The SFC and the AFRC Signal Intent to Combat Dubious Transfer of Funds by Listed Issuers to Third Parties
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Key Takeaways:
- The Securities and Futures Commission (the “SFC”) and the Accounting and Financial Reporting Council (the “AFRC”) recently released a joint statement on a common regulatory concern—the channeling of company funds from listed issuers to third parties pursuant to dubious loans, advances, prepayments, deposits or some other pretext.
- It was observed that these transactions often shared three common characteristics: lack of commercial rationale, insufficient risk assessments, due diligence and documentation, and inadequate internal controls.
- The directors and audit committees of listed issuers should establish and maintain appropriate and effective internal controls to prevent loss or misuse of the company’s assets, ensure timely detection of irregularities and taking of remedial actions, and ensure adequate disclosure in the financial statements and announcements.
- The auditors of listed issuers should obtain reasonable assurance that the financial statements are free from material misstatement, maintain professional skepticism throughout the audit, adjust their audit approach in response to heightened risks, and be mindful of their obligation to report observed or suspected fraud to the SFC where appropriate.
- Failure to comply may attract criminal, civil and/or disciplinary consequences.