Shanghai Stock Exchange, Guidelines on Internal Controls of Listed Companies

Promulgated: June 5 2006
Effective: July 1 2006
Interpreting authority: Shanghai Stock Exchange
Applicability: The term "internal controls" refers to the systematic arrangements of a listed company that put under management, the risks existing in the formulation of strategies and the business activities of the company, so as to ensure the realization of the company's strategic objectives (Article 2).

Main contents: Companies listed on the Shanghai Stock Exchange shall establish sound internal control systems in accordance with provisions (Article 3). A listed company's board of directors shall be responsible for the establishment, effective implementation, and inspection and supervision of a sound internal control system for the company. The board of directors and all its members shall ensure the truthfulness, accuracy and completeness of the content of information disclosed relating to internal controls (Article 4). Companies shall establish commensurate internal control systems according to the characteristics of their own business, and the stock exchange encourages companies to engage intermediaries to assist in the establishment of internal control systems (Article 13). Part Three concerns internal control over special risk items such as management control over subsidiaries (Section One) and internal control over the trading of financial derivatives (Section Two). When disclosing an annual report, the board of directors of a listed company shall simultaneously disclose its self-assessment report on internal controls for the year, as well as the verification and evaluation opinions thereon issued by an accounting firm (Article 32).
Related legislation: PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p.21; PRC Securities Law (Amended), Oct 27 2005, CLP 2006 No.1 p.31; Opinions on Improving the Quality of Listed Companies, Oct 19 2005, CLP 2005 No.10 p.7 and Shanghai Stock Exchange, Share Listing Rules