Market Consultation Policy Paper On Financial Disclosure

MARKET CONSULTATION POLICY PAPER
ON
FINANCIAL DISCLOSURE

I. EXECUTIVE SUMMARY

II. INTRODUCTION

III. AREAS OF CONSULTATION

1. Interim Financial Reporting

2. Financial Disclosure by Financial Conglomerates

3. Management Discussion and Analysis

4. Timely Public Disclosure

5. Specific Questions arising out of the Consultation Paper

APPENDIX 1:	Existing Requirements on Interim Financial Reporting under the Listing Agreement
APPENDIX 2:	Comparison of Listing Rules Requirements Regarding Publication of Financial Information and the Proposed Requirements

FINANCIAL DISCLOSURE
CONSULTATION PAPER

I. EXECUTIVE SUMMARY

The Exchange wishes to invite comments on proposals designed to enhance the quality of periodic financial reporting by listed issuers. These proposals would result in additional disclosures in interim financial reporting; additional disclosures by financial conglomerates; and provide further guidance on management discussion and analysis. Where appropriate, amendments to mirror these changes would be made to the disclosure requirements for annual reports, prospectuses and other areas of reporting. In addition, further guidance would be provided on the general obligation to disclose price-sensitive information. The Exchange invites comments from the public on these proposed improvements in transparency and market efficiency.

1. Financial Reporting

A. Interim financial reporting
	Contents & Timeliness
		A complete set of annual financial statements includes the following: - (i) balance sheet; (ii) income statement; (iii) cash flow statement; and (iv) accounting policies and explanatory notes. Currently, consideration is being given to including a statement of recognised gains and losses as part of a complete set of annual financial statements. The Exchange considers that an interim financial report should provide substantially the same information as in the annual report. This will provide more relevant information to market participants allowing them to make more informed investment decisions. Relevance of financial information is a function of timeliness of the information. The Exchange considers it necessary that interim reports should be prepared in a more timely manner by reducing the time allowed for publishing the interim reports. Independent opinion The reliability of financial statements will be generally improved if an opinion is expressed on them by independent parties. The Exchange seeks views on whether interim reports should be audited, or reviewed by auditors or the audit committee, so as to increase the credibility of interim report.
B. Financial disclosure by financial conglomerates
		Listed banking companies are required to comply with the Best Practice Guide on Financial Disclosure by Authorised Institutions ("Guide"). The Exchange considers that certain financial conglomerates' presently not subject to the Guide - should be required to comply with standards comparable to those contained in the Guide; in particular the requirements to provide analyses of profit and loss account, operating profit by division and by product, balance sheet and off-balance sheet exposures.
C. Management Discussion & Analysis ("MD&A")
		Listed issuers are under an obligation to provide MD&A on their financial position in their financial statements. This obligation is supplemented by guidance - in the form of notes to the Listing Agreements. The Exchange proposes that this guidance should be enacted as specific rules for disclosure such that the quality of the review of issuers ' operations for the reporting year will be enhanced. The Exchange also considers that the liquidity section of the MD&A should be extended to require issuers to comment on: (i) available banking facilities and the amount utilized; (ii) maturity profile of obligations; (iii) charges on group assets; (iv) future plans for material investments and their expected source of funding in the coming year; (v) gearing ratios; (vi) exposure to fluctuations in exchange rates and any related hedges; and (vii) contingent liabilities. These disclosures will increase the transparency as to the liquidity and financial exposure of issuers.

2. Specific Situations Where Timely Public Disclosure Is Required

Paragraph 2(1) of the Listing Agreement imposes an obligation on issuers to keep the Exchange, members of the issuer and other holders of its listed securities informed as soon as reasonably practicable of any information relating to the group which meets the conditions set out in that paragraph. This is often referred to as the "general disclosure obligation". The Exchange is considering providing further guidance on the general disclosure obligation by specifying situations where the general disclosure obligation arises. These are:

where there is major market upheaval in the industries, countries or regions where an issuer has significant operations or transactions, or significant changes in exchange rates of currencies that are key to its operations;
where an issuer is aware that the results of the group will show a significant difference compared to the previous reporting period; and
where an issuer intends to commit significant resources into a non-core business.

