Exchange Publishes Results of its Latest Review of Disclosure in Issuers’ Annual Reports

26 Jan 2018

  • Disclosure in issuers’ annual reports is satisfactory, generally
  • Areas for improvement include annual reports’ MD&A sections and issuers’ actions to address audit modifications 


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 financial year ended between January and December 2016.

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 developments, and releases its findings and recommendations to improve transparency and promote a fair, orderly and informed market.

The Exchange reviewed seven areas which were also the subjects of last year’s review.  The Exchange is generally satisfied with the findings from its review of disclosures about: the use of proceeds from equity fundraisings; material asset impairments; results of performance guarantees that formed part of the acquisition agreements; and continuing connected transactions.  The Exchange noted that following its recommendations made last year, issuers have generally provided relevant information for their independent directors’ review of continuing connected transactions and the adequacy of internal controls in this area.

Issuers should take note of the recommendations discussed in today’s report, including the following:

  • Financial statements with auditors’ modified opinions – The Exchange’s review suggested that last year’s recommendations led to a general improvement in annual report disclosures about audit modifications and how the issuers intend to address the issues giving rise to the modifications.  As part of this year’s review, the Exchange made follow up enquiries with issuers about their progress in addressing modifications carried forward from previous years.  It recommends that issuers should also provide progress updates on a timely basis to explain how the board of directors can, based on the audit committee’s recommendations, promptly resolve the issues that gave rise to the audit modifications.
  • Newly listed issuers - The Exchange reviewed the post-listing developments of newly listed issuers in light of market concerns about new applicants which exhibit “shell” characteristics.  The Exchange noted an increase in newly listed issuers engaging in activities involving changes in major shareholders, the boards of directors and their major businesses through a series of transactions or arrangements2.  The Exchange will continue to closely monitor these issuers and where justified, apply the reverse takeover Rules in extreme cases.
  • Business review in Management Discussion and Analysis (MD&A) – The Exchange continued to find that issuers can provide more meaningful disclosure in this area.  The Exchange has highlighted in its report the areas that issuers should take into account when preparing the MD&A.  For example, issuers should disclose not only the principal risks faced by their businesses but also how they would affect their business operations and financial conditions, and measures taken to manage these risks.  On environmental policies and performance and compliance with the relevant laws and regulations, issuers should disclose the impact of the identified laws and regulations to their operations and provide their compliance record.  On key relationships with employees, customers and suppliers, issuers should disclose relevant information about these stakeholders and the length of their relationship with the issuer.  In key financial performance indicators, issuers should disclose meaningful information on how the selected indicators are linked with their business objectives and discuss their performance compared to the performance of their industry peers.

“Our review report provides guidance on specific areas that were selected with reference to the issues observed through our monitoring efforts and the latest regulatory developments.  We encourage issuers to follow our guidance to enhance their annual reports and ensure they comply with the Rules,” said David Graham, HKEX’s Chief Regulatory Officer and Head of Listing.

The report is available under the “Listing – Rules and Guidance – Other Resources – Listed Issuers – Exchange’s Review of Issuer’s Annual Disclosure – Review of Disclosure in Annual Reports” section of the HKEX’s website.



  1. Excluding annual reports issued by collective investment schemes listed under Chapter 20 of the Listing Rules for the Main Board.
  2. The Exchange published a listing decision (LD113-2017 in October 2017) to provide guidance about a newly listed issuer involved in such transactions that raised concerns about whether those transactions together represented an attempt to circumvent the reverse takeover Rules.



Updated 06 May 2020