CFIC Introduction
Original title: Hold the "audit line" and control the "internal control pass" and do a good job in the "dividend question" More than 100 inquiry letters outline the three red lines of annual report supervision
Regulators are strict and meticulous in their inquiries about the 2023 annual reports of listed companies. At present, more than 100 listed companies have received annual report inquiry letters. And judging from the current pace of disclosure, the number of inquiry functions related to the annual reports of listed companies will continue to increase in 2023.
Judging from the relevant issues raised in the current inquiry letter, compared with previous years, in addition to paying more attention to the financial health of the authenticity of performance, the regulators have refined the foothold of the annual report inquiries of listed companies this year: first, to increase the attention to the key matters involved in the audit opinion of non-standard financial reports, especially the key verification of whether the audit opinion is reasonable; Second, the impact of corporate governance defects on daily operations has attracted more and more attention; Third, the dividends of some listed companies, including abnormal proportional dividends, non-dividends and other details were highlighted. In the eyes of market participants, capital market supervision is playing a positive role.
Pursue the appropriateness of the audit opinion
The financial report has been issued with a qualified audit report and a negative internal control report for 4 consecutive years (2020 to 2023), and the business dilemma of ST Panda, the "first share of fireworks" in the past, can be imagined. Judging from the disclosed information, the matters involved in the company's situation include the microfinance business.
Specifically, in 2023, the company will continue to carry out micro-loan business. At the end of June and December 2023, the balance of micro-loans disbursed was RMB324 million and RMB348 million respectively. As of the end of 2023, the book balance of 348 million yuan of loans for impairment was 328 million yuan, the cumulative loan loss provision was 230 million yuan, the provision ratio was 70%, and the remaining 20.2 million yuan of loans were provided for loan losses of 303,000 yuan at a ratio of 1.5%.
In addition, in April 2023, the company sold a total principal of 436 million yuan of small loan claims (including 211 million yuan of overdue loans as of the end of 2022) to Kunpeng Asset Management Co., Ltd. at a 9.5% discount.
It is worth mentioning that the relevant announcement shows that in June last year, the company made it clear in response to the inquiry of the 2022 annual report that after the reorganization of the board of directors, it will successively make a series of strategic decisions to return to the main business of fireworks and withdraw from the small loan business in an orderly manner in the first quarter of 2023.
It is precisely for this reason that the inquiry letter of the annual report of the Shanghai Stock Exchange requires the company to explain the reasons for continuing to issue loans in 2023 and the main circumstances of the new loans.
In addition to the strict scrutiny of the issues raised by the audit opinion, the appropriateness of the audit opinion is another breakthrough point for the regulator to scan the financial report comprehensively.
According to previous announcements, ST Hengjiu's 2022 financial report was issued by Yongtuo Certified Public Accountants with a qualified audit report, and the internal control in 2022 was issued by Yongtuo with a negative audit report. However, the board of directors of the company issued a special statement that the impact of the matters involved in the qualified opinion in the 2022 audit report has been completely eliminated, and the audit report issued by the replaced accounting firm Su Ya Jincheng also holds the same view.
In addition, the company disclosed on the same day as the disclosure of the 2023 annual report, which requires the accounting firm to conduct a comprehensive audit of the corrected financial statements and issue a new audit report. Up to now, Suya Jincheng has not issued an audit report on the correction of the company's accounting errors.
In this regard, the Shenzhen Stock Exchange requires the company to disclose the audit procedures and audit progress that have been carried out for the correction of accounting errors, and the impact and scope of the correction of accounting errors on the beginning of 2023. At the same time, Su Yajincheng is required to explain whether the impact of the above-mentioned uncertainties has been fully considered when issuing the audit opinion of the 2023 financial report, whether there is a situation where the qualified opinion is replaced by an emphasis paragraph or cannot express an opinion, and whether the audit opinion issued is prudent and appropriate.
ST Perpetual is not alone. For example, while a company's 2023 financial report was issued a qualified opinion by the annual review agency, its 2023 internal control was issued with a standard unqualified audit opinion, and it was stated that the company maintained effective internal control over financial reporting in all material aspects. In this regard, the Exchange's inquiry letter clearly requires the relevant parties to explain whether there are any circumstances in which they have issued improper internal control audit opinions.
There is no room for error in internal governance
The increased focus on corporate governance and internal control of listed companies is a distinctive feature of this year's annual report inquiry letter.
"I cannot guarantee the truthfulness, accuracy and completeness of the financial report for the year of 2023, and I also cannot guarantee the truthfulness, accuracy and completeness of the financial report for the first quarter of 2024." At the fifth meeting of the company's sixth board of directors, Jürgen Vohringer, chairman of the board of directors of Führinger, raised the company's internal disagreements to the forefront.
In fact, not only the chairman, but also director Lu Xiao also voted against or abstained from voting on a number of board proposals. From the announcement of the board of directors resolution disclosed by the company a few days ago, it can be seen that although all 22 board resolutions were passed, 11 proposals were opposed or abstained.
For example, in the voting of the "Proposal on the 2023 President's Work Report", Chairman Fillinger's objection was that the main reason for the company's poor operating performance and rapid decline in business volume in recent years was that the president had implemented the wrong business strategy, and the company's president needed to bear the main responsibility for the poor performance of the operating performance. At the same time, the president did not put forward a clear action plan for how to get out of the current business predicament in 2024 in the work report.
