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HK to require clean audit opinions

Here is a guest post from a reader about an important change in the acceptance of qualified and disclaimer audit opinions.  US exchanges do not accept these opinions and I have only seen them in textbooks, never in the wild.  I understand thay have been accepted in Hong Kong, and the change is appropriate. 

Charles Dery, CFA +1 (438) 558-5498 charles_dery@lyrainsight.com www.lyrainsight.com Twitter:@Lyra_Insight

IMPACT ANALYSIS OF PROPOSED 13.50A RULE

(09/28/18)

INTRODUCTION

In this article, we summarize in a few bullet points HKSE’s consultation paper on new 13.50A rule – which will suspend trading on companies with weak internal control/fraudsters leading to auditor disclaimer or adverse of opinion.

Full paper here (25 pages): https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/September-2018-Adverse-Audit-Opinion/Consultation-Paper/cp201809.pdf?la=en

13.50A RULE– SOURCE: HKSE

“The Exchange will normally require suspension of trading in an issuer’s securities if it publishes a preliminary results announcement for a financial year as required under rules 13.49(1) and (2) and the auditor has issued, or has indicated that it will issue, a disclaimer of opinion or an adverse opinion on the issuer’s financial statements. The suspension will normally remain in force until the issuer has addressed the issues giving rise to the disclaimer or adverse opinion, provided comfort that a disclaimer or adverse opinion in respect of such issues would no longer be required, and disclosed sufficient information to enable investors to make an informed assessment of its financial positions.”

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