Guidelines for Internal Audit Systems

Standard Foods Corporation (referred to as the Company hereinafter) establishes its internal control systems and classifies them into 10 types of operations. These operations comprise management guidelines, sales and collection, procurement and payment, production, salary, labor and wage, financing, investment practices, properties, research and development, and use of computer in accordance with Regulations Governing Establishment of Internal Control Systems by Public Companies.

 

The establishment of such internal control systems aims at assessing and reviewing the effectiveness of the design and implementation of the internal control systems. The internal control systems shall ensure the effectiveness and efficiency of operations, liability of financial reporting, and implementation of compliance requirements.  

 

I. Structure of Internal Control Systems
  1. The internal Auditing Department is subordinate to the board of directors.
    1. The Auditing Department is assigned with one department head. The appointment and resignation of this function shall only be valid after approval by the board of directors.
    2. Auditing staff shall qualify the standards set out by the Financial Supervisory Commission (referred to as FSC hereinafter).
    3. Auditing staff’s information, including names, age, educational and professional background, years of service, and training received shall be submitted in the assigned format to FSC’s web system for filing by the end of January each year.

  2. The Head of the Auditing Department shall attend meetings of the board of directors regularly and make reports of auditing operations to supervisors.
 
II. Operations of Internal Audits
  1. Objectives of Conducting Audits
    1. Assessments and examinations are conducted per internal control systems in order to ensure the effectiveness and compliance of the Company’s current strategies and procedures, and the efficiency of each of its operational activities.
    2. Implementation of internal audits aims at improving the company operations and ensuring the reliability of financial reporting, compliance, reasonable profitability and results of the Company, and asset security.
    3. By examining, assessing, monitoring and supervising the internal procedures, results of internal audits assist the board of directors and managers to achieve the Company’s targets.

  2. Scope of Internal Audits
    Internal audits include examining and reviewing the appropriateness and effectiveness of internal control systems. Suggestions shall be submitted when necessary so as to ensure the effective implantation of internal control systems.
    Auditing tasks include the following:
    1. To review the reliability and completeness of financial and operational information;
    2. To review current systems so as to ensure policies, plans, procedures, contracts, laws and regulations are abided by;
    3. To review the methods of safeguarding assets, and verify whether the assets exist when necessary;
    4. To assess the effectiveness of the resources used by the Company;
    5. And to review whether company operations or results of projects meet initial targets.  

  3. Audit-receiving Entities
    1. Departments and units of the head office of the Company and its branch organizations
    2. The subsidiaries which meet the definitions provided by accounting standards and businesses of which the Company holds more than 50% shares

  4. Content of Internal Audits
    Auditing tasks include annual audits, irregular audits, special audit projects, and self-audits for internal control systems.
    1. Annual audits
      1. The annual auditing plan shall be established in accordance with the items and risk assessment requirements provided under paragraph 2 of Article 13 of Regulations Governing Establishment of Internal Control Systems by Public Companies, and such plan shall be submitted to the board of directors for approval.
      2. The annual auditing plan for the next year shall be submitted to the regulators via web system before the end of each fiscal year, and the same shall be applied to the amended annual auditing plan.
    2. Irregular audits and special audit projects are conducted per instructions given by the executives of highest level or their supervisors of the Company.       
    3. Self-audits for Internal Control Systems
      1. Self-audits are composed of five parts: controlling environment, risk assessment, controlling operations, information and communication, and monitoring.
      2. The Auditing Department and related departments shall conduct self-audits with the use of the Assessment Form of Operational Risks and Controlling Operations within four months after the end of each fiscal year. The Auditing Department shall conduct second-round audits and compile the results into a self-audit report, which is taken as the foundation for risk management.

  5. Auditing Procedures
    1. Prior to the commencement of audits, Auditing staff shall invite representatives from the entities which are to be audited, and announce auditing timeline and related necessary matters.
    2. Auditing staff shall request the audit receiving entities sending the required reports, voucher and related documents to an assigned location for audits.  
    3. Auditing staff shall conduct examination and assessment as the items listed in the internal control examination form so as to assess the effectiveness and compliance of current policy and procedures, and their impact on operational activities.
    4. Auditing staff shall conduct examinations per related regulations of each unit, which include field audit and relevant forms and records.
    5. Auditing staff shall request audit receiving entities to provide explanations when errors are found, and they shall also propose improvement plans.

  6. Actual Operation
    1. At the end of each year, the Auditing Department shall prescribe an annual auditing plan according to the results of risk assessment of the year, and include the following matters as the items that shall be audited annually in its annual plan: acquired or disposed assets, transactions of derivative instruments, management of loaning of funds to others, management of endorsements and guarantees, management of the use of seals, management of the receipt and use of bank note instruments, management of budget and assets, implementation of authorization and deputy schemes, management of financial and non-financial information, management and supervision of subsidiaries, management of related party transactions, management of the procedures of preparation of financial statements, management of the operation of board meetings, management of liabilities, commitments, and contingencies, management of property, cycle of sales and collection, procurement, and payment which are items requested by FSC. Annual auditing plan shall be passed by the board of directors and implemented as planned.   
    2. Auditing staff shall implement the audits as planned, which shall include: actual operations, accuracy of materials provided, operating time and results of each operational item, and the appropriateness of the internal control measures applied. They shall produce an audit report stating the audit results and suggestions for improvements.
    3. Auditing staff shall compile the audited results which are obtained according to working paper into the audit report. The report shall be submitted to the chairman after its submission to the chief auditor and supervisors. If any major violations are found or if the Company receives serious damage, the Audit Department shall immediately submit the report and inform all supervisors.  
    4. All internal departments and subsidiaries shall be urged to conduct self-audit at least once a year, and the Audit Department shall review their self-audit reports and use it as a reference when producing its internal audit reports. The internal audit reports and the Audit Department’s findings about the errors and unusual activities of internal control systems shall be taken as the reference for the board of directors and management to evaluate the effectiveness of the entire internal control systems and produce a statement regarding such systems. The statement shall be submitted to FSC’s website and published in the Company’s annual report and public instruction booklet, after the passage by the board of directors.
    5. The submission of each auditing job shall be completed before the deadline assigned.
      1. Internal auditing plan for next year: by the end of December
      2. Name list of internal auditing staff: by the end of January
      3. Implementation of internal auditing plan of previous year: by the end of February
      4. Statement of internal control systems: by the end of April
      5. Findings about errors and unusual activities for previous year and improvements: by the end of May