3. Responses to Consultation Paper

This document invites written comments from all interested parties and the public on all aspects of the proposals in respect of the issues that discussed below. Comments should be sent by letter or by facsimile to:

The Stock Exchange of Hong Kong Limited
36/F Jardine House, 1 Connaught Place
Central, Hong Kong.
For the attention of Mr. Lawrence Fok,
Senior Executive Director, Regulatory Affairs Group.

Facsimile number: 2868 5028

They should be marked "Consultation on Financial Disclosure" and should arrive not later than the close of business on Saturday, 30 ^th January, 1999.

Additional copies of this consultation paper are available on the Exchange's web site, http://www.sehk.com.hk.

II. INTRODUCTION

	The principal function of the Exchange is to provide a fair and orderly market for the trading of securities. The Exchange seeks to do this through the Listing Rules. To ensure that the Listing Rules continue to require issuers to provide appropriate and timely information, thereby allowing market participants to reach informed investment decisions, it is necessary that the content of the Listing Rules be reviewed periodically. Impetus has been given to the Exchange's review by a number of recent developments.
	(a)	The regional financial turmoil that started off in Thailand in the middle of 1997 has by now affected most Asian economies, including Hong Kong. These economies have seen substantial downward pressure on their stock markets, increases in interest rates, negative growth rate and, with the exception of Hong Kong, sharply falling and highly volatile exchange rates. Businesses have experienced a widespread liquidity squeeze, as banks cut back lending in the light of diminishing deposits and falling collateral values. This has led to corporate difficulties, with knock-on effects on consumer and investment spending. Economic activity throughout the region fell and unemployment rose. It is important to ensure that the Listing Rules remain relevant in the context of these economic conditions.
	(b)	In the past year, the Exchange has noted a number of areas where it considers that disclosure of financial information by issuers was insufficient or not timely despite complying with the requirements of the Listing Rules.
	(c)	Issuers who are involved in the business of securities trading, commodity trading, money lending and investment may expose themselves to risks similar to those of banks. Unlike banks, these companies, often termed financial conglomerates, are not subject to any specific disclosure requirements concerning the quality and nature of their financial assets and liabilities. It may be appropriate to address this through the Listing Rules.
	(d)	A contraction in credit availability has focused the market's attention on liquidity to the extent that, in some cases, it may have supplanted profitability as a key measure of corporate performance. However, the Exchange 's experience in this area is that the narrative on liquidity in the MD&A sections of annual reports often provide little information on events affecting the liquidity of issuers, and on future plans concerning material investments and their source of funding.
	(e)	Recently there were instances of listed issuers announcing annual results which were much worse than market expectations, as there was no indication of a deterioration in trading position appearing in their interim reports. In their annual result announcements, some issuers have disclosed substantial losses from property investments, securities trading, and other businesses that were not the issuers ' principal activities. If the true spirit of Paragraph Two of the Listing Agreement was observed, such information would have been disclosed at a much earlier time than when the preliminary result announcement was made.
	In the light of these developments and concerns, the Exchange considers it necessary to review the Listing Rules dealing with: the contents and timeliness of the interim financial reporting; disclosure requirements of financial conglomerates; the contents of MD&A in financial statements; and circumstances that may give rise to a general disclosure obligation of price sensitive information.

III. AREAS OF CONSULTATION

1. Interim Financial Reporting

1.1	Under the Listing Rules, issuers are only required to publish a half-year interim report between annual reports. The information contained in interim reports is much less extensive than in annual reports, consisting of mainly profit and loss account information.
1.2	For ease of reference, the existing requirements on interim financial reporting in the Listing Agreement are set out in Appendix 1. As a major international financial centre, it is important for Hong Kong 's rules to be in line with international standards. A table summarising the reporting requirements of other markets is attached as Appendix 2.

