Financial fraud is the top priority of the CSRC's strict supervision. The discrepancy between the performance forecast and the actual report is too large, which is also the focus of regulatory attention.
As the deadline for disclosure of the 2023 annual report approaches, more and more companies are "patching" their earnings forecasts. Wind data shows that as of April 18, at least 34 listed companies have issued 2023 performance forecast revision announcements in the past month, with a total of 38 during the year.
The 21st Century Business Herald reporter combed through the performance forecast revision announcement and found that ninety percent of them lowered their performance expectations, nearly half of the companies adjusted their losses, and two companies made profits for the first time, and turned into losses after the revised announcement.
According to the analysis of the interviewees, there are various factors for listed companies to reduce their performance expectations. Among them, the most common reason is that the listed company and the accounting firm (hereinafter referred to as the "accounting firm") cannot reach an agreement on the revenue recognition and calculation method of certain items. If the accounting firm insists on its own opinion, the listed company can only follow the opinion of the accounting firm in order to be able to publish the annual report smoothly, and if the performance forecast of the listed company is too different from the actual annual report, it is likely to incur regulatory penalties. Therefore, rushing to "patch" the performance forecast before the disclosure of the annual report has become the self-help choice of some listed companies.
Listed companies preview intensive "patching"
Severely punishing financial fraud and other market chaos, and "zero tolerance" to crack down on violations of laws and regulations in the capital market have become one of the priorities of the CSRC since last year, and the number of penalties related to financial fraud has gradually increased.
The new "National Nine Articles" and supporting policies released a few days ago have once again lowered the trigger threshold for financial fraud.
Affected by this, the number of listed companies that dare to commit fraud has decreased significantly, and the number of accounting firms that dare to cover up listed companies to beautify their financial data is even fewer. According to the analysis of the interviewees, when the performance forecast of a listed company is beautified, it has become a more rational remedial measure to issue a revised announcement of the performance forecast before the official annual report is disclosed.
As the deadline for disclosure of 2023 annual reports approaches, the number of listed companies that have made revisions to their earnings forecasts has increased significantly.
Wind data shows that as of April 18, 38 listed companies have adjusted their annual performance forecasts during the year. Among them, the first earnings forecast revision was released on March 8, and the number of listed companies that revised their earnings forecasts since March 19 has accelerated, with at least 34 listed companies "patching" their earnings forecasts in just one month from March 19 to April 18. On April 9 and April 16, the number of "patched" listed companies increased twice. From April 16th to April 18th, 7 listed companies revised their performance forecast announcements, with an average of more than 2 per day.
Looking at the 38 listed companies that revised their performance forecasts, we can find a number of characteristics.
First of all, except for 4 companies that raised their performance, the rest were all downwards, accounting for 89.47%. Among them, the net profit of the two listed companies of Zhonghuan Hailu and Mercedes-Benz Information fell by about 90% when they first released the performance forecast, but there were still millions of profits; when they released the performance revision, the profits were about 25 million yuan - 34 million yuan and 35 million yuan - 40 million yuan respectively, a year-on-year decline of 162.98% - 185.65% and 128.58% - 132.66%, which is also the first time that the two have suffered losses.
According to the analysis of the interviewees, the first loss of listed companies' performance often has a greater impact on their stock prices than those whose profits have been lowered but have maintained positive values and continuous losses. Therefore, the adjustment of the performance forecast that was originally positive to a loss has a great impact on the listed company.
The interviewee also said that in addition to the adjusted profit from positive to loss, if the performance change before and after the correction is too large, the impact on the stock price is also greater, and in this case, if the correction is not made in time, it is likely to incur regulatory penalties.
For example, Lingda shares, its 2023 annual performance forecast disclosed on January 30 shows that the net profit loss is about 19 million yuan - 38 million yuan, a decrease of 12% - 124%, and the performance revision announcement disclosed on April 10 will expand the loss to 249 million yuan - 298 million yuan, a year-on-year decline of 1370% - 1660%.
Second, compared with those with positive profits, the probability of losing money revising their performance forecasts is higher; nearly half of the listed companies that adjusted their performance forecasts as of April 18 have lost money; and from the perspective of all listed companies, the proportion of profit losers is much smaller.
In addition, compared with the year-on-year increase in profits, the proportion of listed companies with year-on-year declines in profits is higher, and among the 38 listed companies that adjusted their performance forecasts, 21 have experienced a year-on-year decline in performance, accounting for nearly 60%.
The hidden thing behind the earnings report
There may be hidden items behind the financial reports of listed companies. Tian Lihui, vice president of Guangxi University and dean of the Institute of Financial Development of Nankai University, believes that hidden items can be carried out through various statement whitewashing and accounting manipulation methods such as early recognition of income, fraud of R&D expenditures, and fictitious profits. These problems may be manifested in improper revenue recognition and measurement, incorrect classification of financial assets, imprudent asset impairment estimates, and unreasonable judgment of the scope of consolidated statements. All of these practices can lead investors to misjudge the true state of the company's operations.
With the repeated strengthening of regulatory penalties for financial fraud and audit violations of accounting firms by listed companies, if there are problems in the early disclosure of performance forecasts by listed companies, it has become a rational choice to revise their results before the release of annual reports.
In Tian Lihui's view, macroeconomic changes, intensified competition in the industry, adjustments in the company's business strategy, and emergencies are all relevant factors.
A partner of a well-known accounting firm told the 21st Century Business Herald reporter that the revision of the performance forecast cannot simply be called an "abnormal phenomenon", but in most cases it can be avoided. Theoretically, before disclosing the performance forecast for the first time, the listed company should fully communicate with the accounting firm and reach an agreement before disclosing the report. If the communication in the early stage is not smooth, it is easy to lead to the forced revision of the performance close to the disclosure date of the annual report.
Specifically, the reasons for the revision of the performance forecast include: first, the financial personnel of the listed company are negligent or have limited ability, resulting in improper calculation methods for individual items, which are later corrected after being audited by the accounting firm. However, listed companies have already received relatively strict training at the IPO stage, and the financial leaders hired by them generally have senior professional titles, so it is theoretically unlikely that unintentional errors will occur.
Second, when the performance forecast was disclosed for the first time, the listed company and the accounting firm could not reach an agreement on a single major project, and the way the project was handled had a great impact on the financial data of the listed company. In this case, the listed company may first disclose the earnings forecast according to its own ideas, and then continue to communicate with the accounting firm in an effort to convince the accounting firm before the disclosure of the annual report. If the disclosure of the annual report is imminent but the accounting firm cannot be persuaded for a long time, the listed company will continue to insist on its own opinion, which will lead to the failure of the annual report to be disclosed as scheduled, and then another announcement will be issued to "patch" the performance forecast.
In addition, when the performance forecast was released, the listed company reached an agreement with the auditors of the accounting firm, but there were doubts about the handling of individual items, and they were later required to make corrections when they were reviewed by the quality control personnel of the accounting firm and the relevant managers.
It is worth noting that since the performance of listed companies is sometimes linked to the interests of investment banks, investment banks may "make suggestions" for listed companies. Typical situations include: listed companies planning private placements, mergers and acquisitions, etc., need to make good results, listed companies to complete new projects in a short time, investment banks may be fined if the proportion of performance decline is too large, and listed companies have signed VAM agreements or are in the shell stage.
For more information, please download the 21 Finance APP