On 29 January 2021, the Stock Exchange of Hong Kong (the HKEx) published its 2020 Review of Issuers’ Annual Report Disclosure. The review focuses on (i) examining issuers’ annual reports in terms of compliance with the HKEx Main Board Listing Rules and GEM Listing Rules (the HKEx Listing Rules), issuers’ corporate conduct and issuers’ disclosure of material events and developments; and (ii) reviewing issuers’ financial statements with a focus on fostering and encouraging high standards of financial disclosure.
Broadly, the HKEx recommends and reminds issuers to:
- disclose the impact of the COVID-19 pandemic in the business review and MD&A section in order to allow shareholders to reasonably assess how the COVID-19 pandemic has affected issuers and their business prospects;
- continuously review their current liquidity positions and expected financial resource needs to allow their businesses to operate normally and urges issuers to formulate action plans to address funding needs in a timely manner and take actions to implement those plans;
- have in place appropriate internal controls and mechanisms to monitor and assist independent non-executive directors (INEDs) in overseeing continuing connected transactions;
- follow the HKEx Listing Rule disclosure requirements for all their share options and award schemes;
- perform proper analysis and exercise judgment to assess the reasonableness of key assumptions applied in impairment testing such that assumptions applied are not overly optimistic and carefully assess the impact of the COVID-19 pandemic on impairment test and update assumptions used to reflect the latest available information and evidence;
- 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. Issuers are further reminded to get sufficient and timely information from investees for measuring fair value and preparing the disclosure and not rely solely on professional valuers without exercising any judgment in assessing the reasonableness of the valuation techniques and underlying unobservable inputs.