Exchange Publishes Results of Latest Review of Issuers’ Annual Report Disclosure

31 Jan 2019

  • Disclosure in issuers’ annual reports was generally satisfactory
  • Areas for improvement include business review in MD&A, financial statements with auditors’ modified opinion, disclosures on material other expenses, and material intangible assets


The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Thursday) published a report on the findings and recommendations from its review of issuers’ annual reportsNote for the financial year that ended between January and December 2017.

As part of its regulatory activities, the Exchange undertakes two on-going review programmes on issuers’ annual reports: (i) Review of Disclosure in Issuers’ Annual Reports to Monitor Rule Compliance (the AR Review Program); and (ii) Financial Statements Review Programme (the FSRP). The AR Review Program reviews issuers’ annual reports with a focus on Listing Rules (the Rules) compliance, corporate conduct and disclosure of material events and developments, while the FSRP reviews issuers’ published financial reports to encourage high standards of financial disclosure and compliance with applicable accounting standards. Starting from this year, the findings from both review programs are consolidated into one review report.

The Exchange reviewed eight areas, including two new subjects.  The Exchange was generally satisfied with the findings from its review of disclosures about: fundraisings through issue of equity / convertible securities and subscription rights, updates on material asset impairments and results of performance guarantees after acquisitions, and continuing connected transactions. 

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

  • Financial statements with auditors’ modified opinions – In previous years, the Exchange recommended issuers with auditors’ modified opinions disclose in their annual reports certain information in relation to the audit modifications.In this review, the Exchange continued to note that some issuers failed to make the recommended disclosures relating to the audit committee’s views towards the modifications and proposed plans to address them.The Exchange reminds issuers to make appropriate disclosures on these areas.In addition, the Exchange also reminds issuers, in particular those with modified opinions in repeated years, to take prompt and adequate actions to implement the plans to resolve the issues that led to the modifications.
  • Business review in Management Discussion and Analysis (MD&A) – The Exchange selected for review this year a number of issuers that were previously subject to negative market commentaries that questioned the credibility of the issuers’ business model and published financial information.The Exchange’s review of these issuers’ annual reports indicated that the disclosure of certain key areas of their business model and financial performance by these issuers were limited and the descriptions were generic.The Exchange recommends issuers improve their disclosures in the MD&A section with a view to facilitating shareholders’ understanding of the key aspects of their performances during the year and prospects, and also reducing the likelihood of allegations based on misinformed assumptions or speculations.Specifically, The Exchange recommends issuers enhance their disclosures about their business model / revenue recognition methodology of each core business; unique characteristics of their operation processes; relationships with key customers and suppliers; principal risks affecting the operations and measures to manage such risks; and strategies (including operation strategies and treasury policies) for meeting the business objectives.The Exchange also recommends issuers discuss the key performance drivers for each core business and why they are significant to the issuer’s strategies and results.
  • Material intangible assetsIssuers should aim to improve the quality of their disclosures and ascertain whether the processes for assessing impairment are sufficient and appropriate, in particular when there are significant goodwill and intangible assets with indefinite useful lives.Directors and management are responsible for performing proper analysis and exercising judgement to assess the reasonableness of key assumptions applied in impairment testing so that assumptions applied are not overly optimistic. They should not rely solely on professional valuers or other experts without carrying out sufficient due diligence. Directors should also assess the competence, capabilities, objectivity and qualifications of professional valuers or other experts.
  • Disclosures on material other expenses – The Exchange noted that many issuers with material “other / other operating expenses” provided no or limited disclosures on such expenses.Issuers should improve their disclosures and provide appropriate breakdown of their other expense items in their future annual reports to enhance shareholders’ understanding.

“Starting from this year, our review report consolidates the findings from two on-going review programmes on issuers’ annual reports. It provides guidance on specific areas selected based on market trends, regulatory developments and our observations of issuers’ compliance with regard to these areas. We encourage issuers to follow our guidance to improve their annual reports to enhance transparency to their shareholders and ensure they comply with the Rules,” said David Graham, HKEX’s 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 Issuers’ Annual Report Disclosure” section of the HKEX’s website.


Note: Excluding annual reports issued by collective investment schemes listed under Chapter 20 of the Listing Rules for the Main Board.



Updated 06 May 2020