Stub period comparatives are required to be included in accountants' reports
The Main Board Listing Rules and GEM Listing Rules require certain financial information, including stub period comparatives to be included in accountants' reports. A listing document or circular should contain a discussion and analysis of a group's performance during the years or periods covered by an accountants' report. The Exchange holds the view that an analysis of a company's historical financial performance, material trends and seasonal fluctuations between different financial years or periods is important to enable investors to make informed investment decisions. To make such analysis possible and meaningful, inclusion of stub period comparatives is necessary.
The stub period comparatives should, as a minimum, be reviewed by reporting accountants in accordance with the International Standards on Review Engagements 2400 "Engagements to Review Financial Statements" issued by the International Auditing and Assurance Standards Board or the Statement of Auditing Standards 700 "Engagements to Review Interim Financial Reports" issued by the Hong Kong Institute of Certified Public Accountants.
For the avoidance of doubt, the financial information for all financial years or periods included in an accountants' report, excluding the stub period comparatives, are required to be audited. The stub period comparatives may be audited. Where they are unaudited, a review opinion for the stub period comparatives is required to be included in accountants' reports and the unaudited financial information must be clearly identified as unaudited.
All listing documents and circulars dated on or after 1 January 2005 must comply fully with the stub period comparatives requirements noted above. Early adoption of these standards is encouraged.
Pro forma financial information relating to acquisition of major businesses or subsidiaries
Main Board Listing Rule 4.28 and GEM Listing Rule 7.30 state that where a new applicant has acquired or proposes to acquire any businesses or companies which would be classified as a major subsidiary as defined in this Rule, pro forma financial information prepared in accordance with the Main Board Listing Rule 4.29 and GEM Listing Rule 7.31 in respect of the enlarged group should be disclosed in its listing document. The Exchange would like to clarify that where any of the percentage ratios calculated in accordance with the Main Board Listing Rule 4.28 and GEM Listing Rule 7.30 represents 5% or more but less than 100%, an applicant should disclose, as a minimum, a pro forma statement of assets and liabilities of the enlarged group. Where any of the percentage ratios is 100% or more, a new applicant should disclose, as a minimum, a pro forma balance sheet, a pro forma income statement and a pro forma cash flow statement of the enlarged group.
Consistent accounting standards and policies
Main Board Listing Rule 4.13 and GEM Listing Rule 7.17 require that the relevant accounting standards to be used by new applicants and listed issuers for preparation of financial information for inclusion in accountants' reports will normally be those current in relation to the last financial year reported on and, wherever possible, appropriate adjustments must be made to show profits for all periods in accordance with such standards.
The Exchange reminds new applicants, listed issuers and their advisers of the need to consider the impact of new and revised International Financial Reporting Standards or Hong Kong Financial Reporting Standards (which will become generally effective for accounting periods commencing 1 January, 2005) on the preparation of accountants' reports, profit forecasts, pro forma information and other financial information for inclusion in listing documents and circulars.
Supplemental disclosure on prospective changes in accounting standards
An additional impact of the changes in standards on 1 January 2005 that the Exchange would like to draw to the attention of new applicants, listed issuers and their advisers is the requirement under Hong Kong Accounting Standard 8 "Accounting Policies, Changes in Accounting Estimates and Errors" and International Accounting Standard 8 of the same name, which is that:
When a new accounting standard that has been issued but is not in effective for the latest relevant accounting period, the new applicant or listed issuer is also required to disclose the following:
- this fact; and
- known or reasonably estimable information relevant to assessing the possible impact that application of the new accounting standard or standards will have on the company's financial statements in the financial period of initial application.
It is not always clear to a new applicant, listed issuer or their advisers whether proposed accounting disclosure will fully meet the objective of and requirement specified in the Listing Rules. Prospective applicants, listed issuers and their advisers are encouraged to consult the Exchange at an early stage in such circumstances.