.jpg)
The 2014 Meeting on National Securities and Futures Regulatory Work has arranged the work on regulatory transformation, in which it points out that securities exchanges will be in charge of front-line regulation on the information disclosure related to periodical reports and temporary announcements of listed companies, establish authority on information disclosure regulation, and strengthen self-disciplinary management. In line with this requirement, the Shanghai Stock Exchange (SSE) has, in this year’s annual report auditing, carefully considered such issues as how to promote transformation of self-disciplinary regulation and how to do well in front-line regulation work on investors-oriented information disclosure, adopted an array of measures on in-process and aftermath regulation, and explored new ideas on regulatory transformation in practice, with some good results achieved.
The first is to ensure the normal operation of “Direct Channel for Information Disclosure”. The SSE officially launched the “Direct Channel for Information Disclosure” (an electronic information disclosure system of the SSE) in July 2013, through which listed companies can directly submit announcements and release information to the public. 2014 is the first disclosing circle of annual reports after the implementation of this business. During the release of annual reports, the SSE has made full efforts on safeguarding the technical platform of the “Direct Channel”, and the market efficiency of the disclosure of listed companies’ annual reports has been remarkably improved, leading to more convenient ways for investors to get the information of annual reports. At present, investors can obtain 95% of the companies’ annual reports before 19:00 on the released day.
The second is to urge listed companies to timely correct and clarify typical mistakes in their annual reports. During the disclosure of this year’s annual reports, the SSE has firstly reviewed major financial indicators, shareholders’ information, and other contents concerned by investors and required listed companies to correct typical mistakes immediately. For example, Qinghai Jinrui Mineral Development Co., Ltd. and some other companies have disclosed credit guarantee accounts of margin trading and securities lending as shareholders of listed companies, instead of disclosing the final actual holders in line with the requirements, and the SSE required them to correct and re-disclose in time. Besides, some media, having read listed companies’ annual reports, queried the operational risks and financial situations of some companies. The SSE has paid high attention to this issue and demanded listed companies to clarify or correct it immediately. According to preliminary estimates, listed companies have issued over 70 corrected announcements and over 80 clarification announcements as required by the SSE.
The third is to transfer the focus of annual report examination to the matters concerned by investors. In 2014, the SSE will orient itself to investors’ demands and focus on examining matters concerned by them, such as corporate business modes, industry tendencies, risk disclosure, financial prediction, and other key information that may exert great influence on their decisions. With regard to some listed companies’ insufficient explanation on their operational risks, careless analysis of their revenues and costs, incomplete disclosure of the influences caused by non-recurring profits and losses, and insufficient provisions for depreciation, the SSE required them to release supplementary announcements. For example, inadequate disclosure of risks occurred in the annual report of Jilin Ji’en Nickel Industry Co., Ltd., and the SSE has, in the aftermath auditing on the annual report, asked Ji’en Nickel to explain 17 issues involving risks in assets-transfer trading, gross margin’s increase, and changing from projects under construction to fixed assets that give rise to large-amount year-end earnings, and overseas loss-making company. Take Zhonghang Heibao Co., Ltd. for another example, the SSE has noticed problems in its future business plan, dramatically increased receivables, major clients, compensation for land, and depreciation provision, and thus required it to make supplementary disclosure.
The fourth is to deal with illegal behaviors in information disclosure. The SSE has found, during the annual report examination, that some listed companies were unscrupulous in business performance predictions with incomplete processes, which affected investors’ decisions. Thus, the SSE has taken regulatory measures or disciplinary sanctions on over 10 companies that involved rule-breaking behaviors including great discrepancies in business performance predictions. The SSE also found that some listed companies did not timely disclose information in assets purchase and sale, government subsidies, and connected transactions or did not have complete decision-making processes. For example, some listed companies have not fulfilled mandatory decision-making processes on daily connected transactions apart from those authorized at the beginning of the year, and they have not timely disclosed the government subsidies they had received. Besides, some listed companies have presented commonsense mistakes in statement data and accounting treatment, such as not adopting prospective application in the application period of accounting estimation. The SSE has acted quickly to strictly deal with any clue on rule-breaking behaviors found in the annual report examination and imposed regulatory measures or disciplinary sanctions on verified rule-breaking activities. And it has submitted major suspects to relevant departments of the China Securities Regulatory Commission for further inspections.
Relevant person of the SSE said that the SSE, as a market organizer and a self-regulatory organization, should keep pace with the times, initiatively adapt itself to the needs of the market and investors, and accelerated the transformation of self-disciplinary regulation. Next, the SSE will, on the basis of the preliminary work of annual reports, continuously gather professional personnel for follow-up regulation on the annual report disclosure, analyze and summarize listed companies’ annual reports, and guide them to enhance the effectiveness and pertinence of information disclosure, thus laying a solid foundation for continuous improvement of the quality of their annual reports.
