An overwhelming majority of accountants believe that much greater transparency in financial reporting is required from Hong Kong's listed companies.
A survey of 200 members of CPA Australia's Hong Kong-China division found 87 per cent weren't satisfied with the level of transparency, while only 25 per cent believe the level of corporate governance improved during the last year. Just 36 per cent expect ethical standards to improve over the next one year.
Some 73 per cent believe companies that enforce good corporate governance are likely to be rewarded with a higher stock market valuation and performance, and 81 per cent agree that the Hong Kong stock exchange listing rules should be statutorily enforceable.
The corporate governance committee of CPA Australia Hong Kong-China said that, based on the findings, it would submit five recommendations to Chief Executive Tung Chee-hwa on improving financial transparency and corporate accountability. They are that:
– Listed company boards contain at least three independent non-executive directors, who must pass a test to vouch for their experience and professional knowledge.
– Directors' names and remuneration be disclosed in the annual report.
– Quarterly financial reporting be introduced.
– Listed companies in financial distress be permitted to restructure to avoid minority shareholders losing their entire investment.
– Wider use of forensic accounting techniques.
“There is no doubt that sound corporate governance with greater transparency will provide more protection for the investors, business partners and the employees,'' said Patrick Yeung, chairman of the corporate governance committee.
“Every listed company has an ethical, if not legal, obligation to be more accountable to the public. If Hong Kong wants to adopt an international leadership position it must ensure that strong corporate governance standards are introduced and applied at all times and at all levels of business,'' Yeung said.
More than three-quarters of survey respondents believe that directors' names and remuneration should be disclosed and 61 per cent support quarterly financial reporting. Not surprisingly, 64 per cent endorsed the view that companies who fail to announce their results on time should be suspended from trading on the Hong Kong stock exchange. In terms of initial public offer (IPO) requirements, 53 per cent supported the recent changes in the listing rules stipulating that listing applicants must have a market capitalisation of at least HK$200 million and that public companies must have a minimum of 300 shareholders.
More than half of the respondents said companies should not be allowed to place shares at more than a 20 per cent discount to the last closing price.
“There is an overwhelming number of respondents who want to see stronger levels of corporate governance applied to listed companies, which they believe will enhance a higher stock market valuation. This will undoubtedly attract more listings to Hong Kong,'' Yeung said.
CPA Australia has a membership base of more than 8,000 professionals in Hong Kong and some 102,000 worldwide.