HKEx Publishes Results of Stock Exchange Review of Listed Issuers' Financial Reports

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 summarising key observations and findings from its review* of 120 periodic financial reports released by issuers between October 2012 and September 2013.

During the review process, the Exchange sent 81 letters to issuers.  The letters contained more than 240 enquiries and observations, including requests for explanations of possible non-compliance.

Based on the responses to the Exchange's enquiries, there were no significant breaches of the Listing Rules or accounting standards that would render the financial statements misleading, would require their restatement or warrant disciplinary action. Where disclosure was insufficient, it was not material to the financial statements as a whole and the Exchange obtained confirmation from issuers that the required information would be provided in future financial reports.

Key observations and findings included:

• Issuers should note that in addition to disclosure requirements in respect of accounting standards, the Listing Rules also have disclosure requirements relating to financial information under Appendix 16 to the Main Board Rules and its Growth Enterprise Market Rules equivalent;
   
• Issuers should enhance their explanations of significant events and transactions in their annual and interim reports.  They are encouraged to consult their auditors at an early stage when they enter into a complex or material transaction to ensure that the transaction is properly accounted for in accordance with the accounting requirements;
   
• Issuers should pay special attention to the key areas of financial reporting that involve significant management judgments and provide the best possible disclosure in their financial reports.  For example, they should ensure all identifiable assets in a business combination that existed at the date of acquisition, in particular intangible assets, are identified and recognised separately from goodwill, they should ascertain whether there is any indication of asset impairment at period end and the reasonableness of underlying assumptions in impairment testing, etc; and
   
• Issuers should follow good practices when providing non-International Financial Reporting Standards/Hong Kong Financial Reporting Standards financial information to ensure that the information is clearly distinguished from the financial information prepared in accordance with accounting standards.

The Exchange encourages directors and other persons responsible for financial reporting to take note of the matters discussed in the report and stay alert to changes to the Listing Rules, accounting standards and other disclosure requirements.  Issuers should consult their auditors and other external professional advisers for timely insight into any changes to the above requirements and the implications on their periodic financial reports.  Issuers should also aim to continue improving their internal control systems for financial reporting to ensure that they comply with all the accounting requirements.  The information in their periodic financial reports should be entity specific, relevant, consistent and coherent such that the information will be useful in making investment decisions.

The report is available under the "Rules & Regulations – Rules and Guidance on Listing Matters – Other Guidance Materials for Listed Issuers – Financial reporting matters" section of the HKEx website.

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