In order to ensure the truthfulness, accuracy, completeness and timeliness of the annual financial reports of 2008 (hereinafter referred to as the annual reports of 2008) to be published by listed companies, and maintain the principle of “equality, fairness and openness” as well as improve the quality of information disclosure by listed companies, all listed companies and relevant accounting firms should be earnest in compilation, audit and disclosure of the annual reports of 2008 in accordance with requirements in the announcement. It hereby announces relevant issues as follows:

 

I. Overall requirements

Listed companies should properly disclose the annual reports of 2008 according to requirements for regulation of information disclosure including the “Standards Concerning the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No.2 — Contents and Formats of Annual Reports” (the “Report Standards” for short, revised in 2007) (Zheng Jian Gong Si Zi [2007] No.212).

Listed companies should honestly and fairly reflect their financial status, business results and cash flow by strictly executing the accounting standard for business enterprises and relevant regulations, so as to fulfill the compilation of the financial report of 2008.

The accounting firms qualified for securities and futures businesses should properly audit the annual reports of 2008 by earnestly studying and implementing the “Practice Norms for Certified Public Accountants of China” as well as relevant regulations of the CSRC.

 

II. Enhance the regulated operation and ensure the truthfulness, accuracy, completeness and timeliness of information disclosure

Listed companies should continuously act up to requirements in the “Circular on Properly Handling the 2007 Annual Reports of Listed Companies and Related Work” (Zheng Jian Gong Si Zi [2007] No.235) and lay stress on the following aspects in the annual reports of 2008:

(I) Strengthen the supervision over users of outer information of listed companies

Listed companies should strengthen the management of submission and use of outer information. They should reject those requirements without legal basis for submitting annual statistics statements of outer units. When they need to submit the statements as required by laws and regulations, listed companies should register relevant personnel of outer units in charge of submission as persons in the know for reference. Listed companies should take relevant information to be submitted as insider information and remind relevant personnel of outer units in charge of submission to fulfill the obligation of confidentiality in written way.

(II) Reinforce the duties of independent directors so as to bring their independence into full play in the work for annual reports of listed companies

Independent director (ID) should timely hear the management’s reports on the company’s significant events such as production and operation, investment and financing in current year, and require the company to arrange on-the-spot inspections concerning relevant significant issues.

Before the accounting firm of annual audit’s access, ID should communicate with the certified public accountant (CPA) of annual audit about members of the audit team, the audit plan, risk judgment, test and appraisal methods of risk and fraudulence, and the key audit point of current year; ID should hear the CFO’s reports on the company’s financial status and business results of current year.

Before the directorate meeting is held to discuss the annual report, ID should have a vis-à-vis communication with the CPA of annual audit on the preliminary opinion; ID should examine the procedures, essential documents for the directorate meeting and the adequacy of materials and information for making a rational and accurate resolution. Providing it does not comply with relevant regulations to hold the directorate meeting or the judgment basis is insufficient, ID should propose to make supplementation, rectification and postpone the directorate meeting. If rejected, ID could refuse to attend the directorate meeting and require the company to disclose the fact and reason why ID is absent from the meeting, which should be disclosed in the announcement on directorate resolutions.

ID should be highly concerned about the changed engagement of accounting firms by listed companies during the annual audit. Once things like that happen, ID should air his/her views and report to the securities regulatory bureau of registration place and the stock exchange in time.

All the above communication, opinions and proposal should be recorded in written form and signed by the persons involved.

(III) Give full play to the Audit Committee’s supervision over relevant work in annual reports

The Audit Committee (AC) of listed companies should establish the essential “Rules of Procedures for the Work of Annual Report of AC” (the “Work Rules” for short) and disclose it in the annual report. The AC should properly handle the communication and coordination with the accounting firm of annual audit in accordance with the “Work Rules”.
 
The AC must focus on the altered engagement of accounting firm by listed company during the audit of annual report. In principle, the listed company cannot change to engage another accounting firm for annual audit during the audit of annual report. If the change is needed indeed, the AC should make an appointment with the accounting firm planned to be engaged as an auditor and its predecessor to make a rational appraisal on the two parties’ practice quality and air its views upon making judgment on the ampleness of reasons to change the engagement. After the change is resolved at the directorate meeting, a Shareholders’ Meeting would be convened to make a resolution, and the accounting firm to be replaced would be notified of attendance to state its opinions at the meeting. Listed companies should disclose the resolution of the Shareholders’ Meeting and the opinions of the changed accounting firm soundly.