1.3 A. Contents Of Interim Reports
	(i)	Under the existing requirements an issuer is required to disclose the major items of its profit and loss statement in its interim report. These disclosures provide limited information to shareholders and investors; they omit information which might be considered relevant to shareholders and investors, for example the liquidity and future profitability of the issuer. Other line items, such as cost of goods sold, interest expense, depreciation, profit/loss from non-core business, and turnover/profit by activity and location are also important to investors in their investment decision making process and are not provided.
	(ii)	As issuers are not required to disclose details of cost of goods sold, investors are unable to assess the gross profit margins of listed issuers. This is often regarded as a significant ratio in assessing a company 's performance. The Exchange believes that this information is already available to issuers ' management and may, in some cases, be provided to institutions providing loan finance to issuers.
	(iii)	Profits are generated from the assets employed by issuers. Presentation of balance sheet information would therefore enable a fuller assessment of current performance to be made. It would allow investors to compare the balance sheets of the current reported period with those at the last reported date; investors may also get an insight on the investment strategy of an issuer by examining the components of the balance sheet.
	(iv)	Liquidity is a significant factor in the present economic circumstances. Without adequate working capital, issuers may be forced to restructure their operations and debts or seek liquidation even though their operations are profitable. The disclosure of balance sheet, cash flow statement, maturity profile of debts and borrowings, credit policy and aging analyses of accounts payable and receivable may help the general public and investors in tracking the financial position of an issuer. It would enable investors to assess the extent to which results are reflected by cash flows and provide information on resources available within an issuer.
	(v)	Presenting interim financial statements, consisting of profit and loss accounts, balance sheets, cash flow statements, and explanatory notes would significantly increase the transparency of the financial position of listed issuers. In the U.S., balance sheets are required for interim reports and in the U.K., more companies are volunteering balance sheet information in their interim reports. A recent U.K. research report showed that balance sheets and cash flow statements are included in interim reports by the majority of the U.K. issuers covered in the survey indicating that companies are voluntarily making disclosure well beyond the London Stock Exchange 's requirements.
	(vi)	It may be argued that the workload and cost of presenting such information would be heavy, possibly causing problems with accuracy and timeliness of reporting. These factors may be seen as outweighing the benefits of the additional disclosure. However, it should also be recognised that balance sheets, profit and loss accounts, and cash flow statements are derived from the same accounting records and financial information. A profit and loss account cannot be completed properly until a balance sheet is also completed. Thus, disclosure of a balance sheet would not require significant additional preparation. Similarly, cash flow information should customarily be maintained, for monitoring purposes, by issuers and a requirement to present this should not place a significant additional burden on issuers.
	(vii)	Content of a complete set of financial statements should include the following components: - a. balance sheet; b. income statement; c. cash flow statement; and d. accounting policies and explanatory notes. It is noted that consideration is being given to including a statement of recognised gains and losses as part of a complete set of financial statements.
	(viii)	In order to increase transparency, the Exchange proposes that issuers should also provide a full set of consolidated financial statements in their interim report. Accounting policies which have been consistently applied and which were disclosed in the last published annual report may be omitted. For comparison of the proposed interim financial reporting requirements with the existing requirements, please refer to Appendix 2.
	(ix)	The Exchange considers that interim financial statements should cover the following periods to facilitate financial analyses on issuers by investors: - a. balance sheet as at the end of the current interim period and a comparative balance sheet as at the end of the immediately preceding financial year; b. income statements for the current interim period and cumulatively for the current financial year-to-date, with comparative income statements for the comparable interim periods (current and year-to-date) of the immediately preceding financial year; c. statement showing recognised gains and losses cumulatively for the current financial year-to-date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year; and d. cash flow statement cumulatively for the current financial year-to-date, with a comparative statement for the corresponding year-to-date period of the immediately preceding financial year.
	(x)	Issuers are required to apply the same accounting policies in preparing their interim reports as in their audited annual financial statements. In view of the recent drastic downturn of the property market, it is important to stress that properties that are carried at valuation at the year end date must be revalued for interim financial reporting purposes so as to have consistency in the application of accounting policies.
	(xi)	There is no existing requirements on issuers for their properties to be revalued by professionally qualified valuers as at the interim reporting dates. Revaluation of properties may have a significant impact on the results of issuers. In view of the significance of properties to many Hong Kong issuers, the Exchange considers issuers should be required to obtain property valuations by professionally qualified valuers as at the interim reporting dates although issuers may find it costly to prepare.
	B. Frequency and Timing of Interim Reports
	(i)	The relevance of financial information is a function of the timeliness of that disclosure. More timely disclosure may be achieved by reducing the period allowed for publication of financial information. Under the existing Listing Rules, issuers are required to publish their half-yearly interim reports within three months of the end of the half-year. A similar deadline applies to companies listed on the Singapore Stock Exchange. In the U.K., issuers are required to publish their half-yearly interim reports within four months of the end of the half-year. In the U.S. quarterly interim reports must be filed with the Securities and Exchange Commission ("SEC") within 45 days of the end of the quarter.
	(ii)	The present period allowed for publishing results is broadly in line with that for other Asian exchanges, but falls short of that required in the U.S. market. A move to require publication of results within two months of the financial period end would bring the Exchange into line with U.S. practice. In addition, the Exchange would expect that for management and control purposes issuers already prepare financial information within this deadline. The Exchange therefore considers that the present three-month period for publishing interim results should be reduced to two months. As the reporting time for annual results is currently five months after the year-end, if this change is adopted, a period of up to nine months may elapse between publication of interim results and final results. The Exchange believes this should be reduced by requiring annual results to be published within three months after the year-end.
	(iii)	Timeliness of financial reporting may also be addressed by requiring issuers to make more frequent disclosure, by introducing a requirement for quarterly reporting. This may address concerns that issuers have not released price sensitive information to the market promptly. However, such a requirement would also add to issuers ' compliance costs.
	C. Independent Opinion On Interim Reports
	(i)	Timely and reliable interim financial reporting improves the ability of market participants to understand an enterprise, its capacity to generate earnings and cash flows, and its financial position. Audited interim reports are generally perceived as more reliable than unaudited reports. However, whilst an audit adds to the credibility and reliability of reported financial information, it entails additional expense to issuers. As issuers have similar year end dates (primarily March and December), an audit requirement may also stretch the resources of the accounting profession. Audits of interim reports are rarely required by overseas national securities legislation, listing requirements, or professional standards.
	(ii)	The SEC does not require auditors to carry out reviews of the quarterly interim reports. In the U.K., interim reports do not have to be reviewed by auditors except in certain takeover situations. However, the Cadbury Committee recommended that interim financial information should be reviewed by auditors. An increasing number of U.K. issuers now follow this recommendation. It may therefore be appropriate to require or recommend that interim financial information be reviewed by auditors before publication.
	(iii)	Under the Code of Best Practice contained in Appendix 14 to the Listing Rules, issuers are recommended to establish audit committees containing a majority of independent non-executive directors no later than the start of the first accounting period commencing after 1 ^st January 1999. One of the audit committee 's tasks is to review the interim reports before they are released. It may therefore be considered that the audit committee should determine whether interim reports should be audited or reviewed by auditors.
	(iv)	The Exchange considers that in addition to audit committee review, or review by management for those issuers not having audit committees, interim reports should be audited or at least reviewed by auditors. The Exchange also considers that opinions of auditors and the audit committee should be published in the interim reports.

