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Legal Update

Financial Statements Review Programme Report 2011

15 February 2012
Mayer Brown JSM Legal Update

Quick Read

On 13 January 2012, The Stock Exchange of Hong Kong Limited ("SEHK") published its "Financial Statements Review Programme Report 2011" ("Report") summarising the key observations and findings from its review of 100 periodic financial reports released by issuers between October 2009 and April 2011.

Background

SEHK operates a Financial Statements Review Programme ("FSRP") to monitor financial reports (including quarterly, interim and annual reports) published by issuers for compliance with the requirements of:

  • the Rules Governing the Listing of Securities on SEHK;

  • Companies Ordinance; and

  • applicable accounting standards such as the Hong Kong Financial Reporting Standards, International Financial Reporting Standards and Accounting Standards for Business Enterprises ("CASBE") (for Mainland China issuers which have adopted the CASBE).

SEHK publishes reports of its key findings and observations from the FSRP on a regular basis to alert issuers of the possible pitfalls in preparing their financial reports. Issuers may also learn from the experiences of others and improve the quality of their future reports.

Major Findings and Observations

The major findings and observations in the Report relate to better disclosures and provision of more information and they are summarised as follows:

  • More information should be provided in financial reports to assist a better understanding of the nature and impact of significant events or material balances and transactions.

  • More comprehensive analysis of remuneration paid to auditors, in respect of audit and non-audit services should be made.

  • Discussions in the Management Discussion and Analysis and the contents of the financial statements should be consistent with each other. Also, issuers should include an extra narrative to explain clearly their performance and financial positions.

  • Connected and related party disclosures have been improved but further improvement can be made.

  • Improvement should be made on disclosures relating to financial instruments, and in particular convertible bonds.

  • There are discrepancies in the interpretations of the relevant accounting standards on acquisitions. There are different views in determining whether they should be treated as an acquisition of "business" or an acquisition of "assets and liabilities".

  • An issuer should clearly explain the situation where there is some evidence showing that the issuer has some "control" in an investee but the investee is being treated as if there is no control.

  • Improvement should be made on disclosures of assumptions and methods for arriving at fair values of investment properties, including the qualifications and experiences of valuers.

  • Segment information should be balanced and ensure it is consistent with information disclosed in other parts of the financial reports.

  • Effective benchmarks and other procedures should be implemented to determine the timing of disclosures.

You can download copies of the Report via the link below:

http://www.hkex.com.hk/eng/rulesreg/listrules/listguid/Documents/frm-11.pdf

For inquiries related to this Legal Update, please contact Jeckle Chiu, , or your usual contacts with our firm.

Learn more about our Hong Kong office and Corporate & Securities practice.

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