When renewing the engagement of the accounting firm of annual audit for next year, the AC should make a comprehensive and objective appraisal on the accountant in charge of annual audit in terms of the audit fulfillment in current year and the practice quality. If the AC makes a positive comment, it should submit the renewal to the directorate meeting for approval and convene the Shareholders’ Meeting for a resolution, while contrariwise, it should change to engage another accounting firm.

When changing to engage the accounting firm of annual audit for next year, the AC should have an all-round understanding and make an appropriate assessment of the accounting firm plan to be engaged as an auditor and its predecessor through vis-à-vis communication, and submit the conclusion to the directorate meeting for a resolution and convene the Shareholders’ Meeting for discussion.

The above communication, assessment and suggestion of the AC should be put down in writing and signed by the persons concerned, and be reported to the securities regulatory bureau of the company’s registration place within three working days since disclosure of resolutions of the Shareholders’ Meeting.

(IV) Focus on disclosure requirements for significant events

In accordance with requirements in the “Report Standards”, listed companies should fully disclose the establishment and improvement of the internal control mechanism in the annual reports of 2008, disclose their special corporate governance activities in 2008 and summarize relevant significant developments since the special corporate governance activities in 2007 were carried out.
Listed companies should disclose the non-operational capital occupation by controlling shareholder and its related parties during the reporting period and the repayment in the “Significant Events” in the annual report, and disclose the special remarks on the capital occupation made by the accounting firm of annual audit.

Listed companies should disclose the implementation, introduction and termination of the equity incentive plan during the reporting period and its influence on the business achievements and financial status according to requirements in the “Report Standards”.

Listed companies should draw up and disclose the annual profit distribution scheme or the scheme of capitalization from capital public reserve according to relevant regulations in the “Decisions on Amending Some Provisions on Cash Dividends by Listed Companies” (Zheng Jian Hui Ling No.57).

Listed companies should fully and objectively disclose the impact of the macro-economic changes, analyzing in the “Management’s Discussion and Analysis” in the “Directorate’s Report” how their financial status and business results in current year and the future, as well as the profit prediction and relevant commitments once made, are/will be influenced by changes in the domestic and overseas market, adjustments to the credit policies, fluctuations in exchange rates and interest rates, changes in prices of cost elements, natural disasters and so forth.

Listed companies should adhere to the principle of prudence and make rational use of accounting policies and accounting estimation. Regulatory authorities will pay close attention to and investigate and punish companies committing false statement, misleading statement and major omission due to abuse of accounting policies and accounting estimation by adopting timely and operative regulatory measures, stepping up the inspection into and the accountability of companies whose performance sees sharp fluctuations or “great purge” resulting from irrational and imprudent use of accounting policies and accounting estimation.

 

III. Ensure the disclosure quality of financial information in capital market by precisely executing the accounting standard for business enterprises and regulations on disclosure standards for financial information

Listed companies should properly compile and disclose financial reports of 2008 by strictly implementing the accounting standard for business enterprises as well as the disclosure standard for financial information, and paying attention to the following aspects:

(I) Do a good job in accounting and information disclosure related to measurement of fair value

Companies should adhere to the principle of prudence to employ appropriate methods to rationally confirm the fair value within the scope regulated by the accounting standard for business enterprises under the precondition that the fair value can be measured reliably. If the fair value is confirmed by evaluation technique, the rationality of evaluation mode and calculation parameters should be focused. The selection basis of evaluation mould and major parameters, the evaluation process, as well as the necessary sensitivity analysis should be disclosed in the footnote in detail.
 
Companies should disclose the internal control system related to the measurement of fair value in “Management’s Discussion and Analysis” and disclose relevant figures referring to the format of Table I in the attachment of the announcement.

(II) Confirm and measure financial instruments properly and reasonably and make sound information disclosure

Companies should establish and improve the decision-making mechanism, business procedures and internal control system related to the accounting calculation and information disclosure of financial instruments, and attach importance to the depreciation in financial assets in the sluggish market and the accounting calculation of derivative financial instruments. Companies should disclose the financial assets of foreign currencies held by them in “Management’s Discussion and Analysis” referring to the format of Table II in the attachment of the announcement, while making a clear statement if nil.