2. Financial Disclosure by Financial Conglomerates

2.1	Principal financial institutions in Hong Kong may be classified into banks and non-banks. In this context banks include licensed banks, restricted licence banks and deposit-taking companies. Banks are supervised by the Hong Kong Monetary Authority ("HKMA") and their annual accounts must comply with the disclosure requirements of the HKMA 's Best Practice Guide (the "Guide"). In addition, banks are regulated by the HKMA and have to submit timely and detailed financial reports from time to time to the HKMA.
2.2	Non-banks include non-depository institutions which engage in the business of securities trading or giving advice in connection with securities; commodities trading; leveraged foreign exchange trading; insurance activities; and money lending . Large listed issuers which engage in such operations are often called financial conglomerates.
2.3	The Guide applies to large restricted licence banks and deposit taking companies. In this context, the Guide defines large companies as those which have total assets of HK$1 billion or more or total customer deposits of HK$300 million or more. Adopting similar criteria, the Exchange suggests financial conglomerates be defined as issuers whose financial business represents more than 15% of net assets or profit attributable to shareholders and whose financial business has total assets of over HK$1 billion or has customer deposits plus financial instruments held by the investing public of over HK$300 million.
2.4	The recent Asian economic turmoil demonstrated the importance of appropriate financial disclosure by banks and financial conglomerates; in particular the disclosure of significant changes in the value of financial assets and liabilities. As banks are under the prudent supervision of the HKMA, they also have to comply with the more onerous disclosure rules of the Guide. In contrast, much of the business of financial conglomerates does not come under similar regulatory control and they are not subject to similar disclosure rules.
2.5	Financial conglomerates are perhaps more likely to deal in derivative products that can involve significant off-balance exposures. Existing accounting standards and the Listing Rules do not address how such products should be disclosed in financial statements, whereas disclosures in relation to these items are set out in the Guide.
2.6	The Exchange considers that it is important for financial conglomerates to adopt standards comparable to those of the Guide in relation to their financial business; in particular information should be given concerning: off-balance sheet exposures for contingent liabilities and commitments, and derivatives; risk management strategy; and segmental information.
	Suggested disclosure requirements for financial conglomerates based on the requirements of the Guide are set out below. The information may be provided on the face of the profit and loss account or balance sheet, as appropriate, or in the notes to accounts.

