IPO On-Site Inspection Becomes A "Conventional Weapon": Applicable To Listed Companies In All Sectors Of The Exchange

IPO on-site inspection work officially fell on paper.

On January 29, China Securities Regulatory Commission (CSRC) officially issued the regulations on on on-site inspection of initial enterprises (hereinafter referred to as the regulations). From the perspective of content, the new regulations regulate the basic requirements, standards, procedures and follow-up processing of on-site inspection of first-episode enterprises, clarify the rights and obligations of units and personnel involved in the inspection, compact the responsibilities of issuers and intermediary agencies, and strengthen the supervision of inspectors.

In fact, as early as 2014, China Securities Regulatory Commission (CSRC) began to promote on-site inspection of IPO, often in the form of random sampling to investigate and deal with illegal information disclosure behaviors of IPO companies. However, there are no rules to follow in the field inspection.

"Previous on-site inspection has always been a window guidance behavior. This new regulation makes the IPO on-site inspection paper-based and standardized. It also means that on-site inspection will become the normal of IPO market and become the" conventional weapon "of the regulatory layer." There are senior investment banks in Beijing said.

Problem oriented, random sampling, dual track drive

In March 2020, the new "Securities Law" is formally implemented, which clearly stipulates the securities issuance registration system with information disclosure as the core, and requires issuers to truly, accurately and completely disclose information. The "Regulations" is designed to implement the spirit of amending the law, do a good job in supporting system construction, further strengthen the supervision of information disclosure of IPO enterprises, strictly control the entry of IPO, and improve the quality of listed companies.

Specifically, it is clear in the regulations that the determination of the inspection of the enterprises to be IPO includes two ways: problem oriented and random sampling. Among them, randomly selected inspection objects are determined by the China Securities Association, and are composed of the first-time enterprises that have not passed the meeting.

However, the subject of problem-oriented inspection is determined by the examination and approval department of the CSRC, the registration department or the examination and approval department of the exchange. In the audit and registration stage of IPO, if there are significant questions or anomalies related to the issuance conditions, listing conditions and information disclosure requirements of the IPO enterprises, and fail to provide reasonable explanations and affect the audit judgment, they can be listed as the inspection objects.

"In the past, on-site inspection has always been spot check. Now, the new regulation has added a" problem oriented "inspection method to focus on major doubtful issues, which is more oriented than before." The senior investment bank personnel said.

According to the CSRC, on-the-spot inspection will be carried out in combination with the nature and content of the key doubtful matters, and the scope of the inspection can be expanded around the above-mentioned doubtful items. For the randomly selected inspection objects, the on-site inspection is focused on the quality of financial information disclosure.

In terms of the specific ways of on-site inspection, the regulations clearly specify that the inspection team can check the production, operation, management places and other relevant places of the inspected objects, obtain relevant industrial and commercial data, obtain relevant capital flow, production, sales and storage records, accounting vouchers, accounting books, financial statements and other documents and materials, and conduct cross-test on the main business cycle and accounting information system Try; inquire the controlling shareholders and actual controllers, directors, supervisors, senior management personnel, sales, procurement, production, storage, finance and other relevant personnel of the inspection objects; visit the important customers and suppliers of the inspection objects and other relevant units and personnel to verify the relevant information; check the working papers of intermediary agencies, ask the relevant personnel, and collect evidence on site.

It is worth mentioning that the "Regulations" will not conduct any inspection on enterprises withdrawing their IPO applications within 10 working days after receiving on-site inspection, so as to make full use of regulatory resources and improve the efficiency and effect of inspection. However, when the Company re applies for IPO within 12 months after withdrawing its application, it will be directly listed as the object of examination.

At the same time, the CSRC also said that if there are clear clues such as suspected false records, misleading statements or major omissions in the withdrawn enterprises, they will still carry out on-site inspection and deal with them according to law and regulations.

"Considering that on-site inspection is an important means to implement the securities issuance system with information disclosure as the core and constantly improve the quality of information disclosure. The on-site inspection of first-time enterprises helps to strictly implement the first responsibility of information disclosure of issuers, comprehensively improve the standard governance level and information disclosure quality of the company, and continuously promote the high-quality development of the capital market. " Li Weiyou, deputy director of the Securities Regulatory Commission, said.

On site inspection is suitable for listed companies in all sectors of the exchange

While clarifying the methods and contents of on-site inspection, the regulations also explicitly include the registration system into the scope of on-site inspection at the rule level.

Li Weiyou pointed out that under the background of pilot registration system, on-site inspection is still necessary. In the future, the "Regulations" will be applicable to listed companies in all sectors of the exchange, and on-site inspection is an important measure to strictly implement the whole chain supervision of all aspects of IPO.

"At present, IPO audit work is mainly carried out by asking questions and answering questions by enterprises and intermediaries. The implementation of on-site inspection of first-episode enterprises can be achieved by consulting and retrieving relevant basic information, going deep into the on-site issuing, and carrying out penetrating key inspection, which is an important supplement to the written audit. It helps to improve the pertinence and effectiveness of the audit, has a strong deterrent effect on relevant violations, and purifies the IPO market environment from the source. " Li Weiyou said.

In addition to the on-site inspection of the A-share market, the regulations also include whether the intermediary agencies are diligent, responsible and prudent in practice. In the future, it will focus on the relevant problems of the IPO companies to extend the inspection on the practice quality of intermediary institutions.

Previously, market voice reflected that the punishment of intermediary agencies should be based on the punishment of the inspection objects, and it is not appropriate to punish the intermediary agencies without punishing the inspection objects. However, the CSRC believes that the quality of intermediary practice is not necessarily related to the quality of information disclosure of initial enterprises. In practice, there may be no significant problems in the quality of information disclosure of first-time enterprises, but there are significant defects in the performance of duties and due diligence of intermediary agencies. Therefore, the punishment of intermediaries should not be based on whether there are significant information disclosure quality problems in the initial enterprises.

Li Weiyou said that at present, there are still problems in different intermediary agencies, such as lack of professional ethics and weak awareness of compliance. The on-site inspection of first-time enterprises can find out the problems existing in the practice process of intermediary agencies. By increasing the punishment, compacting the responsibilities of intermediary agencies, the professional ethics level and law-abiding awareness of intermediary agencies can be continuously improved.

According to the reporter of the 21st century economic report, the CSRC will take the implementation of the new securities law as an opportunity, adhere to the information disclosure as the core, and regularly carry out the problem-oriented and random sampling on-site inspection. According to the on-site inspection found in the information disclosure of issuers and the quality problems of intermediary agencies, we should make classification treatment, maintain a high-pressure situation of illegal information disclosure, and tighten the responsibilities of intermediary agencies.