations will significantly improve financial disclosure by imposing heavier responsibilities on accounting firms.
William Lin (林蒼祥), a finance professor at Tamkang University, agreed with the regulator's plan.
"The key is to clearly mandate the responsibilities and penalties of accountants," Lin said. "Because there are big loopholes in the current rules, accountants just rubber-stamp any financial report filed by their clients."
But Huo Teh-ming (
"The Procomp case is a repeat of the Enron scandal. The core of the problem is Procomp's insufficient internal auditing," Huo said.
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