Hong Kong watch list of mainland firms grow

PUBLISHED : Thursday, 12 April, 2012, 12:00am
UPDATED : Thursday, 12 April, 2012, 12:00am

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Hong Kong regulators are monitoring an increasing number of irregularities at small to medium-sized mainland firms listed in the city.

Sophia Kao, the chairman of the Financial Reporting Council (FRC), said yesterday the accounting regulator had placed 13 Hong Kong-listed firms on a watch list in the past two months.

Kao did not name any company but said that most of them were small and medium-sized enterprises (SMEs) based on the mainland.

'If you ask me whether it is unusual [to see so many mainland SMEs in suspected accounting problems], my answer is yes,' she said.

She said the 13 were targeted after collating information from various sources including the media.

'One of the key points is to see how auditing firms hired by those IPO-ready companies can do a better job checking the books before the companies go public,' Kao said, adding it was not the FRC's role to regulate accounting matters before a company made an initial public offering. 'I understand the competition among many auditing firms for those IPO deals is pretty high nowadays; however, it doesn't mean you can just relax a bit in terms of accounting standards.'

During the corporate earnings season that ended last month, several firms surprised investors with the news that they were delaying their results announcements or that their auditors had resigned.

Some of the companies, such as fashion clothing maker Ports Design and Daqing Dairy, are household names on the mainland and were widely believed to have been adhering to good business practices.

Kao said the FRC was working with other agencies including the Hong Kong stock exchange and Securities and Futures Commission in the investigation and would refer the cases to the Hong Kong Institute of Certified Public Accountants for further inspection if needed.

'The problem we have now is many of the 13 listed companies have delayed issuing their financial results, so we can't start our work,' she said. 'But I believe other regulators should have already begun.'

The FRC will this year focus its investigations on the forestry and agriculture industries, following accounting scandals linked to the two sectors last year.

The FRC was established in 2006 by the government to review and investigate the financial reporting of Hong Kong-listed companies to protect public investors' interests.