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 on the findings and recommendations from its review of issuers’ annual reports1 for the financial years ended between December 2013 and November 2014.
As part of its regular regulatory activities, the Exchange reviews issuers’ annual reports to monitor their compliance with its Listing Rules (the Rules), corporate conduct and disclosure of material events and developments2, and releases its findings and recommendations to improve transparency and promote a fair, orderly and informed market.
A majority of the areas the Exchange reviewed were subjects of previous reviews3. The Exchange notes an improvement in the disclosures in annual reports and a reduction in cases involving possible material breaches of the Rules. The Exchange also notes areas where issuers can continue to improve their disclosures, in particular:
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Equity fundraising – as a matter of good corporate governance, issuers conducting equity fundraisings should clearly disclose their intended use of the proceeds at the time of the fundraisings, and report back to shareholders on how these proceeds were actually applied in their annual reports.
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Significant changes to issuers’ financial performance – issuers with reliance on key customers should provide more in-depth discussion about the details of the key customers and their relationships, and where applicable, the reasons for any significant overdue receivables, how the issuers enforced their credit policy, and the details of any impairment provisions or subsequent settlements.
Issuers that experienced material changes in trade receivables should provide more in-depth discussion about any discrepancy from the issuer’s stated credit policy (for example, longer debtors’ turnover days than the general credit period; extended credit period granted to certain customers with their profile and relationships), any subsequent settlement of receivables after the year-end date, and the issuer’s follow-up actions on any overdue receivables.
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Newly listed issuers – newly listed issuers publishing profit warning announcements under the Inside Information Provisions should ensure that the information represents material developments subsequent to the date of the prospectus that has not been disclosed by the issuer. Where an issuer wishes to provide the market with additional information about its financial position after listing and this information is not inside information, it should ensure that such information is meaningful and specific, and not a restatement of information already available in the prospectus (for example, disclosure of specific financial figures). Furthermore, issuers should select headline categories that appropriately describe the nature of the information. |
"We are pleased that issuers have considered our previous guidance and improved their accountability to shareholders," said David Graham, HKEx's Chief Regulatory Officer and Head of Listing. "Through this review and our enquiry and follow-up process, issuers have improved the quality of their disclosures in annual reports and compliance with the Rules."
Issuers should note the observations and recommendations discussed in the report and follow the relevant guidance. The report is available under the "Rule & Regulations – Rules and Guidance on Listing Matters – Other Guidance Materials for Listed Issuers – Listed issuers' general disclosure obligation" section of the HKEx's website.
Notes:
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Excluding annual reports issued by collective investment schemes listed under Chapter 20 of the Listing Rules for the Main Board.
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This review is separate from the Exchange's Financial Statements Review Programme which reviews the periodic financial reports published by issuers for compliance with both financial reporting standards and the disclosure of financial information requirements under the Listing Rules.
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The previous review reports are available under the "Rule & Regulations – Rules and Guidance on Listing Matters – Other Guidance Materials for Listed Issuers – Listed issuers' general disclosure obligation" section of the HKEx's website. |
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