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Communications between the independent directors, the Company’s chief internal auditor and CPAs

SYSTEX’s Audit Committee shall be solely composed of Independent Directors and meetings shall be convened at least once a quarter. Ad-hoc meetings shall be held whenever necessary.

Communication between the chief internal auditor and the Audit Committee
  1. Periodic: Report the findings in audits and the status of improvement on irregularities to the Audit Committee; respond to all questions submitted by the Independent Directors, and enhance the contents of auditing tasks in accordance with their instructions to ensure the effectiveness of the internal control system.
  2. Non-periodic: Use telephone, email, or face-to-face communication to communicate discoveries in the audits and how to continuously increase the value of audits. In the event of material violation, the Independent Directors shall be notified immediately.
  3. Summaries of communication in 2022:

Date

Communication Content

Results

Audit Committee
on February 23, 2022

The implementation of audit program from January to February, 2022.

Noticed.

The” Statement of Internal Control System” for 2021.

Approved and referred to the Board.

Audit Committee
on April 12, 2022

The implementation of audit program in March, 2022.

Noticed.

The amended the Internal Control System

Approved and referred to the Board.

Audit Committee
on May 3, 2022

The implementation of audit program in April, 2021.

Noticed.

The amended the Internal Control System.

Approved and referred to the Board.

Audit Committee
on August 3, 2022

The implementation of audit program from May to July, 2021.

Noticed.

The amended the Internal Control System.

Approved and referred to the Board.

Audit Committee
on November 2, 2022

The implementation of audit program from August to September, 2022.

Noticed.

Audit Committee
on December 21, 2022

The implementation of audit program from October to December, 2022.

Noticed.

The Audit program for 2023.

Approved and referred to the Board.
Communication between the CPAs and the Audit Committee
  1. Periodic: The CPAs shall communicate with the Audit Committee on the audit plan, execution status, and results in the periods before and after the semi-annual and annual audit reports.
  2. Non-periodic: Meetings may be arranged in the event that operations or internal controls require immediate communication on related cases.
  3. Summaries of communication in 2022:

Date

Item

Communication Content

Results

February 23, 2022

Financial Statement for Year 2021

Consolidated and Unconsolidated Financial Statements for Year 2021

Report the audited adjustments of Year 2021 Financial Statement.
We discuss and communicate the applicability of certain accounting principles.

Key audit items

The impairment evaluation for accounts receivable were the key audit items in 2021.

The most important items of Systex Group’s 2021 Consolidated Financial Statements as per the professional judgment of the CPA.

Strategic investment management

Regarding equity investment premium, the Company shall continually evaluate whether there is a concern for impairment and implement appropriate accounting treatment, so as to fairly present investment amounts in financial statements.

The Company regularly check and evaluate any equity investment premiums. Any impairment will be timely reflected in our financial statements, thereby fairly presenting our investment amounts..

Article 43-3, Income Tax Act (controlled foreign company, CFC)

Approved by the Executive Yuan via order Yuan-Tai-Cai-Zi No. 1100041879 on January 14, 2022 and enacted since 2023. From May 2024 onwards, businesses will be confronted with an increase in tax and tax compliance cost when filing their tax returns as profit-seeking enterprises due to CFC-related clauses.

According to these regulations, the entities within SYSTEX that come under their impact will be BVI and our Hong Kong subsidiary, as well as our subsidiary in China that BVI invests in. In principle, this will be considered according to the distributed earnings as resolved or the realized investment losses. SYSTEX’s Finance Department has calculated the tax effects, and is exploring the possibility of our Hong Kong subsidiary’s eligibility for exemption as CFC.

Amended Article 10-1 of Statute for Industrial Innovation

On a third reading on January 27, 2022, the Legislative Yuan passed the amendment to Article 10-1 of the Statute for Industrial Innovation, which extends the period of tax credits for smart machinery and 5th-generation mobile networks to December 31, 2024. In addition, tax credits are also available to cyber security investments made between January 1, 2022 and December 31, 2024.

The businesses run by SYSTEX are not eligible for tax deduction credits available to smart machines and 5th-generation mobile networks. However, SYSTEX would still consider applying for such benefits when it purchases new cyber security products or services.

August 3, 2022

Financial Statements for the Second Quarter Ended of 2022

Consolidated Financial Statements for the Second Quarter Ended of 2022.

Report the adjustments of financial statements for the Second Quarter Ended of 2022. We discuss and communicate the newly-announced “Statements on Auditing Standards” and the amendment of decree.

Accounting

The audit on the second quarter of 2022 found that the Company and its subsidiary Concord System Management Corp. issued gift vouchers and cards that charge advances, which led to overestimates of accounts receivable, contract liabilities and temporary receipts. Although these amounts have been reclassified to offset each other, the Company is still advised to make timely adjustments at the time of account settlement to ensure fair presentations of its consolidated financial statements.

The Company has been adjusting and reclassifying categories of assets and liabilities that were simultaneously overestimated, so as to ensure their reasonable statements of our consolidated financial statements.

Applicable new law – Article 9-1 of the Regulations Governing Establishment of Internal Control Systems by Public Companies
  1. According to official letter Jin-Guan-Zheng-Shen-Zi No. 11003656544, published by the FSC on December 28, 2021, SYSTEX shall appoint a cyber security officer and at least one cyber security specialist by the end of 2023.
  2. In accordance with the Cyber Security Guidelines for TWSE/TPEx-Listed Companies, released by TWSE on December 21, 2021, the Company shall establish relevant cyber security procedures, including core businesses and their importance, cyber system inventory and risk assessment, cyber system development and security, cyber security protection and control, cyber system or cyber service outsourcing management, cyber security incident reporting and response and intelligence evaluation and response, and continual refinement and performance management of cyber security.

The Company will appoint specialists and establish relevant operating procedures in compliance with competent authorities and regulatory requirements.