	A.	Profit And Loss Account Items
	(i)	interest income;
	(ii)	interest expense;
	(iii)	gains less losses arising from dealing in foreign currencies;
	(iv)	gains less losses arising from securities trading;
	(v)	gains less losses arising from derivative products;
	(vi)	charge for bad and doubtful debts; and
	(vii)	operating profit by products and divisions.
	B.	Balance Sheet Items
	(i)	cash and short-term funds (with an analysis by currency and maturity);
	(ii)	securities held for dealing purposes (with an analysis by listed and unlisted and showing market value of the listed securities as at the balance sheet date);
	(iii)	investment securities, equity and debt (with an analysis of each by listed and unlisted and disclose market values of listed securities);
	(iv)	an analysis of securities held for dealing purposes and investment securities divided into those issued by: central governments and central banks, public sector entities, banks and other financial institutions; corporate entities; and others (with an analysis of each by listed and unlisted and disclose market values of listed securities);
	(v)	advances, other accounts and margin loans (with an analysis between amounts due by banks and financial institutions and others, and the related collateral security);
	(vi)	issued debt securities;
	(vii)	other accounts and provisions such as obligations on leases, sale and repurchase agreement, and forward contracts (with an analysis where material); and
	(viii)	a maturity profile of the following assets and liabilities unless immaterial,
		Assets - Advances to customers. Placements with banks and other financial institutions. Certificates of deposit held. Debt securities held for dealing purposes. Debt investment securities.
		Liabilities - Deposits from banks and other financial institutions. Current, fixed, savings and other deposits of customers. Certificates of deposit issued. Issued debt securities.
	C.	Off-Balance-Sheet Exposures
	(i)	contingent liabilities and commitments;
	(ii)	derivatives (analysis of the aggregate notional amounts of each significant class of instruments);
	(iii)	if applicable, the aggregate credit risk weighted amounts of contingent liabilities and commitments, exchange rate contracts, interest rate contracts and other derivatives, if any; and
	(iv)	the aggregate replacement costs of its exchange rate contracts, interest rate contracts, and other derivatives, if any.
	The contractual or notional amounts of off-balance-sheet instruments provide only an indication of the volume of business outstanding at the balance sheet date and bear little relation to the underlying risks of the exposure. Therefore it is necessary to disclose items (i) and (iv) to provide risk exposure information on off-balance-sheet instruments.
	D.	Supplementary Information
	(i)	Management of risks
		A description of the main type of risk arising out of its business, including interest rate, foreign exchange and market risks arising out of its trading book. It should also include a description of the policies, procedures and controls used for measuring, monitoring and controlling those risks and for managing the capital required to support them.
	(ii)	Segmental information
		Where a geographical segment of the financial business represents over 10% of the issuer 's whole business, then that segment should be further analysed by industry sector.
2.7	The Exchange proposes that these disclosure requirements should apply to the interim and annual financial statements of financial conglomerates. These would be in addition to disclosures required under legislation, accounting standards and the Listing Rules.
3.	Management Discussion and Analysis
3.1	A requirement to include MD&A in annual reports was introduced in late 1994 to provide shareholders and readers with annual reports containing information in a narrative form and analyses and information beyond that already available in financial statements.
3.2	The Exchange notes that most issuers do not provide sufficient analytical and in-depth discussions in their MD&A. Most issuers tended to repeat information available in the financial statements in narrative form without adding any new information of substance. Analyses of the historical data or highlights on the events affecting the issuer 's future operations are lacking. The Exchange considers that the quality of information being disclosed in the MD&A should now be improved, as it is four years since the present rule was implemented.
3.3	The existing MD&A requirement is set out in paragraph 9(2)(c) of the Listing Agreement. The Exchange has provided additional guidance on matters which directors may focus on in preparing the MD&A. This appears in Note 9.24 of the Listing Agreement which sets out the following as matters on which directors may comment:
	the group 's liquidity and financial resources; the capital structure of the group in terms of maturity profile of debt, type of capital instruments used, currency and interest rate structure; the state of the group 's order book and prospects for new business; significant investments held, their performance during the year and their future prospects; details of material acquisitions and disposals of subsidiaries and associated companies in the course of the year; comments on segmental information given in the directors ' report and accounts; and details of the number and remuneration of employees, remuneration policies, bonus and share option schemes and training schemes.
