HKEx in no rush to tighten rules
The city's stock exchange is resisting pressure to strengthen corporate governance rules despite a recent slew of auditors resigning from Hong Kong-listed firms.
Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing (HKEx), said HKEx would not rush to enact new rules on corporate governance simply because of that.
But the exchange would review its rules occasionally to ensure they keep pace with market developments, Li said.
Daqing Dairy is the latest in a series of Hong Kong-listed firms whose auditor has resigned.
The mainland dairy firm's stock was suspended yesterday, pending an announcement on the resignation of Deloitte Touche Tohmatsu, its auditor.
Daqing shares have fallen by 21.1 per cent from HK$2.13 on March 13 to HK$1.68 yesterday. Deloitte, one of the 'Big Four' accounting firms, quit as auditor of another Hong Kong-listed firm, Boshiwa International, on March 13. The mainland retailer of children's garments and shoes said Deloitte was dissatisfied with certain information and explanations it had provided.
In a subsequent announcement, Boshiwa publicised a portion of Deloitte's resignation letter, which expressed concern over 392 million yuan (HK$480 million) of prepayments to a supplier.
Boshiwa shares have plunged 36.1 per cent from HK$2.63 on March 13 to HK$1.68 on March 15. The stock has been suspended since March 15.
On January 5 this year, accounting firm KPMG quit as auditor of China Forestry. On that day, the mainland forestry firm published extracts of KPMG's resignation letter, where KPMG said it had issued a 'disclaimer of opinion' on China Forestry's 2010 financial statements because of irregularities which 'cast serious doubt over the authenticity and reliability' of the firm's documents.
Corporate governance activist David Webb has criticised the common practise among Hong Kong-listed firms of publicising only part of their auditor's resignation letters. In contrast, United States-listed firms usually to publish the entire letter of their auditors' resignation, according to Webb.
'It would be better to change the listing rules to require Hong Kong-listed companies to publish the full letter when the auditor resigns,' Webb said. 'Auditors are supposed to be independent of company management, and their reasons for resignation should be fully given to shareholders and not be filtered by management.'
Under Hong Kong listing rules, whenever the auditor resigns from a listed company, the firm must announce it as soon as possible.
A HKEx spokesman said the exchange does not comment on individual companies. 'We have recently strengthened our rules on corporate governance.'
On January 1, HKEx toughened its rule on directors' duties. It now requires directors to take an active interest in the listed firm's affairs, have a general understanding of its business, and follow up on anything untoward that comes to their attention.
Delegating their functions will not absolve them of their responsibilities, according to the new rules.
Also on January 1, HKEx introduced a new rule to require shareholders' approval at a general meeting of any proposal to appoint or remove an auditor before the auditor's term ends.
Michael Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies, played down the recent spate of auditor resignations. 'It's individual companies and how they treat their relations with their auditors,' he said.