The Securities and Futures Commission has urged The Stock Exchange of Hong Kong to tighten oversight of listed companies' internal controls and auditor resignations, following its latest review of the exchange's regulation of listing matters in 2024, amid ongoing concerns over corporate irregularities failing to publish financial disclosures.
The report stated that when issuers are unable to publish financial statements due to corporate or accounting irregularities, the SEHK must ensure that the issuers have fully rectified their material internal control deficiencies and implemented effective measures to comply with the Listing Rules and to safeguard their assets and interests.
The SFC recommended that the SEHK strengthen its review of issuers' internal control assessments. It also suggested that the SEHK consider requiring issuers' independent advisers to provide opinions on whether the issuers' internal control measures are adequate and effective, rather than relying on confirmations from directors who have failed to maintain proper internal controls.
In addition, hasty resignations by auditors can hinder issuers' timely release of high-quality financial information. Therefore, the SFC recommended that the SEHK update its guidance to the market to reduce instances of auditors resigning abruptly, including requiring issuers to obtain shareholders' approval when requesting auditors to resign, and encouraging issuers to engage in early discussions and clarify audit fees with auditors to prevent hasty resignations due to fee disputes.
The SFC also recommended that the SEHK enhance its scrutiny of how issuers' audit committees perform their duties, including actively managing the financial reporting and audit processes, resolving audit issues, supervising whether audits are timely and of high quality, and ensuring accurate disclosures.
Gloria Leung
