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HKEx Reviews Compliance With Listing Rules

by Mary Swire, Lowtax.net, Hong Kong
25 February, 2014

The Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), has published a report summarizing key observations and findings from its review of financial reports released by issuers, and also amendments to the methodology it uses to calculate annual listing fees for Hong Kong-incorporated issuers.

During the review process between October 2012 and September 2013, the Exchange found no significant breaches of Hong Kong's listing rules or accounting standards that would render the financial statements misleading, would require their restatement, or warrant disciplinary action.

However, the Exchange did find, for example, that issuers should enhance their explanations of significant events and transactions in their annual and interim reports. They are encouraged to consult their auditors at an early stage when they enter into a complex or material transaction to ensure that the transaction is properly accounted for in accordance with the accounting requirements.

Issuers have also been informed that they should pay special attention to the key areas of financial reporting that involve significant management judgment. For example, they should: ensure all identifiable assets in a business combination that existed at the date of an acquisition, in particular intangible assets, are identified and recognized separately from goodwill; and ascertain whether there is any indication of asset impairment at period end.

The Exchange has encouraged directors and other persons responsible for financial reporting to take note of the matters discussed in the report and stay alert to changes to the listing rules, accounting standards and other disclosure requirements. Issuers should consult their auditors and other external professional advisers for timely insight into any changes to the above requirements and the implications for their periodic financial reports.

In addition, the Exchange also published amendments to the listing rules to set out the method it uses to calculate annual listing fees for Hong Kong-incorporated issuers, which will be calculated when Hong Kong's new Companies Ordinance comes into effect on March 3, 2014.

The annual listing fees are currently calculated by reference to the nominal value of an issuer's securities that are, or will be, listed on the Exchange. However, the concept of nominal (par) value will be abolished under the new Companies Ordinance, which will mean that the listing rules will need to be amended to provide that, for issuers whose shares cease to have a nominal value subsequent to their date of listing, the nominal value per share that was used to calculate the annual listing fees immediately before the change will continue to be used.

For issuers whose shares have no nominal value on their date of listing, the nominal value per share will be deemed to be HKD0.25 (USD0.03) for calculation of the annual listing fees. This is in line with the existing listing rules and their application to issuers with no nominal value per share or a nominal value per share less than HKD0.25.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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