(III) Comprehend the meaning of “Control” accurately, and rationally confirm the category of enterprise consolidation and the scope of consolidated financial statements

Companies should pay special attention to how the proportion of voting rights in their invested units will play a part in the controlling right, and judge whether they possess the power to decide the financial and business policies of the invested units by taking an integrated account of elements of the very units, such as the equity structure, the directorate composition, the decision about daily management and characteristics of their industries, and thereupon rationally confirm the category of enterprise consolidation and the scope of consolidated financial statements. Companies should soundly disclose relevant evidence for controlling rights when taking invested units, in which their shareholding proportion is below 50%, into the range of consolidated statement, and contrariwise, they should soundly disclose related grounds why the controlling rights are unavailable when the invested units, in which their shareholding proportion is above 50%, are not taken into the range of consolidated statement.

(IV) Pay close attention to the economic nature of special transactions between related parties and make sound information disclosure

Companies should pay close attention to the economic nature of direct or indirect donation to them by their controlling shareholder, other related parties controlled by the controlling shareholder, and their actual controller, etc. (including direct donation of cash or physical assets, direct exemption from debts or the payment of debts for them). If the economic nature of the deal shows that it is an investment of capital in listed companies by their controlling shareholder, other related parties controlled by the controlling shareholder, or their actual controller, the deal should be regarded as an equity transaction in the principle of “Substance over Form” in the accounting standard for business enterprises, and the income should be taken into owners’ equity (capital reserve).

(V) Disclose the discrepancy between domestic and overseas accounting correctly

Companies, who simultaneously offer securities internally and overseas, should compile the table of discrepancy adjustments to net assets and net profit under the domestic and overseas accounting standards, giving remarks on the discrepancy reasons and amounts one by one. As for major items of discrepancy, they should add necessary footnote on the reason for discrepancy as well as regulations on domestic and overseas accounting standards involved, etc. in the table of discrepancy adjustments.
 
As to transactions and events never concerned before and newly occurred in 2008, companies should confirm, measure and report them in the domestic and overseas financial reports by adopting the same accounting policies. The management of the identical company cannot make different accounting estimation and recognition on the same transaction and event in the financial reports of the same year disclosed internally and overseas.

(VI) Comprehend, demarcate and disclose the extraordinary profit and loss accurately

Combining with their actual states and features of specific economic businesses, companies should comprehend and demarcate items of extraordinary profit and loss accurately according to regulations in the “Explanation Announcement on Information Disclosure by Companies Offering Securities to the Public No.1 — Extraordinary Profit and Loss (2008)” (CSRC Announcement [2008] No.43) and the definition of extraordinary profit and loss by contrasting the listed items of extraordinary profit and loss, and add necessary footnotes on major items of extraordinary profit and loss.

 

IV. Properly audit the annual reports of 2008 of listed companies and standardize the practice of accounting firms

Relevant accounting firms should lay stress on the following dimensions in auditing the annual reports of 2008:
(I) Reinforce the internal management and enhance the audit for securities business

All accounting firms should reinforce the internal quality control and place more importance on audit for securities business by selecting partners (Chief/Assistant Chief Accountants) and business managers with good professional ethics, prominent business capability while being rich in experience and familiar with the capital market in the firms to undertake the audit business for listed companies.

(II) Establish a sound mechanism to maintain close communication with the securities regulatory bureau

All accounting firms should properly arrange to audit the annual reports of 2008 and be earnest in the audit plan. They should submit the overall audit strategy and the specific audit plan to the securities regulatory bureau of business place according to regulations, including the selection of team members, the assessment conclusion of engagement and contract renewal, the focus issues, procedures for appraising risk and fraudulence and the audit period, etc. If there is significant adjustment to the audit plan during the audit, they must inform the securities regulatory bureau of business place so as to timely update the audit plan already put on file.

After annual reports of the audited units are disclosed, all accounting firms should submit the audit summary about focus issues and the management letter, etc. to the securities regulatory bureau of business place within prescribed period. As required by the “Listing Rules”, the accounting firm and CPA need to issue special remarks when they issue the non-standard unqualified opinion on the financial report of a listed company. In addition, if they find that a listed company is suspected of fraudulence or other illegal behavior, they need to report to the securities regulatory bureau of business place in time in the “Letter to regulatory authority”.

