China Securities Regulatory Commission, Inspection of Listed Companies Measures

Promulgation: March 19 2001
Effective: as of date of promulgation
Applicability: These Measures apply to companies listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Inspection of overseas companies and companies whose stocks are traded on other stock exchanges shall be governed by separate provisions (Article 2).

Main contents: A body assigned by the China Securities Regulatory Commission will conduct inspections, and have the authority to employ registered and qualified accountants and lawyers when necessary to complete this task (Article 3). Inspections may be of a routine nature or a specialized nature (Article 4). Routine inspections are conducted to assess the veracity of information, the integrity of management structures, the integrity of accounting Measures, company autonomy and the conformity of actual capital expenditure to that proposed in the company prospectus (Article 5). Special inspections aim to verify whether a problem exists within a company, and deal primarily with matters related to capital usage, stockholder complaints, and material asset restructurings (Article 6). In carrying out its function, the body may request that various documents be provided, including accounting reports, minutes of stockholder meetings and Board of Directors meetings, clarifications of the relationships between majority stockholders and company staff, and explanations of company structures (Article 7). When a problem is discovered, the body will issue the company a notification and grant it a time period in which to make the required changes; a copy of the notification will also be sent to the stock exchange on which the company is listed; the company can appeal within 10 days to the China Securities Regulatory Commission regarding items on which it disagrees (Article 12). Within a month of receiving the notification, the company must submit to the body a report of measures taken to rectify the problem (Article 13). When serious problems are encountered, the China Securities Regulatory Commission will issue public or non-public criticism in accordance with the gravity of the situation (Article 15). Companies under investigation are prohibited from coordinating with the accounting firm conducting an audit (Article 16). Failure of an inspection to reveal illegal acts committed by company officers does not absolve the respective individuals of legal liability for those acts (Article 18).
Repealed legislation: The System for Inspection of Listed Companies Implementing Measures, Dec 20 1996