The Shanghai Stock Exchange (SSE) lately released some newly-amended format instructions on temporary announcements for disclosing predictions and expresses on business performance, which are of great significance to listed companies’ stock prices and to investor’s decisions. The releasing of the newly-amended instructions by the SSE at the approaching of the peak season for 2017 annual business performance predictions will better help and guide listed companies to disclose their business performance changes accurately. It can be seen from the amendments that the SSE has given full consideration on the problems in current business performance predictions, such as inaccurate and incomplete disclosure and the possibility of misleading investors. The improvement of relevant information disclosure through the amendments will further enhance the pertinence and effectiveness of information disclosure and meet investors’ right to know.
Highlight 1: Differentiating main reasons for business performance changes, enhancing accuracy of information disclosure, and helping investors correctly understand business performance changes
The existing format instructions do not require listed companies to differentiate specific reasons for business performance changes in their predictions and expresses on business performance, and relevant information disclosure therefore has no pertinence. It is noticed that the predicted increase or predicted loss of business performance disclosed by many listed companies would produce bull news to the market and thus push up share prices. However, no specific reasons for the predicted increase or predicted loss were made clear in the announcements, for example, whether the business performance change is based on the growth of main business or the non-recurring profit and loss of large amounts. The above information is the key for investors to learn about a listed company’s business condition and then make rational judgments. If the information is not fully disclosed, it is likely to cause misleading and even aggravate follow-suit and speculation in the market. And the release of the newly-amended instructions is expected to solve such problems.
The amended format instructions on business performance predictions and expresses stipulate that listed companies should differentiate specific reasons for disclosed business performance changes, such as influenced by main business, non-recurring profit and loss, accounting treatment and the low comparison base of last year. Meanwhile, tips on important contents have also been added in the amended format instructions, namely, highlighting the direction, amount and range of the business performance changes and the influence of non-recurring profit and loss before the text of the announcement for investors to quickly understand the key information on business performance prediction. The pertinent information disclosure will help investors to directly understand the main reasons for the business performance changes and make rational investment decisions.
Highlight 2: Strengthening risk alert on major uncertainties and stressing the “gatekeeper” role of annual audit accountant
In practices, many listed companies have major uncertainties in disclosing predictions and expresses on business performance, like uncertain major transactions and controversies over accounting treatments, which will directly affect the accuracy of business performance predictions and expresses. It is also found that there are major mistakes in annual business performance predictions made by many listed companies as they have not prudently evaluated the uncertainty of major issues, which would influence investors’ expectations and judgments. In particular, the SSE has taken disciplinary sanctions or regulatory measures against some listed companies due to inaccurate disclosure of business performance predictions and sudden changes on business performances.
With regard to the above common problems occurred in listed companies’ information disclosure, the amendments have focused on guiding and helping them to disclose information correctly and thus avoid misleading investors and making unnecessary illegal information disclosure. Therefore, the amended format instructions will guide them to fully remind of uncertain risks in their announcements, make quantitative analysis on uncertainties’ specific influence on business performance predictions, and disclose business performance changes after eliminating these uncertainties for investors to make comparison and analysis. Besides, the amendments have stressed the “gatekeeper” role of annual audit accountant and other intermediary agencies according to the “law-compliance, strictness and comprehensiveness” regulation requirements. Listed companies should disclose whether they have actively negotiated with annual audit accountants on uncertainties and the specific negotiation situations in their announcements. And the annual audit accountants should be diligent and responsible, provide professional judgments and opinions on controversies over accounting treatments and other major uncertainties with the listed companies and assist them in making risk alerts, thus ensuring the accuracy of the companies’ business performance predictions and expresses and offering more references for investors to make rational judgments.