Hong Kong’s Securities and Futures Commission (SFC), Accounting and Financial Reporting Council (AFRC), and the Hong Kong Stock Exchange (HKEX), issued a joint statement expressing serious concern over the sharp increase in listed issuers receiving audit disclaimers solely due to going concern issues. Regulators called on company management to conduct robust going concern assessments and implement viable action plans, audit committees to strengthen independent oversight, and auditors to rigorously evaluate management’s assessments and clearly explain the basis for their opinions. If the situation does not improve significantly, HKEX may amend the Listing Rules to require trading suspensions for issuers whose financial statements contain disclaimers of opinion solely due to going concern issues.
On October 8, the Securities and Futures Commission of Hong Kong (SFC), the Accounting and Financial Reporting Council (AFRC), and the Hong Kong Stock Exchange (HKEX) issued a joint statement in response to regulatory concerns arising from the increasing number of cases in which listed issuers received disclaimers of opinion solely due to going concern issues in their financial statements.
A “disclaimer of opinion” is issued when an auditor is unable to obtain sufficient appropriate audit evidence to form an opinion on a listed issuer’s financial statements, raising concerns about their reliability. The joint statement emphasized that addressing these concerns is a shared responsibility among all participants in the financial reporting ecosystem.
The joint statement outlines specific expectations for the management of listed issuers, audit committees, and auditors to enhance the quality and reliability of financial reporting and safeguard investor confidence.
Extreme Case: A “Disclaimer of Opinion” Lasting 14 Years
In 2019, the HKEX introduced a regulatory framework governing listed issuers’ financial statements, which took effect in September. Under the rules, a listed issuer’s securities are generally subject to suspension if its published financial statements contain a disclaimer of opinion or an adverse opinion issued by its auditor, unless the opinion is disclaimed or adverse solely due to going concern issues.
The exemption from trading suspension was introduced following market consultations, which indicated that such modified audit opinions primarily reflected management’s adoption of the going concern basis of accounting in preparing the financial statements, rather than material errors or inaccuracies in the statements themselves. The exemption was intended to prevent prolonged suspensions from severely restricting investors’ ability to sell their holdings and impairing issuers’ ability to raise funds or comply with certain debt covenants, potentially exacerbating their financial difficulties and accelerating their collapse.
However, this “exception arrangement” has faced challenges in recent years. According to the joint statement, since the rules governing the suspension of trading in listed issuers whose financial statements contain a disclaimer of opinion or an adverse opinion were revised in 2019, the number of listed issuers receiving disclaimers of opinion solely due to going concern issues has increased substantially, rising from 12 in 2017, before the rule amendments, to 95 in 2025. Among these issuers, 65 had been subject to disclaimers of opinion for more than one year, with the longest-running case extending to 14 years. This trend has prompted serious concern among regulators.
According to regulators, disclosures made by some listed issuers in recent years have fallen short of expectations. These disclosures are often overly general and lack sufficient detail, failing to adequately explain the key assumptions underpinning management’s assessment of the issuer’s ability to continue as a going concern, as well as the action plans formulated to address the relevant issues. They also fail to provide substantive information on the matters giving rise to the disclaimer of opinion that is specific to the issuer’s circumstances, and do not set out sufficient grounds to substantiate the audit committee’s views.
Since early 2025, the HKEX has further strengthened its regulatory scrutiny. Any listed issuer whose financial statements contain a disclaimer of opinion issued due to going concern issues is required to publish quarterly update announcements to the market, reporting on the implementation progress and effectiveness of the relevant action plans formulated by management.
However, disclosures by some listed issuers have continued to fall short of expectations, particularly in detailing the progress made in implementing their action plans. Such disclosures have also failed to explain any changes to the original plans, whether revisions are necessary, or other relevant developments. In addition, they have not provided sufficient information to demonstrate that the audit committee has appropriately overseen the implementation of these plans. In December 2025, the Stock Exchange issued further guidance setting out its expectations for disclosures by management regarding the key assumptions underpinning its assessment of the issuer’s ability to continue as a going concern, as well as the action plans formulated in support of that assessment.
Rules May Be Revised If There Is No Significant Improvement
Against this backdrop, the increasing number of disclaimers of opinion has attracted growing regulatory concern, particularly in cases where such disclaimers have persisted for many years. To maintain overall market quality and safeguard investor confidence, the SFC, the AFRC, and the HKEX have urged the management of listed issuers, audit committees, and auditors to properly discharge their respective responsibilities and address the regulatory concerns outlined above.
1. Management of listed issuers:
Management should conduct a careful and comprehensive assessment of the listed issuer’s ability to continue as a going concern, supported by reasonable assumptions, reliable data, and practical and feasible action plans. It should ensure the effective implementation of these plans, review and revise them as necessary in response to changing circumstances, and provide detailed disclosures on an annual and quarterly basis covering the implementation of the plans, including progress made, any deviations from the planned course of action, and any revisions to the plans.
2. Audit committees:
Audit committees should critically review and challenge management’s assessment; proactively communicate with management and the auditor; actively oversee the implementation of action plans; and ensure that the listed issuer’s disclosures clearly explain the auditor’s concerns, the audit committee’s assessment, and the basis for its views.
3. Auditors:
Auditors should rigorously scrutinize management’s assessment of the issuer’s ability to continue as a going concern and assess whether the related disclosures are adequate. They should communicate any deficiencies in the assessment clearly and promptly to management and the audit committee, consider using alternative audit procedures, specifically explain the grounds for issuing a disclaimer of opinion, and continue to fulfill their audit responsibilities in all other areas of the financial statements.
In addition, the SFC, the AFRC, and the HKEX will continue to closely monitor the situation. Where misconduct or regulatory breaches are identified, they will take appropriate regulatory, disciplinary, or enforcement action. If there is no significant improvement in the situation, the HKEX will consider amending the Listing Rules as necessary, including requiring listed issuers whose financial statements contain disclaimers of opinion issued solely due to going concern issues to suspend trading.
To enhance the quality of financial reporting among Hong Kong-listed companies, HKEX also issued new guidance in the first half of this year requiring companies to obtain shareholder approval before appointing or removing an auditor. The measure is intended to prevent companies from using “fee disputes” as a pretext for dismissing their auditors.