3.4	The Exchange now proposes that the existing guidance in Note 9.24 to the Listing Agreement should become a rule. Issuers would therefore be required to address each of these items in the MD&A, rather than considering them for possible disclosure. This proposal falls in line with requirements in the U.S..
3.5	Liquidity problems may cause even profitable issuers to close or go into liquidation. The Exchange considers that it is very important for issuers to disclose more information on their financial position and liquidity, including important events or transactions affecting them. In U.S., issuers have to identify any known trends or any known commitments, events or uncertainties that will result in or that are reasonably likely to result in the issuer 's liquidity increasing or decreasing in any material way.
3.6	The international nature of much of Hong Kong's business results in many issuers being exposed to risks of movements in foreign currency; both in respect of existing assets and liabilities and in relation to future business prospects. The Exchange considers that it is important for issuers to disclose information on their existing currency exposures as well as sensitivity of existing operations to fluctuation in exchange rates.
3.7	In addition, the Exchange considers that the market would be more transparent and better informed if the MD&A requirement was expanded to require issuers to comment on:
	(i)	available banking facilities and the amount utilized;
	(ii)	maturity profile of obligations;
	(iii)	charges on group assets;
	(iv)	future plans for material investments or capital assets and their expected sources of funding in the coming year;
	(v)	gearing ratios;
	(vi)	exposure to fluctuations in exchanges rates and any related hedges; and
	(vii)	contingent liabilities.
	The public could better assess the liquidity and financial position of issuers if provided with such disclosures.
4.	Timely Public Disclosure
4.1	Pursuant to paragraph two of the Listing Agreement (the general disclosure obligation), an issuer has an obligation to keep the Exchange, members of the issuer and other holders of its listed securities informed through public announcement as soon as reasonably practicable of any information relating to the group which is necessary to enable them and the public to appraise the position of the group.
4.2	As the volume of international trading increases, events outside Hong Kong and movements in exchange rates may have an effect on the business of listed issuers. As these events occur outside Hong Kong, investors and public may not be aware of them or the extent to which they may impact on the business and results of issuers.
4.3	Certain issuers have published announcements on the closure of businesses in Asian countries due to the financial turmoil and issued statements warning of a significant deterioration in financial results for the current year. However, such practice is not widespread through out the market. As required by the general disclosure obligation and general principles of good corporate governance, issuers should keep the market informed of any information that is significant to the group in relation to its operations, management, financial position and profitability.
4.4	A recent trend has been the surprising results of issuers, caused by the poor performance of non-core businesses, such as property investment and securities trading. The public raised questions as to whether board of directors of issuers should inform investors of the material investments on a timely basis rather than the time of announcement of results. These instances highlight that an issuer 's non-core businesses may have positive or negative impact on the results of the group.
4.5	This experience suggests that it is necessary, and Exchange believes it would be beneficial to the market, if further guidance was provided to issuers by specifying situations requiring announcement under the general disclosure obligation . The Exchange therefore proposes to specify that a disclosure obligation arises:
	where there is major market upheaval in the industries, countries or regions where the issuer has significant operations or transactions, or significant changes in exchange rates of currencies that are key to its operations; where the issuer is aware that the results of the group will be significantly different to those of last year; and where an issuer plans to commit significant resources to an activity which is a non-core business and has not previously been disclosed.
5.	Specific Questions Arising out of the Consultation Paper
5.1	Comments on all aspects of the consultation paper are solicited. Nevertheless, views in respect of the following questions would be of particular interest to the Exchange:
	A.	Interim Financial Reporting
	(i)	Should the Exchange require issuers to present a full set of financial statements in their interim reports excepting only those accounting policies which have been consistently applied and disclosed in the last published annual report ?
	(ii)	Should issuers increase their disclosure of financial information as proposed in the Appendix 2?
	(iii)	Are transitional arrangements, allowing issuers to exclude comparative figures for the statement of recognised gains and losses and cash flow statement in the first year of application required?
	(iv)	Are there other transitional arrangements that the Exchange should allow in respect of the contents of interim reports?
	(v)	Should issuers be required to have property valuations on their properties performed by professionally qualified valuers as at the interim reporting dates?