Chairman Fehringer also disagrees with whether the INEDs are responsible. He believes that the independent directors of the company do not have a comprehensive understanding of the company's situation and do not have a deep understanding and analysis of the company's many problems.
Some people in the industry believe that in addition to the majority of the "unanimous" board of directors voting, the emergence of strange voices obviously conveys to the outside world that there are serious differences in the internal management of relevant companies, which need to be taken seriously by the company and truthfully disclosed after fully investigating the issues mentioned.
Compared with Chairman Fehringer's doubts about whether the INEDs are responsible, the letter issued by the INED of ST Shimao urging the company to rectify reflects the unbearable internal governance of the company.
According to the 2023 annual report, *ST Shimao's net loss attributable to the parent company in 2023 was 8.996 billion yuan, which was significantly different from the performance express report disclosed in the previous period, mainly due to the company's provision of large estimated liabilities for financing or guarantee-related contingencies. On the relevant matters, the annual audit accountant issued an audit report that could not express an opinion, and the two independent directors of the company abstained or voted against the annual report.
On the evening of May 13, the company disclosed that it had received a letter of supervision and rectification issued by the independent directors, requiring the company to strengthen and improve the internal control system. According to the relevant content of the letter, the INED's rectification opinions are very clear: on the one hand, it is recommended that the company comprehensively eliminate the company's internal control deficiencies involved in the internal control audit report as soon as possible; On the other hand, it is hoped that the company will comprehensively sort out and actively rectify the existing internal control management system, especially strengthen the risk prevention and control of key links such as capital approval and external guarantees.
It is worth noting that the par value of the company's shares has been below 1 yuan for 20 consecutive trading days, hitting the trading delisting index.
"Judging from the latest release of relevant delisting rules, more and more attention has been paid to whether the internal control is sound." A senior lawyer at AllBright Law Offices told the China Securities Journal that the previous revision of the delisting criteria was an important upgrade on the basis of the delisting reform in 2020, especially highlighting the deterrence of chaos such as internal control failure and financial fraud, and further releasing the "zero tolerance" signal.
Highly focused on abnormal dividends
Compared with previous years' annual report inquiries, another major feature of this year's annual report inquiries is the high focus on the dividends of listed companies.
It is worth noting that if listed companies want to do a good job in the "dividend issue", it is not simply "a share". When combing through the hundreds of annual report inquiry letters currently disclosed, the reporter found that some companies were also questioned even if they paid dividends, and the core point was that the dividend ratio was abnormal, which did not match the company's daily operation.
The 2023 annual report disclosed that ST Hengjiu intends to distribute a cash dividend of 0.2 yuan (tax included) to all shareholders for every 10 shares, with a total cash dividend of 5.376 million yuan. The total cash dividends accounted for 59.88% of the undistributed profit of the parent company at the end of 2023 and 121.36% of the undistributed profit in the consolidated statements. However, the company's fundamentals are generally worrisome, with net profit having been in the red for many years, and the cash-to-maturity debt ratio in 2023 is -12.62, and the cash flow interest coverage ratio is -4.87.
It is worth mentioning that from the perspective of equity structure, Yu Rongqing, the controlling shareholder of ST Hengjiu, and its concerted actors Lan Shanying, Yu Zhongqing and Suzhou Hengjiu Rongsheng Technology Investment Co., Ltd. hold a total of about 45.53% of the shares, and are expected to receive a total cash dividend of about 2.4477 million yuan in this cash dividend. In other words, there may be a transfer of benefits to the relevant core shareholders in this dividend.
"The dividend is to better reward the majority of small and medium-sized shareholders, improve investor confidence, and further promote the healthy operation of the company. However, if you try to convey benefits through dividends, this is obviously contrary to the regulatory guidance and will eventually form a backlash against the company. Wang Shiyu, a senior investment banker, told reporters.
It is worth noting that although the issue of dividends occurs from time to time, on the whole, with the continuous improvement of the cash dividend mechanism, it has become the consensus of all participants in the market to return investors through cash dividends, and the dividend level of A-share listed companies is gradually increasing.
According to the data disclosed by the Shanghai Stock Exchange, in 2023, the scale of cash dividends of companies on the main board of the Shanghai Stock Exchange will reach a new high, with a total of 1,290 companies announcing dividend plans, with a total annual cumulative dividend of 1.7 trillion yuan, an average dividend ratio of 40.22%, and a dividend yield of 3.74%. In terms of the Science and Technology Innovation Board, about 70% of the companies on the Science and Technology Innovation Board have launched cash dividend plans for 2023, with a total annual cumulative dividend of 42.47 billion yuan, more than 300 companies with a cash dividend ratio of more than 30%, and 10 companies with an annual cumulative dividend amount of more than 500 million yuan.
According to data from the Shenzhen Stock Exchange, a total of 1,956 Shenzhen-listed companies will launch dividend plans in 2023, accounting for 90.47% of all profits; Five companies paid out more than 10 billion yuan, namely CATL, Midea Group, Wuliangye, Ping An Bank and Gree Electric Appliances, demonstrating the profitability and return awareness of leading companies. 82 companies paid out more than 1 billion yuan, and 894 companies paid out cash for five consecutive years.
Source of this article: China Securities Journal
Reporter: Qiao Xiang
WeChat editor: Guan Qiao
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