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Securities Sponsor Representative (China) study materials
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Securities Sponsor Representative (China) practice questions

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Question 1Role knowledge and relevant Chinese legal/financial foundations

Under China's Comprehensive Registration-Based System (全面注册制), what is the core philosophy shift in the regulatory review of Initial Public Offerings (IPOs) compared to the former approval-based system (核准制)?

  1. The review shifts from substantive merit-based profitability judgment (实质审查) to information-disclosure centered verification (以信息披露为核心) Correct answer.
  2. The review eliminates all statutory financial thresholds and allows unrestricted market-wide self-registration without exchange review
  3. The review grants the China Securities Regulatory Commission (CSRC) sole authority to conduct on-site physical engineering inspections while bypassing stock exchanges
  4. The review transfers final registration and listing approval powers entirely to the Securities Association of China (SAC)

Explanation

The registration system establishes information disclosure as the central pillar (以信息披露为核心). The issuer bears primary responsibility for truthful, accurate, and complete disclosure, and sponsors and other intermediaries perform their assigned verification duties. Exchanges conduct frontline issuance-and-listing review, while the CSRC makes the statutory registration decision and supervises the process. Regulatory review of disclosure compliance does not guarantee investment value or independently certify every statement as true.

Question 2Role knowledge and relevant Chinese legal/financial foundations

According to the listing rules for the Main Board of the Shanghai and Shenzhen Stock Exchanges (主板上市条件), which financial combination represents the standard profitability criteria (First Set of Listing Standards) for an issuer applying for an IPO?

  1. Net profit is positive for the past 3 fiscal years, cumulative net profit >= ¥200 million, most-recent-year net profit >= ¥100 million, and cumulative operating cash flow >= ¥200 million or cumulative operating revenue >= ¥1.5 billion Correct answer.
  2. Net profit is positive for the past 2 consecutive fiscal years, cumulative net profit >= ¥50 million, and operating revenue for the most recent year >= ¥100 million
  3. Expected market cap >= ¥1.0 billion, net profit in the most recent year >= ¥20 million, and R&D spending >= 15% of revenue
  4. Net profit is positive for the most recent fiscal year, operating revenue >= ¥500 million, and cumulative operating cash flow >= ¥50 million

Explanation

Under the current Main Board Listing Rules, Standard 1 requires positive net profit in each of the past 3 fiscal years, cumulative net profit of at least ¥200 million, and net profit in the most recent year of at least ¥100 million. It also requires either cumulative operating cash flow of at least ¥200 million or cumulative operating revenue of at least ¥1.5 billion over those 3 years. Net profit uses the lower figure before or after deducting non-recurring items.

Question 3Role knowledge and relevant Chinese legal/financial foundations

Under the Second Set of Listing Standards for the SSE and SZSE Main Boards, which combination of expected market capitalization, operating revenue, and cash flows is required?

  1. Expected market capitalization >= ¥5.0 billion, most-recent-year net profit positive, most-recent-year operating revenue >= ¥600 million, and cumulative operating cash flow over the past 3 fiscal years >= ¥250 million Correct answer.
  2. Expected market capitalization >= ¥2.0 billion, most recent year operating revenue >= ¥300 million, and cumulative operating cash flow >= ¥50 million
  3. Expected market capitalization >= ¥8.0 billion, most recent year operating revenue >= ¥1.5 billion, and net profit >= ¥100 million
  4. Expected market capitalization >= ¥1.0 billion, most recent year operating revenue >= ¥200 million, and cash flow >= ¥30 million

Explanation

Current Main Board Standard 2 requires expected market capitalization of at least ¥5.0 billion, positive net profit and operating revenue of at least ¥600 million in the most recent fiscal year, and cumulative operating cash flow of at least ¥250 million over the past 3 fiscal years.

Question 4Role knowledge and relevant Chinese legal/financial foundations

Under the Third Set of Listing Standards for the SSE and SZSE Main Boards, what are the statutory thresholds for expected market capitalization and operating revenue?

  1. Expected market capitalization >= ¥10.0 billion, most-recent-year net profit positive, and operating revenue in the most recent fiscal year >= ¥1.0 billion Correct answer.
  2. Expected market capitalization >= ¥10.0 billion, and operating revenue in the most recent fiscal year >= ¥1.0 billion
  3. Expected market capitalization >= ¥5.0 billion, and operating revenue in the most recent fiscal year >= ¥500 million
  4. Expected market capitalization >= ¥4.0 billion, and operating revenue in the most recent fiscal year >= ¥300 million

Explanation

Current Main Board Standard 3 requires expected market capitalization of at least ¥10.0 billion, positive net profit in the most recent fiscal year, and operating revenue of at least ¥1.0 billion in that year.

Question 5Role knowledge and relevant Chinese legal/financial foundations

An enterprise applying for an IPO on the Science and Technology Innovation Board (STAR Market / 科创板) chooses Listing Standard 1. Which combination of financial criteria must it satisfy?