When a listed company engages and changes the engagement of an accounting firm, both accounting firms of predecessor and successor should respectively make a report to the securities regulatory bureau of business place. In addition, the predecessor CPA ought to issue remarks on the following issues and submit them to the securities regulatory bureau for record-keeping: major reasons for the company to change the accounting firm, whether found a lack of good faith in the company’s management, the disagreement with the company’s management on significant accounting and audit issues, etc., clues to the management’s suspicion of fraudulence and illegal behavior, as well as the major defects in the terms of internal control found in the process of audit. The successor CPA should make written remarks to the securities regulatory bureau concerning business undertaking, the risk assessment, the main risks recognized and the communication with the predecessor, etc.

All accounting firms should file the communications with ID, the AC and the securities regulatory bureau, the conference contents and the meeting minutes signed by all parties on the original audit manuscript.

(III) Intensify the awareness of risk and pay close attention to exposures of listed companies

All accounting firms should precisely follow the risk-oriented audit concept in the process of auditing the annual reports by soundly understanding the audited units and the environment and prudently assessing the major risk of false statement, and integrate risk assessment with the internal control testing and substantial testing procedures. All accounting firms should take the risk of financial fraud caused by assets occupation, business failure and equity incentive, etc. into full account, pay attention to the internal control procedures for important links such as abnormal capital flow, authorization & seal management and online-bank as well as major decisions on outward mortgaged guarantee, investment in financial derivatives and connected transaction, and integrate the control testing with substantial testing procedures.

(IV) Practice prudently by auditing the key fields properly and fulfilling adequate auditing procedures

Combing with the sharp fluctuation in the capital market in 2008, all accounting firms ought to pay special attention to key fields in the process of auditing the annual reports, such as fair value, provision for assets impairment, enterprise consolidation, debts reorganization, non-monetary transaction, equity incentive, capitalization of development costs, classification of financial instruments, abnormal connected transaction, illegal outward guarantee, fund occupation, especially fund transfer between listed companies and their controlling shareholder and other related parties, and major investment, etc.

All accounting firms should fulfill sound audit procedures to obtain adequate audit basis. Apart from the above-mentioned assessment on risk, fraudulence and internal control from the companies’ perspective to be particularly stressed, accounting firms should also fulfill the substantial audit procedures for identifying the gradation of major items in financial statements, and fully implement audit procedures for external confirmations, physical inspection, impairment testing and analytical review, etc.

 

December 26, 2008

 

 

Attachment I: Items related to measurement of fair value　　　　　　　　　　　　　　　　　　　 Unit 1: RMB10,000

 

Items (1)	Opening amount (2)	P rofit and losses on the changes in fair  value  of current term (3)	Accumulative changes in fair value taken into equity (4)	Impairment   provision  retained in current term (5)	Amount at end of period (6)
Financial assets
Thereinto: 1. Financial assets measured  at their fair values and of which the variation is taken into  profit and loss of  current  term  2
Thereinto: D erivative  financial assets
2.  S alable f inancial  assets
S ubtotal  of financial assets
Financial liabilities
Investment real estate s
P roductive living  assets
Others  3
Total

Notes:

1.Uniformly converted and listed in RMB;
2. Including derivative financial assets;
3. As to items with great amount in “Others”, they can be specially listed in the table.

 

 

Attachment II: Foreign-currency-denominated financial assets and liabilities held by companies　　 Unit 1: RMB10,000

 

Items (1)	Opening amount (2)	P rofit and losses on the changes in fair  value  of current term (3)	Accumulative changes in fair value taken into equity (4)	Impairment   provision  retained in current term (5)	Amount at end of period (6)
Financial assets
Thereinto: 1. Financial assets measured  at their fair values and of which the variation is taken into  profit and loss of  current  term  2
Thereinto: D erivative  financial assets
2.  Loans and accounts receivable  3
3.  S alable f inancial  assets
4.  The held-to-maturity investment  3
S ubtotal  of financial assets
Financial liabilities

 

Notes:

1. Uniformly converted and listed in RMB;
2. Including derivative financial assets;
3. For financial assets not measured at fair value, Items 3 and 4 needn’t to be filled.