Shanghai Stock Exchange: Summary Of Listed Companies' 2007 Annual Reports

Recently, the Shanghai Stock Exchange (SSE) has completed the after-action check on the listed companies' 2007 annual reports on the whole. By April 30, 2008, except for Shandong Jiufa Edible Fungus Co., Ltd. (Shandong Jiufa), all the remaining 862 SSE-listed companies had disclosed their 2007 annual reports in designated newspapers and on designated websites. According to the annual reports, overall performance of the listed companies sees a sharp year-on-year increase of 47.5%, following the good trend of 2006; the weighted earning per share of companies who have disclosed their annual reports has reached at a record high of RMB0.42. In the after-action check, the SSE's relevant departments have sent a total of 340 letters of opinions on after-action check, requiring the listed companies to make explanations on the problems in the annual reports. A total of 165 companies have published the supplementary or modification announcements.

The 2007 annual reports show positive changes in corporate governance and information disclosure of the SSE-listed companies. The amount and ratio of non-standard audit opinion have remarkably dropped. Besides, up to 139 companies have voluntarily disclosed self-evaluation reports on internal control and the opinions of auditing institutions, fourfold as many as that of last year, making initial achievements of listed companies' internal control. Most companies have strictly implemented the new accounting standards. As a result, the equity of the listed companies' shareholders at the beginning of the reporting period only increases by about 9% in the adjustment, and the "gains or losses from change in fair value" in 2007 income statements accounts for only 2.6% of total annual net profit of listed companies, realizing a smooth transition to the new accounting standards. In addition, more than 90% companies have established the audit committee, and the remuneration and assessment committee, well performing their duties and played their roles.

In the after-action check, the SSE laid emphasis on strict examination on the list companies' implementation of relevant regulations and requirements of the China Securities Regulatory Commission (CSRC) and relevant authorities, urging the companies with non-standard information disclosure and incomplete internal control system to rectify by sending letters to and interviewing with them. In terms of the major omissions and errors discovered in the check, listed companies are required to publish supplementary or modification announcements in time.

In the after-action check, the SSE has completed after-action check on annual reports of 92 ST or *ST companies on the whole, accepting listing resumption materials of 9 companies under listing suspension and issuing letters of check opinions. Besides, the SSE removed special treatment on 16 ST or *ST companies that gained profits and resumed normal major business in their 2007 annual reports, and removed risk alert of delisting on 14 *ST companies that gained profits through extraordinary profit and loss but still hasn't resumed normal major business in 2007.

Upon after-action check, the SSE found that the following problems still exist in corporate governance and information disclosure of listed companies:

1. Repeated non-standard performance predictions still exist. Some companies, which failed to publish timely relevant announcement before the end of January, or omitted disclosure or predicted inconsistently, have misled the market and investors;
2. Some companies are still burdened with non-operationally occupied capital of listed companies. After two years' centralized rectification, most companies' major shareholders have repaid the occupied capital in time, though very few companies still postpone repayment for a long term due to various historical reasons. For example, the major shareholder of Hubei Mailyard Share Co., Ltd. occupied a total of RMB1.18 billion, and only repaid RMB1,054,000 in 2007. Due to issues including attribute change procedures for the land use right evaluated at RMB1.18 billion, the plan of repaying the debt with the land use right failed within the promised period. Very few companies have newly-additional capital occupation. Besides, capital occupation during the period and settlement at the end of the period occur in some companies;
3. The unevenness of certified public accountants' professional levels, differences in their evaluation criteria and inappropriate application of some non-standard audit opinions have, to some extent, lowered the validity of the audit reports. As for qualified opinions, some accountants only talk about minor issues instead of major ones or use ambiguous expressions; they just issue qualified opinions with the reason of limitation of the audit scope and fail to explain relevant issues' influence on accounting statements as required by auditing standards;
4. Non-uniform disclosure of remuneration for directors, supervisors and senior management makes it difficult for investors to analyze and compare;
5. Some companies fail to disclose information about actual controllers in accordance with the "Rule on 2007 Annual Reports", making it difficult for investors to get information about listed companies' actual controllers and control structures;
6. The disclosure of independent directors' duty performances is rough and formalistic. All this makes it hard to reflect independent directors' roles fully; and
7. Self-evaluation reports on internal control made by board of directors are long in contents and different in formats, and it is difficult for investors to make horizontal comparison, leading to low-efficiency of information.

As for the problems discovered in after-action check on the annual reports, the SSE plans, according to relevant regulations of the "SSE Stock Listing Rules", to publicly criticize some companies including Shandong Jiufa and their related persons in charge; up to now, seven companies have received criticism notices among listed companies and twenty eight companies have received surveillance attention. To those companies and persons in charge that have severely violated listing rules and annual report rules, the SSE will take more punishment measures.