Q: Please advise whether the word ‘audited’ has to be added in the preliminary annual results announcement of a company listed on the Hong Kong Stock Exchange to reflect that such results have been audited by the company’s independent auditors.

A: There is no rule in the Main Board or the GEM Listing Rules, requiring a listed company to include in the preliminary announcement of its results for each financial year a statement as to whether or not the annual results have been audited by the external auditors. Instead, Rule 45 of Appendix 16 to the Main Board Listing Rules and Rule 18.49 of Chapter 18 of the GEM Listing Rules require a listed issuer to publish a preliminary announcement of the results for the financial year, which has been agreed with its auditors.

Moreover, Rule 45.1 of Appendix 16 to the Main Board Listing Rules and the Note to Rule 18.50(1) of Chapter 18 of the GEM Listing Rules also provide that ‘the financial information included in the preliminary results announcement must have been agreed with the auditors’. Further, Rule 13.49(2) of the Main Board Listing Rules echoes that ‘the preliminary announcement shall be based on the issuer’s financial statements for the financial year, which shall have been agreed with the auditors’, though the GEM Listing Rules do not have the counterpart.

If the above has been covered by the independent auditors in their factual findings in the preliminary results announcement, it is not mandatorily required by the Main Board or the GEM Listing Rules to include the work done by the independent auditors in the subject announcement. However, if the word ‘audited’ is not included in the preliminary results announcement to reflect that the results have been audited by the independent auditors, it is suggested to state therein: ‘The preliminary results announcement is based on the company’s financial statements for the year ended (say) 31 May 2015, which have been agreed with the company’s independent auditors, ABC Ltd, Certified Public Accountants, Hong Kong’.

Alternatively, it is strongly suggested that the preliminary annual results announcement should include a caveat indicating that the figures in the preliminary results announcement were compared and agreed by the company’s independent auditors to those amounts set out in the group’s relevant audited financial statements, but that work did not constitute an audit, review or other assurance engagement in accordance with the Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants, and consequently no assurance has been expressed by the independent auditors in the announcement.

In fact, Rule 45A.1 of Appendix 16 to the Main Board Listing Rules and Note to Rule 18.50A of Chapter 18 of the GEM Listing Rules stipulate that: ‘The Exchange does not expect there to be any material or substantial difference between the information contained in the listed issuer’s preliminary announcement of results and that contained in its audited results’. These Rules require that ‘where, in exceptional circumstances, it becomes necessary to revise the information contained in the listed issuer’s preliminary announcement of results in the light of developments arising between the date of publication of the announcement and the completion of the audit, the listed issuer must immediately notify the Exchange and publish an announcement… to inform the public’.

From my past 20 years’ experience as the in-house company secretary of a number of reputable companies listed on the Exchange and elsewhere, it appears that the Exchange has, so far, not considered the omission by any listed issuer in its preliminary results announcement of the description that the annual results of the company and its subsidiaries have been audited by its independent auditors as noncompliance with, or a breach of, any provision of the Main Board or the GEM Listing Rules. Neither has the Exchange required listed companies to issue any clarification announcement to that effect. The Exchange may remind the listed company by phone to include the above description in future annual results announcements after the announcement (with such omission) has been published. However, for the sake of clarity and prudence (lest the Exchange changes its approach), listed companies are urged to make such description, or take either of my suggestions above, in their annual results announcements. Certainly, the independent auditors may be consulted in this regard.

Seaman Kwok

Head, Corporate Secretarial, Boardroom Corporate Services (HK) Ltd; and Director, Boardroom Share Registrars (HK) Ltd; 31/F, 148 Electric Road, North Point, Hong Kong; tel: (852) 2504 6911; e-mail: seaman.kwok@ boardroomlimited.com.

 

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