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 2012 and November 2013.
As part of its regular regulatory activities, the Exchange reviews issuers’ annual reports to monitor their compliance with the Listing Rules, corporate conduct and disclosure of material events and developments2, and releases its findings and recommendations to promote transparency and high quality disclosure by issuers.
The report published today covers new areas where issuers can improve their disclosure in annual reports:
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Fund raising activities through issue of equity or convertible securities – The review indicated that a majority of issuers did not clearly set out the proposed use of funds raised from general mandate placings in their announcements and failed to provide an account of the actual uses of the funds raised in their annual reports. To improve their accountability to shareholders, issuers should: i) where possible, avoid generic descriptions and have a specific description of the proposed use of funds in the announcements; and ii) provide meaningful updates on the actual applications of funds in annual reports, including a breakdown of how the funds were allocated among different uses.
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Significant changes to financial performance and material reliance on key customers – In these circumstances issuers should consider additional disclosure in the “management discussion and analysis” section. The disclosure should provide shareholders with an understanding of the issuers’ business model, the material risks to the issuers’ operations and reasons for material fluctuations in the issuers’ financial results and position. |
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Biological assets – Valuation of biological assets is usually subject to higher uncertainty due to subjective and complex assumptions adopted. Issuers should discuss any material fluctuations in their asset value. Areas of note include valuation methodology and assumptions, material inputs used in the valuation, and sensitivity analysis. |
The Exchange also noted that issuers had taken note of some guidance provided in the last review report3 and enhanced their annual report disclosure. Nevertheless, guidance in some areas had not been fully adopted, in particular: i) the annual updates on resources and reserves by mineral companies and other issuers; and ii) the management discussion and analysis on significant changes in financial items, including taxes, trade receivables and key performance indicators. Issuers should review and adopt the Exchange’s guidance in these areas to the extent applicable.
Issuers should note the observations and recommendations discussed in the report and follow the relevant guidance when preparing their annual reports. 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 website.
Notes:
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Excludes annual reports issued by collective investment schemes listed under Main Board Listing Rules Chapter 20. |
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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 2012 review 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 website. |
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