The Inquiry Letter Of The 66Th Annual Report Of Shenzhen Securities Regulatory Corporation

As an annual "answer sheet", the annual report of listed companies is not only a comprehensive summary of the company's operating performance, corporate governance, investment and financing, internal control and other aspects in the past year, but also an important basis for investors to make value judgment, make investment decisions and exercise shareholders' rights. However, in the face of a long and informative annual report, how to extract effective information from it, understand the real situation of the company, grasp the potential risks of the company, and get rid of the feeling of "seeing flowers in the fog and looking at the moon in the water", or it depends on the "physical examination" in the inquiry letter of the annual report.

Statistics show that since this year, the Shenzhen Stock Exchange has published more than 480 annual report inquiry letters. For the ambiguous reply, we asked 22 companies such as * ST Shunli, * ST Zhonghua A and Cultural Great Wall for the second time. In case of any omission or error in the disclosure documents found in the audit, the company has been urged to issue more than 330 supplementary and correction announcements.

The reporter learned that in this year's review, the Shenzhen stock exchange conducted a comprehensive "physical examination" on the annual reports of listed companies by using the self-developed "corporate portrait" scientific and technological means, and combined with the results of each company's physical examination, the Shenzhen Stock Exchange made accurate inquiries and provided the right medicine to the case. From the inquiry situation, the core indicators related to the company's "health" such as performance authenticity, accounting compliance, information disclosure standardization, integration after the implementation of restructuring are still the focus of attention; In addition, new phenomena and problems under the new registration system and delisting regulations have also been given special attention in this year's annual report review.

True compliance is the foundation

As an important reference for investors to make investment decisions, the annual report of listed companies is the core element, which is the fundamental principle of disclosure. According to the public inquiry letter of annual report, the abnormal changes of operating income, net profit, period expenses and operating cash flow, serious deviation of gross profit rate, inventory turnover rate and accounts receivable turnover rate from the same industry level, frequent changes in the top five customers and suppliers, and performance changes after the commitment period of restructuring targets will be focused on.

Take a company on the main board as an example. The company generally collects 70% - 100% payment in advance for the sales of communication equipment to customers. However, the company only received less than 10% advance payment for the 290 million yuan communication base station sales business with a customer during the reporting period. The payment schedule is inconsistent with the practice, and the public information shows that the customer's business scope has no communication business. Such abnormal trading will naturally attract the attention and inquiry of the exchange.

In terms of accounting treatment, due to more professional judgment, some companies will adjust profits and avoid delisting by means of improper accounting estimate changes, correction of previous errors, and cross period confirmation of losses. Investors can also identify such situations according to the annual report inquiry letter.

If a company is warned of delisting risk in two consecutive years of losses in 2017 and 2018, it will achieve a net profit of 35 million yuan in 2019, and successfully take off the stars and hats. In 2020, the company will again lose 1.083 billion yuan. It is worth noting that the company's self inspection in 2020 found that there were omissions in inventory management from 2016 to 2018, and part of the order cost was carried forward insufficiently, and the profits from 2016 to 2018 were adjusted and reduced. However, the above inventory management omissions did not affect 2019.

What is the real reason for the company to correct the accounting errors of cost carry forward? Whether the correction is compliant and accurate, investors will have a question mark. The inquiry letter of the annual report of Shenzhen Stock Exchange also focused on the above questions, focusing on whether the company deliberately avoided losses for three consecutive years through improper error correction, and avoided the suspension of listing of shares.

Revenue management to avoid delisting

At the end of 2020, the exchange issued a new delisting regulation, adding a combined financial delisting index of "the lower of net profit before and after deducting non-profit and operating income less than 100 million yuan". In order to avoid delisting, some companies take up the idea of "revenue management", and should deduct but not deduct the business income which is not related to the main business or has no commercial substance. In this year's annual report review, the exchange has focused on whether the company's "line erasing" confirmation revenue is in compliance with the regulations and whether the income deduction is complete.

