On the morning of September 28, 2023, the second New Investment Expo of Frost & Sullivan (Frost & Sullivan, abbreviated as Frost & Sullivan) and the 17th Frost & Sullivan Global Growth, Innovation and Leadership Summit (abbreviated as 'Frost & Sullivan New Investment Conference') Sub-forum on the High-quality Development of Listed Companies was grandly held at the Shangri-La Hotel in Pudong, Shanghai. The forum was jointly organized by Frost & Sullivan, TradeGo, Roadshow China, and LeadLeo.
The forum has invited more than a dozen heavyweight guests and industry experts, bringing together specialists from various fields such as sponsors, law firms, accountants, market research consultants, and investors. They will provide the latest market interpretations for listed companies and companies planning to go public, and discuss the successful paths for enterprises in the capital market.
EY's Audit Partner and Head of Retail and Consumer Goods in Greater China, Zheng Mingju
At this forum, Zheng Mingju, an audit partner at EY and the lead partner for the retail and consumer goods sector in Greater China, shared with everyone the key financial considerations during the corporate listing process, including financial expenses and tax risks arising from company restructuring, the methods by which companies recognize revenue during financial audits, and considerations regarding fair value and taxation during equity incentives.
01Capital market comparison
Zheng Mingju has conducted multi-dimensional comparisons of the capital markets in Hong Kong and Mainland China, including aspects such as listing time, listing costs, and certainty of listing.
He pointed out that the core of choosing a listing location is not simply selecting an exchange, but rather choosing the company's shareholders and market, so that the development of the enterprise can complement the development of the capital market. When choosing a listing location, companies generally need to consider many factors comprehensively, such as the fundraising capacity of the primary market, liquidity in the secondary market, and subsequent financing capabilities; price-earnings ratios in different markets; whether the proposed listing location and sector are suitable for the company's industry status and positioning; regulatory costs and environment after the company goes public, etc.
02Key points for listed companies' financial reporting
Zheng Mingju believes that financial compliance is the foundation for a company's successful listing. He mentioned that common financial concerns during the listing process include restructuring, revenue recognition and cost accounting, research and development expenses and intangible assets, accounts receivable, equity incentives, related-party transactions, employee social security issues, inventory, preferred stocks and performance-linked agreements, tax issues, and so on.
For example, the method by which an enterprise recognizes revenue should reflect its control over the transfer of related goods or provision of related services to customers; the amount recognized should reflect the consideration that the enterprise expects to receive in exchange for transferring goods or providing services to customers.
Zheng Mingju stated that share-based payment, as a long-term incentive method, can, on one hand, 'bind' corporate executives and core technical personnel with equity, and on the other hand, reduce the company's cash pressure, making it popular among growing enterprises. However, the accounting treatment of share-based payment is relatively complex, and different terms may lead to different accounting treatments. Key concerns include whether it constitutes a share-based payment, how to determine fair value, whether the judgment of service periods is accurate, the allocation of share-based payment expenses for part-time executives/employees, whether there are non-employee share-based payments, and the determination of the number of shares in a share-based payment when existing shareholders increase capital by non-equivalent proportions.
Finally, he reminded that there are many financial concerns during the listing process for enterprises. Companies planning to go public should conduct a health check-up before listing as soon as possible. Behind the apparent issue of IPO rejection is the lack of systematic sorting out and early resolution of problems.
