March 20, 2020 / 3:59 AM / 19 days ago

Listed China firms' filing delays hit five-year high as virus thwarts auditors

SHANGHAI/HONG KONG (Reuters) - The number of mainland China-listed firms to delay filing annual reports has soared to a five-year high, indicating auditors’ struggle to sign off accounts after the government effectively closed businesses last month to slow the coronavirus outbreak.

The first three months of the year are a busy time for firms with year-end accounts which often need to be filed by March-end. But a widespread lockdown for all of February prevented auditors from visiting clients or reaching bankers and company officials to make the checks needed to approve client accounts.

Under normal circumstances, a delay in filing could impact a company’s ability to raise funds if it cannot show would-be investors and lenders up-to-date figures. A delay could also damage confidence in the company, pulling down its share price.

Should the delay run beyond April, a company can apply to the stock exchange for a further delay. If no application is made, it could be fined or have trading of its stock suspended.

As of Friday morning, 852 companies - about 22% of all firms listed on mainland exchanges - had delayed filing annual accounts this year, showed five-year data from official website cninfo.com.cn. Around three-quarters are still outstanding.

The total compared to 506 firms for all of 2019, and is the highest in at least five years.

The virus has had “a large impact on auditing,” said Daniel Li, a senior partner at PwC Zhong Tian.

Accountants need to be on site to check original documents, such as contracts and receipts, Li said. But they have been unable to do so because authorities ordered many businesses to close and advised people to stay home to stop the virus, which has now infected 242,000 worldwide and led to 10,000 deaths.

“Clients can give us copies, but we still need to check that those copies are exactly the same as the originals,” said Li.

‘RIDICULOUS’

Many of China’s banks rotated employees for a number of weeks in February, complicating auditors’ struggle to access letters of confirmation - crucial documents detailing, for instance, how much a firm has in its accounts - auditors said.

Many auditors found even contacting clients became a daily frustration.

Ms Chan, a Hong Kong-based auditor working for one of the so-called Big Four accounting firms, said it took her almost two weeks in February to get hold of the right person at a client’s office to clarify a single point.

“It’s rather ridiculous. My work has become very inefficient,” Chan said of preparing accounts for a Hong Kong-listed Chinese financial institution.

“I’ve lost count of the number of calls, sometimes cold calls, that I have to make every day, just asking for tiny details or numbers,” she said, declining to give her full name as she was not authorized to speak with media on the matter.

To relieve the plight of Hong Kong-listed firms, Hong Kong’s stock exchange and markets regulator on Monday extended the deadline for annual reports, having already relaxed reporting standards for earnings announcements.

Mainland firms account for half of all companies listed on the Stock Exchange of Hong Kong. Moreover, many Hong Kong-headquartered firms have major mainland operations and so have faced similar auditing delays.

A spokesman for Hong Kong’s exchange said the bourse expects most of its listed companies will be able to publish accounts without incident.

The China Securities Regulatory Commission, Shanghai Stock Exchange and Shenzhen Stock Exchange did not immediately respond to requests for comment.

Reporting by Engen Tham in Shanghai, and Julie Zhu and Alun John in Hong Kong; Additional reporting by the Shanghai Newsroom; Editing by Jennifer Hughes and Christopher Cushing

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