The Exchange Pays Attention To The New Measures Of "Shell Protection" Under The New Delisting Rules

At the end of 2020, the exchange revised and issued the delisting rules, replacing the previous single net profit index with the combination index of "income + profit", aiming to clear the "zombie enterprises" and "shell enterprises" that lack the ability of sustainable operation from the market in time. However, the 21st century economic reporter noticed that under the new rules, there are still a few companies doing everything in their power to avoid the risk warning of delisting, but the direction of "shell" has changed from earnings management to revenue management.

Recently, Wanfang development, a medical software development company, disclosed its annual report for 2020, with a net profit of - 17.06 million yuan and an operating income of 111 million yuan. Among them, food trade was launched in the fourth quarter, contributing more than 18 million yuan in revenue, helping the company accurately cross the delisting warning line of 100 million yuan in revenue. Grain has become a "lifesaver straw". This kind of behavior, which aims to avoid delisting by adding unrelated trade business of main business, soon attracted the attention of regulators.

Revenue management

Throughout the history of Wanfang's development, Wanfang has long been a "veteran" of the capital market.

In recent years, the company's main business from real estate development, timber trade, medical equipment sales, vaccine research and development to the current medical software development, can be said to be struggling, but the income scale and profit level have been "not improved". In the past ten years, the company's operating revenue has basically fluctuated between 100 million yuan and 200 million yuan, and the net profit has been hovering around the profit and loss line. After deducting non-profit, the net profit has been negative for nine consecutive years. However, it has never been warned of delisting risk. The skilful shell technology makes people wonder.

Reporter inventory found that under the pressure of delisting, more than "shell" veterans Wanfang developed one in surprise income.

Another example is st Tianlong, whose main production line has been shut down for two years. Its operating income in the first three quarters of 2020 is only 1.26 million yuan, but the performance forecast shows that it will realize revenue of 104 million yuan in the whole year. The company's performance can be "completely new" in such a short period of time. St Tianlong explained that st Tianlong purchased a company that had not actually carried out business for zero consideration in July 2020, signed a construction and installation subcontract of 150 million yuan, and the project contracts were basically completed within three months and the revenue was recognized.

In addition, acquisition of subsidiaries to increase consolidated income is also a common means to increase revenue. For example, in the first three quarters of 2020, the operating revenue of St lucky is 70 million yuan, and the net profit is - 25.53 million yuan. In November 2020, the company purchased the assets of the controlling shareholders at a premium to increase the scale of its income. However, the reporter noted that the profit of the acquired company is expected to shrink by more than 70% in 2020. It is urgent for listed companies to buy assets with deteriorating operation, but also to solve the "urgent need" of delisting.

There are also companies that have come up with the idea of accounting for revenue recognition. The reporter found that due to the full implementation of the new income standard in 2020, many listed companies engaged in trade business have recently adjusted their income recognition from the "total amount method" to the "net amount method", resulting in a sharp decline in the scale of revenue. Among them, the accounting treatment of some companies is obviously out of prudence. For example, the bankruptcy and reorganization of * ST Zhongrong company stripped off the original production plant and equipment, and only retained the trade business. However, thanks to the confirmation of no Plush trade income by the total amount method, the company will realize the operating income of 142 million yuan in 2020. In this regard, the Shenzhen Stock Exchange has conducted a key inquiry on whether the company's accounting treatment is appropriate, so far the company has not replied.

Income deduction should not be a "hotbed of protection"

The regulatory authorities will not let go of all kinds of new containment measures. The reporter learned that, in order to prevent sudden income generating shell, the regulatory layer has already deployed in advance.

Earlier, the "Stock Listing Rules" have made it clear that companies with negative net profit before and after non deduction should disclose in their annual reports the deductions that have nothing to do with the main business and do not have commercial real income, so as to restore the real level of the company's sustainable operation ability.

In order to reduce the subjective judgment space of income deduction, the exchange issued a notice to the company and audit institutions in early April this year to clarify the business income deduction under the new delisting rules. The scope of deduction includes new trade income, financial income of non-financial institutions, income of subsidiaries of business combination under the same control from the beginning of the period to the date of merger, and other incomes unrelated to the main business False income, transaction income with unfair price, income involved in non-standard audit opinions and other incomes without commercial substance. Under special circumstances, the exchange may require the annual audit accountant to issue a new special verification opinion on the deduction of income.

After the announcement, St lucky has recently revised the income deduction in the performance forecast. The income after deduction is less than 100 million yuan, and the deduction item is the income of the newly acquired company from the beginning of 2020 to the merger date. In addition, a company whose income deduction amount is 0 in the annual report also reexamined the revenue situation under the supervision, and finally found that millions of operating income were omitted.

The reporter found that at present, most companies have disclosed the income deduction details according to the requirements. The deduction items mainly include asset leasing, consulting services, material sales and entrusted operation, with the amount ranging from one million to tens of millions of yuan. However, the deduction of companies with demand for shell covering is obviously "mere formality". If Wanfang development only deducted 30000 yuan of rental business income, it would "cope with the balance", while it would turn a blind eye to the grain trade income of more than 18 million yuan.

Shenzhen Stock Exchange, without exception, pays close attention to the suspected income that has not been fully deducted, focusing on whether the income is true, whether the deduction is reasonable, and whether the confirmation is in compliance.

Audit institutions should not "seek skin from the tiger"

According to the stock listing rules revised at the end of 2020, accounting firms should issue special verification opinions on whether the deduction items of the company's business income conform to the regulations and the amount of business income after deduction.

Whether the audit institution fully checks and strictly checks, whether it dares to deduct the company's income, and whether it can make a true judgment on the company's sustainable operation ability has a significant impact on whether the company can successfully avoid the implementation of risk warning. The cases mentioned above that the income has not been deducted reflects that some firms are not cautious in the practice process.

Some market participants pointed out that there may be collusion between audit institutions and listed companies in these cases. There is a sign to support the above conjecture. The reporter of 21st century economic report found that audit fees of many surprise income generating companies in 2020 will increase by a large margin compared with previous years. For example, in Wanfang development, the audit fees from 2014 to 2019 are both 800000 yuan. In February 2021, ZTE is replaced as the annual audit institution in 2020, and the audit fee is greatly increased to 1.2 million yuan.

In the view of industry insiders, this year's "abacus" and "fiddling" of some listed companies on the issue of income is bound to become the regulatory focus of the review of the 2020 annual report. No matter how the shell covering method is renovated, it is "changing the soup without changing the medicine", which can not change the nature of bad assets. Under the background of continuously deepening the reform of delisting system, it will be very difficult for those who create income by surprise, deduct non-standard, adjust the progress of confirmation artificially, and change the confirmation policy.