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 (the Report) on the findings and recommendations of its annual review of issuers’ annual reports1 for the 2022 financial year end.

Consistent with our previous review, the Exchange again adopted a thematic approach, selecting several specific areas for review including financial reporting and controls, material asset impairments (including loan impairments) and financial statement disclosure. The review also assessed issuers’ compliance with the annual report disclosure requirements under the Listing Rules (Rules) and specific accounting standards in financial statements.

The Exchange is pleased that issuers continued to achieve a high rate of compliance with the annual report disclosure requirements under the Rules and specific accounting standards. In its thematic review, the Exchange is also pleased to note an overall improvement in issuers’ disclosure of their money lending activities and a substantial decrease in problematic lending transactions identified. With regards to financial reporting, a vast majority of the issuers reviewed were able to publish their financial statements in a timely manner with a clean audit opinion. Internal control deficiencies remained a common underlying reason for the failure of the minority to do so.

HKEX Head of Listing Katherine Ng said: “This annual review exercise demonstrates HKEX's commitment to promoting good standards of governance and transparency among Hong Kong-listed issuers. We are very pleased to see the consistent high rate of compliance with the Listing Rule requirements for annual report disclosure. Listed issuers should refer to the recommendations as set out in the Report to enhance the standards of their future disclosure, as together we work to further elevate the quality of Hong Kong's listed market.”

As part of its review, the Exchange has made the following recommendations to issuers:

·Financial reporting and related controls – Issuers’ management should establish a policy to identify emerging risks, develop risk-mitigating controls, and review control effectiveness on a continuous basis under the oversight of audit committees to facilitate timely and accurate financial reporting. An audit should be properly planned, with audit fees and detailed audit plans agreed upon with auditors as early as practicable. Issuers’ management and audit committees should have sufficient and continuous oversight throughout the audit process.

·Material lending transactions – Money lenders should enhance their disclosure with regard to customer profile, concentration risks and internal controls over the lending businesses, whilst non-money lenders should be transparent about the reasons for their lending. In addition, issuers should be mindful of the Rule requirements on lending transactions (being a form of “financial assistance” under the Rules) and ensure compliance.

·Financial statement disclosure under accounting standards – When performing the expected credit losses assessment, fair value measurement and impairment testing, issuers’ directors must exercise their own judgment to assess the reasonableness of the assumptions and inputs and should not overly rely on valuers. Issuers should continuously review the clarity and transparency of the financial statement disclosure under accounting standards.

The Report  is available under the “Listing Regulations – Listed Issuers – Exchange’s Reports – Review of Issuers’ Annual Reports” section of the HKEX’s website.

Note:

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