For example, a company whose main business is software development will achieve a net profit of - 17 million yuan and an operating income of 111 million yuan in 2020. Among them, the food trade in the fourth quarter achieved 18 million yuan in revenue and 100 million yuan in precision "treading on the line". On the day of the disclosure of the company's annual report, the Shenzhen Stock Exchange issued a letter of inquiry, asking the company to explain the specific reasons for the development of grain trade, whether the business is accidental and temporary, and whether there is a situation of avoiding delisting. After nearly two months, the company finally disclosed the reply letter, admitting that the grain trade income was other business income unrelated to the main business. After deducting, it touched the index of "operating income + net profit" in the delisting new regulation, and the company's stock was warned of delisting risk.

Similarly, there is a company whose main business is electronic electric toys. After being focused on and inquired by the exchange, the company reclassified the newly added liquor sales business income into non recurring profit and loss. After adjustment, the company's net profit after deducting non-profit was negative and the operating income was less than 100 million yuan, which touched the delisting index, and the company's stock continued to be subject to delisting risk warning.

Attention should also be paid to the settlement of occupation guarantee

In the past two years, the occupation guarantee has made a comeback under the change of financing environment. Due to the defects of corporate governance and internal control, some companies have taken up funds and provided guarantees in violation of regulations. Many controlling shareholders solve the problem of occupation by means of assets to repay debts, but the situation that the name of debt paying assets does not match the reality and the valuation is false and high also follows.

For example, before the disclosure of the 2020 annual report of St Tianma, two assets were valued at 676 million yuan to offset the occupied funds. The debt paying assets were highly dependent on a few customers and the company could not implement effective control, but the evaluation value-added rate was as high as 46 times and 83 times. This is the company's third acquisition of large shareholder assets to solve the capital occupation.

In order to avoid the company's "muddling through", the annual report audit of the exchange has strengthened the supervision of using assets to repay debts, focusing on the qualification, valuation, transfer time and other issues of the company's controlling shareholders' previous debt paying assets. It is also aimed at preventing inferior assets from being put into the listed companies with high valuation, causing "secondary harm" to the company.

The performance of intermediary organizations should not be ignored

As the "gatekeeper" of capital market, intermediaries play an important role in improving the quality of information disclosure, preventing securities fraud and protecting the legitimate rights and interests of investors. When reading the annual reports of listed companies, investors should not only pay attention to the results of opinions issued by intermediary institutions, but also consider the company's situation comprehensively. They should be more cautious about reducing the types of audit opinions after the sudden change of exchange, the unqualified audit opinions issued by directors, supervisors and senior executives, and the inconsistency between internal control and financial statement audit opinions.

For example, if a company's financial statements in 2020 are issued with a qualified opinion with an emphasis on matters, the reason for the formation of the qualified opinion is that the annual audit accountant can not judge the impact of bond default, overdue debt, debt litigation on the financial statements, and the stressed event paragraph also mentions that the company's ability to repay due bonds and debts is uncertain. It should be noted that the company's debt default occurred due to fund management and scheduling problems in 2019, and negative opinions were issued on internal control. In 2020, the new medium-term notes defaulted, but the internal control opinions became standard unqualified opinions.

Such an abnormal situation is worthy of investors' attention. The exchange will also pay attention to the inquiry and risk disclosure in the inquiry letter of the annual report, requiring the accountants to clarify the impact of the matters involved in the qualified opinion on the universality of the financial statements, whether the paragraph of "significant uncertainty related to the going concern ability" is replaced by the paragraph of "emphasized matters", and whether the basis for issuing the unqualified internal control opinion is true.

In addition, the reporter is concerned that under the registration system and after the implementation of the new delisting regulations, the responsibilities of intermediary agencies are more prominent. Under the new regulations, accountants not only need to give opinions on financial reports and capital transactions of related parties, but also need to issue special audit opinions on deduction of operating income and settlement of occupation guarantee. For these special audit opinions, investors should also clear their eyes.

The annual report is a summary of the production and operation activities of Listed Companies in a year. How to understand and read an annual report needs professional analysis from the aspects of production and operation, financial performance, governance structure, development strategy and information disclosure quality. The annual report review is the key to promote the quality improvement and standardized development of the company, which helps to protect the interests of investors fundamentally. In combination with the "tailor-made" annual report inquiry letter of the exchange, we should pay attention to the problems found in the inquiry letter and reveal the risks. Investors can accurately understand the annual report, grasp the valuable information, and avoid the risk of "stepping on the thunder".

?