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The FRC may initiate an enquiry into possible non-compliances with relevant requirements on the part of listed entities in their financial reports, in its own right or upon receipt of a complaint.
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In order to decide whether or not an enquiry should be initiated, the available information and evidence will be reviewed. The auditor, reporting accountant, and/or listed entity concerned may be asked to provide additional information and an explanation on the matters.
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| Discretion to initiate an enquiry |
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Where the FRC considers that it appears that there is or may be a question whether or not there is a relevant non-compliance, and certifies in writing to this effect, the FRC may initiate an enquiry. |
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The FRC will normally appoint a Financial Reporting Review Committee (the "Review Committee") to act as the enquirer and conduct an enquiry but in exceptional circumstances, may decide to conduct the enquiry itself. |
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Where the FRC appoints a Review Committee to conduct an enquiry, the FRC will specify the terms of reference and will notify the listed entity in writing of the names of the members of the Review Committee.
For further information, please refer to section 40 of the Financial Reporting Council Ordinance (the “FRC Ordinance”). |
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| Exercising general powers of enquiry |
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Once an enquiry is initiated, the Review Committee1 may, in writing, require certain persons such as auditors, listed entities and their officers or employees to produce records or documents and to give information or explanation. The Review Committee1 is required to certify that it has reasonable cause to believe that the relevant records or documents, or the relevant information or explanation are relevant to the relevant non-compliance.
For further information, please refer to section 43(1) of the FRC Ordinance. |
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Where any person, without reasonable excuse, fails to comply with a requirement imposed on him, the Review Committee1 may apply to the Court of First Instance for an inquiry into this failure. Any person, without reasonable excuse, fails to comply with a requirement may be guilty of contempt of court.
For further information, please refer to section 45 of the FRC Ordinance. |
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As soon as practicable after the completion of an enquiry, the Review Committee1 will prepare a written report on its findings. |
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The FRC may adopt an enquiry report and may take or order further action as appropriate before the report is adopted. If before the adoption of a report, the FRC is of the opinion that any person named in the report will be adversely affected by its publication or disclosure, that named person will be given a reasonable opportunity of being heard. |
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The FRC may decide to publish a report or any part of it. In deciding whether or not to publish an enquiry report, or any part of it, the FRC shall consider:- |
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whether or not the publication may adversely affect any criminal proceedings or any proceedings before the Market Misconduct Tribunal or under the Professional Accountants Ordinance ; |
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whether or not the publication may adversely affect any person named in the enquiry report; and |
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whether or not the enquiry report, or any part of the report, shall be published in the interest of the investing public or in the public interest. |
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The FRC may close a case, suspend an enquiry, secure the removal of a non-compliance or carry out other follow-up action including referral to appropriate regulatory bodies and/or law enforcement agencies as it considers appropriate. The FRC will notify the relevant listed entity once it comes to a decision unless it is satisfied that the notification may prejudice the enquiry, or any other action which the FRC or a regulatory body and/or a law enforcement agency intends to take in relation to the enquiry.
For further information, please refer to section 48 of the FRC Ordinance. |
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| Issuing a notice to rectify a relevant non-compliance |
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Where the FRC finds that there is a relevant non-compliance, the FRC may give a notice to the listed entity concerned to remove the non-compliance in the manner and within a period as specified in the notice. |
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In the event that a listed entity does not rectify the relevant non-compliance within a specified period, the FRC may:- |
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apply to the Court of First Instance for a declaration that there is a relevant non-compliance and an order requiring the director of the listed corporation to cause the relevant non-compliance to be rectified.
This action is only applicable when there is a relevant non-compliance in relation to a breach of an accounting requirement as provided in the Companies
Ordinance. Please refer to section 5(2) of the FRC Ordinance; or |
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take any other action as it considers appropriate including referral to the appropriate regulatory body for follow-up action. |
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For further information, please refer to sections 49 and 50 of the FRC Ordinance. |
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| Footnote: |
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In a case where the FRC decides to conduct the enquiry itself, the references to "the Review Committee" should be replaced with "the FRC". |
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Page last updated: 12 July 2007 |
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