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Jan 23 Legal Update

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HKEX review: annual reports disclosure

HKEX published a report on its review of issuers’ annual reports for 2021 year-end.  (Announcement; full report)

HKEX followed a “thematic approach” in its review, selecting a number of specific areas for review. The review also assessed issuers’ compliance with annual report disclosure requirements and specific accounting standards in financial statements. A high level of compliance was generally noted.

Detailed coverage of findings relating to technical accounting standards (Section V of report) is outside our scope. We summarised below those areas which might affect more issuers generally. HKEX recommendations to directors are also highlighted.

What you should know:

Financial reporting and related controls

  • Asset valuation remained a major issue
  • Directors should establish and maintain proper risk management and internal controls, and deploy adequate resources to maintain them
  • Should critically assess management’s accounting estimates and challenge the reasonableness of assumptions

Material lending transactions

  • (Lending transactions) directors should critically assess the commercial rationale, whether terms are fair and reasonable, use of funds is in the interests of the issuer and its shareholders
  • (Issuers in money lending business) maintain effective risk management and internal control systems to assess/manage credit risk exposure; monitor recoverability of loans/adequacy of collaterals
  • Disclosure: follow HKEX recommendations in last year’s report; some common omissions (P.11, para 43)

Financial statement disclosure under accounting standards

  • Key areas: e.g. judgment and estimates, material intangible assets and fair value measurements
  • In light of the current economic uncertainty and market volatility, issuers and audit committees should maintain a close dialogue with auditors and take prompt actions to address their concerns

Annual report disclosure

  • HKEX reminds issuers that acquisitions of wealth management products are subject to “notifiable transactions” rules (See FAQ 057-2019)

What you should do:

  • Update the Board and Audit Committee, including HKEX’s recommended actions to be taken by them
  • Your forthcoming annual reports/financial statement disclosure — consider HKEX recommendations



Also in this issue


(i) Companies (Amendment) Ordinance 2023 (“Amendment Ordinance”) will come into operation on 28 April 2023. (Companies Registry External Circular, Guidance Note, dedicated webpage).

As noted in our Nov/Dec 22 legal update, the Amendment Ordinance aims to provide sufficient flexibility for companies to hold general meetings in various manners. It expressly enables companies holding general meetings virtually or in hybrid mode, rather than holding meetings only at physical locations.

(a) The Companies Registry External Circular summarises the technical changes (the Annex). These include new requirements in the notice of meetings specifying (where applicable) the virtual meeting technology to be used.

(b) The Guidance Note sets out general information (including extracts of the provisions) and good practices on the holding of virtual or hybrid general meetings. E.g. detailed information for shareholders like pre-registration and verification.

Companies are also advised to review their articles to see if a virtual or hybrid general meeting is permissible.

A list of factors that companies might considering in choosing the mode of meetings is set out. (P.14, para 5.7)

What you should do:

  • (For HK-incorporated companies) Review your articles to see if virtual/hybrid meetings is allowed; consider amending the articles for more flexibility
  • Update the board; take the Amendment Ordinance into consideration in planning your 2023 AGM

(ii) The Competition Commission published a revised set of model “Non-collusion Clauses” for procurers to incorporate in their invitation to bid documents and contracts. (Press release; model clauses)

The revised clauses require bidders to disclose information on their beneficial ownership.

Bid-rigging, market sharing and price fixing are serious anti-competitive conduct under the Competition Ordinance. These may occur in any procurement process.

While not necessarily a contravention of the Competition Ordinance, concealed common ownership links among bidders gives a misleading impression of the level of competition in a bidding process.

Where companies disclose common ownership links, procurers will need to decide how to respond based on their procurement policy.

This Update in PDF