	(vi)	Should the present three-month period for publishing interim results be reduced to two months? Will it also be appropriate to require issuers to announce annual results within three months after the year-end?
	(vii)	Is it appropriate to introduce quarterly reporting? If it is introduced, what would be an appropriate deadline for such quarterly reporting after the quarter period end?
	(viii)	Is it necessary for the interim reports to be audited or reviewed by auditors and/or reviewed by audit committee? Should their opinions be published in the interim reports?
	B.	Financial Disclosure by Financial Conglomerates
	(i)	Should financial conglomerates be required to comply with standards comparable to those of the Guide in relation to their financial business ?
	(ii)	Is the definition of financial conglomerates (proposed in paragraph 2.3) appropriate? If it is not, what would be the appropriate threshold in the definition?
	(iii)	Are the recommended additional disclosures on financial conglomerates as proposed in paragraph 2.6 considered to be suitable and adequate? Are there further provisions in the Guide which should be applied to financial conglomerates?
	C.	Management Discussion and Analysis
	(i)	Should the quality of information being disclosed in the MD&A be improved by enacting the guidance provided in Note 9.24 to the Listing Agreement as a rule?
	(ii)	Should issuers disclose the suggested items in paragraph 3.7 in the MD&A so as to enhance the transparency in liquidity and financial position of issuers?
	(iii)	Should issuers disclose their exposure to fluctuation in exchange rates in respect of the impact on both existing assets and liabilities and future business activities?
	(iv)	Should there be other items to be included in the MD&A section?
	D.	Timely Public Disclosure
	(i)	Is it necessary for the Exchange to provide further guidance to issuers on the general disclosure obligation?
	(ii)	Should the Exchange provide this guidance by specifying instances where an obligation will arise?
	(iii)	Should the Exchange specify that a disclosure obligation arises under the following situations:
		a.	where there is major market upheaval in the industries, countries or regions where an issuer has significant operations or transactions, or significant changes in exchange rates of currencies that are key to its operations;
		b.	where an issuer is aware that the results of the group will be significantly different to those of last year; and
		c.	where an issuer plans to commit significant resources to an activity which is a non-core business and has not previously been disclosed?
	(iv)	Should there be thresholds for disclosure (e.g. percentage changes) for the situations mentioned in (iii)?
	(v)	Should there be other specified circumstances that are considered appropriate where issuers need to make an announcement under the general disclosure obligation?
Appendix 1
Existing Requirements on Interim Financial Reporting under the Listing Agreement
The Listing Agreement prescribes the following in relation to the contents and timing of interim reports: -
1.	Contents of interim reports
	Each interim report, save for banking companies, contain at least the information set out below stated in respect of the group:
	a.	turnover;
	b.	profit (or loss) before taxation and extraordinary items, including the share of results of associated companies, with separate disclosure of any exceptional items;
	c.	taxation on profits and basis of computation with separate disclosure of taxation on share of associated companies ' profits;
	d.	profit (or loss) attributable to minority interests;
	e.	profit (or loss) attributable to shareholders before extraordinary items;
	f.	extraordinary items (net of taxation);
	g.	profit (or loss) attributable to shareholders;
	h.	rates of dividend paid or proposed on each class of shares and amounts absorbed thereby;
	i.	transfers to and from reserves;
	j.	earnings per share calculated on the basis of profits before extraordinary items;
	k.	comparative figures of the matters specified in items a to j inclusive for the corresponding previous period;
	l.	a statement of the interests of each director, chief executive and substantial shareholder of the issuer in the equity or debt securities of the issuer or any associated corporation;
	m.	an explanatory statement relating to the activities of the group and profit (or loss) during the relevant period which must include any significant information enabling investors to make an informed assessment of the trend of the activities and profit (or loss) of the group together with an indication of any special factor which has influenced those activities and the profit (or loss) during the period in question, and enable a comparison to be made with the corresponding period of the preceding financial year and must also, as far as possible, refer to the prospects of the group in the current financial year;
	n.	any supplementary information which in the opinion of the directors of the issuer is necessary for a reasonable appreciation of the results for the six month period; and
	o.	where the accounting information given in an interim report has not been audited that fact must be stated. The interim report, if audited, the auditor's report thereon including any qualifications must be set out in the interim report.
2.	Period of and timing of interim reports
	The issuer shall prepare an interim report in respect of the first six months of each financial year of the issuer, unless that financial year is of six months or less, not later than three months after the end of that period of six months.

