- High compliance rates with the Listing Rules in respect of issuers’ annual report disclosure
- Identified fairness of asset reported values as an issue, leading to delays in financial reporting and modifications of audit opinions by auditors
- Recommendations made included those in respect of financial reporting and related controls and disclosure on material lending transactions
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published a report (the Report) on the findings and recommendations of its annual review of issuers’ annual reports1 for the 2021 financial year end.
In its latest review, the Exchange again adopted a thematic approach, selecting a number of specific areas for review including financial reporting and controls, material asset valuations and impairments (including loan impairments) and financial statement disclosure. The review also assessed issuers’ compliance with annual report disclosure requirements under the Rules and specific accounting standards in financial statements.
Issuers continued to achieve a high rate of compliance with annual report disclosure requirements under the Rules and specific accounting standards in financial statements. In its thematic review, the Exchange noted that a few issuers did not adequately substantiate the fairness of asset reported values (including loan receivables) due to deficiencies in their financial reporting, risk management and internal controls. This has led to delays in the publication of their financial results and/or modified opinions expressed by auditors on their financial statements.
The Exchange also identified areas of improvement in some issuers’ disclosure of their material loan receivables and made recommendations in this regard.
HKEX Head of Listing Bonnie Y Chan said: “HKEX is committed to promoting good governance and transparency and enhancing listed issuers’ standards in their annual report disclosure, supporting the continued quality and development of Hong Kong’s capital markets. We are pleased to note that Hong Kong listed issuers continued to achieve a high rate of compliance with the Listing Rule requirements for annual report disclosure. In our thematic review we also identified a number of inadequacies that we encourage issuers to take note of and we highlight our recommendations as essential reading in these areas. We look forward to continuing to work with our listed issuers, and the broader community, to protect and enhance the quality of Hong Kong’s markets.”
As part of its review, the Exchange has made the following recommendations to issuers:
- Financial reporting and related controls – Directors should establish and maintain proper risk management and internal controls, and deploy adequate resources to maintain them. They should critically assess management’s accounting estimates and challenge the reasonableness of their adopted assumptions.
- Material lending transactions – In conducting lending transactions, directors should critically assess the commercial rationale, whether their terms are fair and reasonable, and whether the use of funds is in the interests of the issuer and its shareholders. For issuers that operate money lending businesses, the directors should also maintain effective risk management and internal control systems to assess and manage credit risk exposure and to monitor the recoverability of loans and adequacy of the collaterals.Issuers should follow recommendations made by the Exchange on the disclosure on their loan receivables and, for issuers operating a money lending business, such business.
- Financial statement disclosure under accounting standards – Issuers and their audit committees should maintain close dialogue with auditors on the audit focus areas and other emerging issues identified during the audit, and take prompt actions to address auditors’ concerns.
The Report is available under the “Listing Regulations – Listed Issuers – Exchange’s Reports – Review of Issuers’ Annual Reports” section of the HKEX’s website.
Note:
- Excluding annual reports issued by collective investment schemes listed under Chapter 20 of the Listing Rules for the Main Board.
About HKEX
Hong Kong Exchanges and Clearing Limited (HKEX) is a publicly-traded company (HKEX Stock Code:388) and one of the world’s leading global exchange groups, offering a range of equity, derivative, commodity, fixed income and other financial markets, products and services, including the London Metal Exchange.
As a superconnector and gateway between East and West, HKEX facilitates the two-way flow of capital, ideas and dialogue between China and the rest of world, through its pioneering Connect schemes, increasingly diversified product ecosystem and its deep, liquid and international markets.
HKEX is a purpose-led organisation which, across its business and through the work of HKEX Foundation, seeks to connect, promote and progress its markets and the communities it supports for the prosperity of all.
www.hkexgroup.com
Ends