1 Internal AuditThe design and operation as well as the Audit of HTC Internal Control System follow the Regulations for the Establishment of Internal Control System by Public Companies and other related regulations.
1.1 Purpose of Internal Audit Internal Audit aims to assist the Board of Directors and mangers in inspecting and reviewing defects in the internal control system as well as measuring operational effectiveness and efficiency, reliability of financial reporting, and compliance with applicable laws and regulations. Internal Audit shall make timely recommendations for improvements to ensure sustained operating effectiveness of the system as well as provide a basis for review and correction, with the overall goal of achieving sound operation within HTC.
1.2Organization of Internal Audit
1.2.1 Internal Audit reports to the Board of Directors, independently performs the duties of internal audit, and shall appoint qualified persons in an appropriate number as full-time internal auditors based on company scale, business conditions, management needs, and other applicable laws and regulations. The department is comprised of a chief audit executive and six internal auditors.
1.2.2Any appointment or discharge of the chief audit executive shall be approved by the Board of Directors, and be reported to the FSC for recordation via the Internet-based information system by the 10th day of the following month.
1.2.3The qualification of internal auditors shall follow the regulations and shall be supported by ongoing and prescribed hours of training. The names, ages, educational background, experience, seniority, and training of the internal auditors shall be reported to the FSC for recordation by the end of January each year via the Internet-based information system.
1.3Operation of Internal Audit Internal auditors shall be detached, independent, objective, and impartial, in faithfully performing their duties, and in addition to reporting their audit operations to Audit Committee on a regular basis, the chief audit executive shall also attend and deliver a report to the Board of Directors meeting.
1.3.1Audit shall be conducted according to the audit items, times, procedures, and methodology listed in the HTC implementation rules for internal audits.
1.3.2Internal auditors shall formulate annual audit plans based on the results of the risk assessment, including matters to be audited on a monthly/quarterly basis, by which to check its internal control system, and compile audit reports with working papers and relevant materials.
1.3.3Annual self-assessment of internal control system shall first be conducted periodically by all internal departments and subsidiaries themselves and reports shall be reviewed by internal auditors. The Internal Control System Statement shall be publicly announced and reported on the websites designated by the FSC within three months of the end of each fiscal year in the prescribed format.
1.3.4Internal auditors shall faithfully disclose in audit reports any defects and irregularities discovered in the internal control system, after having presented the reports, follow up on the matter, preparing follow-up reports on a regular basis to ensure that the relevant departments have taken appropriate corrective actions in a timely manner as a basis for performance evaluation.
1.3.5After having presented the audit and follow-up reports, internal auditors shall submit the same for review by the Audit Committee by the end of the month following the completion of the audit. Any material violation or likelihood of material damage to the company shall be promptly reported to the Audit Committee.
1.3.6Internal auditors shall submit its next year's audit plan to the FSC for recordation by the end of each fiscal year, a report on the execution of its previous year's annual audit plan within two months from the end of each fiscal year, and its corrections of any defects and irregularities of the internal control system discovered during the past year's internal audits within five months from the end of each fiscal year in the prescribed format via the internet-based information system.
David Bruce Yoffie
Daniel Wu (Yeong-Cheng Wu)
Member of the Compensation Committee