Comparison of Listing Rules Requirements Regarding Publication of Financial Information
and the Proposed Requirements

	Hong Kong Stock Exchange		New York Stock Exchange (SEC rules)	London Stock Exchange	Australian Stock Exchange	Singapore Stock Exchange
	Existing rules	Proposed Changes	New York Stock Exchange (SEC rules)	London Stock Exchange	Australian Stock Exchange	Singapore Stock Exchange
1. Timing for publication of final results	5 months (audited)	3 months (audited)	90 days (audited) (Form 10-K)	6 months (audited) (12.42(e))	75 days (audited) (Rule 4.3.1) (Note 1)	3 months (unaudited) (Rule 911) (Note 3)
2. Timing for publication of interim results	3 months (unaudited)	2 months (reviewed or audited)	45 days (unaudited) (Form 10-Q)	4 months (unaudited) (12.48)	75 days (audited or reviewed) (Rule 4.1.1) (Note 1)	3 months (unaudited) (Rule 911)
3. Timing for publication of quarterly results	N/A	Under review	45 days (unaudited) (Form 10-Q)	N/A	1 month (Mining exploration entity only) (Rule 5.3) (Note 2)	N/A

	Hong Kong Stock Exchange		New York Stock Exchange (SEC rules)	London Stock Exchange	Australian Stock Exchange	Singapore Stock Exchange
	Existing rules	Proposed changes	New York Stock Exchange (SEC rules)	London Stock Exchange	Australian Stock Exchange	Singapore Stock Exchange
4. Figures presented in results announcement:-
Turnover
Investment & other income	N/A			N/A
Cost of goods sold	N/A			N/A	N/A	N/A
Interest on borrowings, depreciation/amortisation	N/A			N/A
Income from associated companies				N/A
Profit before taxation
Taxation
Adjustment of tax i.r.o. prior year	N/A		N/A	N/A	N/A
Minority interests
Profit before extraordinary items
Extraordinary items
Profit attributable to shareholders
Rates and amount of dividend
Net tangible asset per share	N/A		N/A	N/A
Earnings per share
Comparative figures
Percentage change	N/A		N/A	N/A	N/A

	Hong Kong Stock Exchange		New York Stock Exchange (SEC rules)	London Stock Exchange	Australian Stock Exchange	Singapore Stock Exchange
	Existing rules	Proposed changes	New York Stock Exchange (SEC rules)	London Stock Exchange	Australian Stock Exchange	Singapore Stock Exchange
Profits on sale of investments or properties	N/A			N/A	N/A
Pre-acquisition profits	N/A		N/A	N/A	N/A
Turnover and profit for first and second half	N/A		N/A	N/A	(for annual results only)	(for annual results only)
5. Other information presented in results announcement :-
*Balance sheet	N/A			N/A		(for annual results only)
*Cash flows statement	N/A			N/A		N/A
*Statement of recognised gains and losses	N/A		N/A	N/A	N/A	N/A
Commentary on results and future prospect				(for interim results only)
Details of change in share capital	N/A			N/A
*Borrowings and debts	N/A			N/A
*Turnover/profit by activity and location	N/A		N/A	N/A		(for annual results only)
*Credit policy and aging analyses of accounts payable and receivable	N/A		N/A	N/A	N/A	N/A

* Proposed changes to be included in interim reports only and omitted in interim results announcement

Note 1:	Listed entity is required to give its half year report to the Australian Stock Exchange within 75 days after the end of the accounting period (Rule 4.1.1). Listed entity is also required to give its annual report to the Australian Stock Exchange before the end of 17 weeks after the end of its financial year (Rule 4.7). Listed entity is also required to send its annual report to holders of its ordinary securities and preference securities before the end of 17 weeks after the end of its financial year (Rule 4.6).
Note 2:	Mining exploration entity quarterly report included the following information: consolidated statement of cash flows, non-cash financing and investing activities, financing facilities available, estimated cash outflows for the next quarter, reconciliation of cash, changes in interests in mining tenements and details of change in share capital.
Note 3:	Listed issuer shall also issue its annual report to its shareholders and the Singapore Stock Exchange within 6 months from the end of the financial year (Rule 912).

Updated 05 Feb 2010

Market Consultation Policy Paper On Financial Disclosure

Market Consultation Policy Paper On Financial Disclosure

B.

C.

Appendix 1