On 29 January 2021, The Stock Exchange of Hong Kong Limited (HKEx) published a report on the findings and recommendations from a review of listed issuers’ annual reports issued for the financial year ended between January and December 2019.
Based on its review, HKEx recommends the following:
- Listed issuers should disclose in their next annual reports (i) the effect of the Covid-19 pandemic on their operations, and the relevant risks or uncertainties that will materially affecting their future performance; (ii) quantitative measures of the financial or operational impact of the Covid-19 pandemic; (iii) assessments of the liquidity positions and working capital sufficiency with reference to their operations and capital commitments; and (iv) measures to manage the impact of the Covid-19 pandemic;
- Listed issuers should continuously review their liquidity positions and funding needs, and formulate and implement action plans to address such needs in a timely manner. Where there are material changes in the reporting items, listed issuers should develop appropriate and supportable estimates for these items, document key judgments made and consider retaining experts if necessary. They should also engage in early discussions with their auditors and agree in advance the timing, form and approach of the assessment of these estimates as early as practicable;
- Independent non-executive directors (INEDs) play an important role in providing checks and balances over the listed issuers’ corporate affairs, business operations and transactions, and in particular, in the monitoring of continuing connected transactions (CCTs). Listed issuers should have in place appropriate internal controls and mechanisms to monitor, and assist INEDs in overseeing their CCTs, and their INEDs should review the appropriateness of these internal control procedures. Listed issuers should also make reference to best practices adopted by other issuers set out in HKEx’s last year’s report;
- Listed issuers should perform proper analysis and carefully consider the impact of the Covid-19 pandemic on impairment tests and update the assumptions used to reflect the latest available information and evidence; and
- Listed issuers should develop robust disclosure on level 3 fair value measurements, in particular providing the qualitative and quantitative information to the extent necessary for an understanding of the valuation techniques and the underlying unobservable inputs.