Continuously Deepening the Supervision on Accounting Audit and Firmly Preserving the Seriousness of Delisting System

date: 2017-7-11

On June 24, 2017, Ingenious Ene-carbon New Materials Co., Ltd. (hereinafter referred to as ‘Extra ST Ene-carbon’ or ‘the Company’) disclosed its 2016 Annual Report, in which 2016 audited net profit was CNY-474 million. The Company’s audited net profit was negative for three consecutive years from 2014 to 2016, Shenzhen Stock Exchange (‘SZSE’) made the decision on suspension of the listing of its stocks from July 6, 2017 according to the Stock Listing Rules of the Shenzhen Stock Exchange (2014 Revision) and audit opinions from the Listing Committee of Shenzhen Stock Exchange.

 

An officer from SZSE said that the decision on suspension of listing of the Company’s stocks is an important reflection of SZSE’s conducting strict comprehensive supervision by laws, deepening the function of front-line supervision, strengthening the supervision on accounting audit and strictly implementing the delisting system. The Company suffered losses in 2014 and 2015, and continued to suffer losses in the first three quarters of 2016. In December 2016, the Company planned to transfer 30 percent equity stake in a wholly-owned subsidiary and expected to gain CNY223 million from the transfer. According to relevant provisions of the Accounting Standards for Business Enterprises, the balance, from the disposal of partial long-term equity investment in a subsidiary without losing the control right in the subsidiary, should be recorded into the owners’ equity but not investment income. As for the Company’s attempt to disclose an annual report clearly not in compliance with the Accounting Standards for Business Enterprises to avoid suspension of listing of its stocks, SZSE timely adopted the following supervision measures: Firstly, SZSE successively issued three letters of concern to inquire and demand the Company and its appointed intermediary institutions to make a statement on the accounting treatment of the Company’s assets sale and whether the assets sale has constituted major assets restructuring, and require it to fully prompt the uncertainty in confirmation of the investment income and the risk of suspension of listing of its stocks in its Earnings Preannouncement. Secondly, SZSE suspended the Company’s information disclosure express practice and implemented prior review on all its announcements. Thirdly, SZSE timely submitted the report on the Company’s major risks to China Securities Regulatory Commission (‘CSRC’), and finally decided that legal basis is lacked in confirming the income from the transfer of partial equity stake in a subsidiary as investment income.

 

After knowing that the Company was expected to fail to disclose periodic reports within the statutory period, SZSE immediately required it to timely disclose an announcement of risk warning on possible suspension of listing of its stocks to fully remind the market of its possible risks. On April 28, 2017, the Company failed to disclose periodic reports as scheduled according to laws, SZSE informed the market of relevant situation, and decided on suspension of listing of the Company’s stocks from May 2, 2017. As for the Company’s failure in performing its obligation for disclosing periodic reports as scheduled and publishing an announcement of risk warning timely, SZSE made public censure to the Company and its appointed audit firm as well as relevant parties. Meanwhile, SZSE reported the illegal clues of relevant parties to CSRC for initiating an investigation, and the Notice of Investigation from CSRC was delivered to the Company on May 12, 2017.

 

An officer from SZSE said that the decision on suspension of listing of the Company’s stocks was a practice in maintaining the authority of laws and seriousness of delisting system. SZSE will continuously deepen the supervision on accounting audit, and strictly regulate the behaviors of ST removal because of turning losses to gains via financial fraud or profit manipulation and avoidance of ST adding, suspension of listing and delisting due to consecutive losses, pay more attention to listed companies and their appointed intermediary institutions like accounting firm and strengthen the enquiry to them, emphasize risk prompt, urge relevant accounting firms to be diligent and responsible to ensure their audit quality, so as to promote the overall quality of information disclosure in the market and fully protect the legal rights and interests of investors.