SFC Further Standardize The Company'S Listing Audit Process

For those quasi IPO enterprises that have flaws in the listing quality and attempt to "muddle through" by means of whitewashing their performance and profit manipulation, facing the strict regulatory signals released by the SFC, they will "retreat" or their best choice.

The latest information on sponsor training received by reporters shows that unlike previous training courses, the specific issues of IPO audit process are different. The relevant responsible persons of the SFC at this meeting focused on the following three aspects: "further enhancing pparency, restricting market participants' behavior", "further strengthening supervision on audit process of accounting firms", "further strengthening supervision on whitewashing performance and profit manipulation", especially in the following aspects.

It is understood that since 2006, a total of 231 companies' IPO applications have been rejected by the SFA. In addition to the problems of continuous profitability, the "abnormal financial data and the failure to make reasonable explanations for the prospectus" is also one of the main reasons why IPO enterprises are listed on the market.

However, behind the abnormal financial data, there are always some enterprises' whitewashing achievements.

According to the above person in charge, IPO enterprises mainly embody their performance and profit manipulation in three ways.

The first is fictitious performance and fraud listing.

*ST earth is a typical representative of such companies. From 2004 to 2009, it has illegal activities such as inflated assets, false purchases, and inflated sales revenue. It is also suspected of fraudulent issuance, forgery of state organs, and other criminal acts.

By contrast, manipulating profits at the implementation level of accounting standards is more common in IPO enterprises.

One of the most commonly used manipulations is to change accounting policies and accounting estimates, which is embodied in "extending the depreciation years of fixed assets, reducing the proportion of bad debts, changing the way of income recognition", and so on.

Accounting standards allow for changes in accounting policies and accounting estimates, but the requirements are in line with the principle of caution.

Therefore, in the IPO audit process, the SFC requires the issuer not to change the accounting policy and accounting estimate arbitrarily. If the risk level after the change is higher than the average level of the listed companies in the same industry, it is considered that it does not conform to the prudence principle.

As for some IPO enterprises using accounting standards "blind spots" or new ways to implement profits and asset manipulation, regulatory authorities have made a number of financial audit standards in recent years to "block".

For example, in early 2011, the regulatory authorities found that some IPO companies increased their share prices to executives or core technicians through the way of capital raising or pfer before listing, and there was a big gap between executives' pay before and after the listing.

Based on this, the SFC conducted in-depth research on the relevant accounting standards, and finally formed a consensus on how the IPO company implemented the share payment criteria.

Since 2011, a total of 39 IPO companies have confirmed that the share payment cost is 722 million yuan, accounting for 13% of the net profit before deducting the share payment cost.

In addition, it is also one of the means for IPO to alter normal production and operation activities (deferred payment to increase cash flow, postpone advertising investment and reduce sales costs).

The regulatory authorities specifically pointed out that IPO enterprises, which have obvious signs of operation and worsened financial indicators, will be invited to pay attention to the members of the issuance examination committee in the preliminary report.

Taking a textile enterprise listed in 2010 as an example, its sales revenue and profit grew well during the reporting period, but the company had a large stock amount and a turnover rate of 1.53, far below the average level of 4.23 of the listed companies in the same industry, with an asset liability ratio of 78%, and a large number of illegal bills financing.