  1. Expected market cap >= ¥1.0 billion, net profit positive in the past 2 years with cumulative net profit >= ¥50 million, OR expected market cap >= ¥1.0 billion, net profit positive in the most recent year with operating revenue >= ¥100 million Correct answer.
  2. Expected market cap >= ¥1.5 billion, operating revenue in the most recent year >= ¥200 million, and R&D spending >= 10% of revenue in the past 3 years
  3. Expected market cap >= ¥2.0 billion, operating revenue in the most recent year >= ¥300 million, and operating cash flow over the past 3 years >= ¥100 million
  4. Expected market cap >= ¥3.0 billion, operating revenue in the most recent year >= ¥400 million, without any net profit requirement

Explanation

STAR Market Listing Standard 1 requires an expected market capitalization of not less than ¥1.0 billion, and either: (1) positive net profit in the past 2 years with cumulative net profit >= ¥50 million (deducting non-recurring items, whichever is lower); or (2) positive net profit in the most recent year with operating revenue >= ¥100 million.

Question 6Role knowledge and relevant Chinese legal/financial foundations

Under the current STAR Market rules for evaluating sci-tech innovation attributes (科创属性), which option correctly states the four conventional indicators?

  1. R&D expenses >= 5% of revenue over the past 3 years or cumulative R&D >= ¥80 million; R&D personnel >= 10%; at least 7 industrialized invention patents used in the main business; and 3-year revenue CAGR >= 25% or most-recent-year revenue >= ¥300 million Correct answer.
  2. R&D expenses >= 3% of revenue over the past 2 years; R&D personnel >= 5% of total employees; utility model patents >= 10; and compound revenue growth rate >= 15%
  3. R&D expenses >= 10% of revenue over the past 3 years; invention patents >= 20; and operating revenue in the most recent year >= ¥500 million
  4. R&D expenses cumulative >= ¥100 million; overseas invention patents >= 2; and market share ranked top 3 nationally

Explanation

The current STAR Market rule lists four conventional indicators: (1) 3-year R&D investment at least 5% of revenue or cumulative R&D of at least ¥80 million; (2) R&D personnel at least 10% of employees; (3) at least 7 invention patents used in the main business and capable of industrialization; and (4) 3-year revenue CAGR at least 25% or most-recent-year revenue at least ¥300 million. The rule also states limited board-, industry-, and listing-standard exceptions.

Question 7Role knowledge and relevant Chinese legal/financial foundations

If a STAR Market applicant does not satisfy all four conventional sci-tech indicators, which is one current alternative circumstance supporting eligibility?

  1. The issuer, as a principal participating unit, or its core technical personnel as principal participants, won a qualifying national natural-science, science-and-technology-progress, or technological-invention award and applies the technology in its main business Correct answer.
  2. The issuer has obtained at least 50 software copyrights and 20 utility model patents
  3. The issuer has received equity investment from at least three provincial state-owned guidance funds
  4. The issuer's products have achieved over 50% market share in the provincial domestic market

Explanation

The current rule lists five alternative circumstances. They include officially recognized internationally leading or nationally significant core technology; qualifying national science, technology-progress, or invention awards applied in the main business; leading a relevant major national science-and-technology project; import-substituting key products based on core technology; or at least 50 industrialized invention patents forming core technology and used in the main business.

Question 8Role knowledge and relevant Chinese legal/financial foundations

Under STAR Market Listing Standard 5 (Fifth Set of Standards for Pre-Revenue Enterprises), which specific condition applies to innovative biopharmaceutical enterprises?

  1. Expected market capitalization >= ¥4.0 billion, and at least one core product must have been approved to enter Phase II clinical trials by the competent drug regulatory authority Correct answer.
  2. Expected market capitalization >= ¥1.0 billion, and all core products must have obtained commercial production approval licenses
  3. Expected market capitalization >= ¥2.0 billion, with cumulative revenue over the past 3 years >= ¥50 million
  4. Expected market capitalization >= ¥5.0 billion, and at least 3 drug candidates must have completed global Phase III multicenter clinical trials

Explanation

STAR Market Standard 5 is tailored for pre-revenue biotech and high-tech firms. It requires an expected market capitalization of not less than ¥4.0 billion, the main business or products must be approved by the relevant state departments, the market space must be large, and for biopharmaceutical enterprises, at least one core product must have been approved to enter Phase II clinical trials.

Question 9Role knowledge and relevant Chinese legal/financial foundations

What is the core market positioning of the ChiNext board (创业板) under the Comprehensive Registration-Based System, commonly summarized as 'Three Innovations and Four New' (三创四新)?

  1. Supporting growth-oriented innovative and creative enterprises (创新、创造、创意) and promoting deep integration of traditional industries with new technologies, new industries, new business formats, and new models (新技术、新产业、新业态、新模式) Correct answer.
  2. Focusing exclusively on state-owned pillar enterprises in traditional manufacturing and heavy infrastructure
  3. Serving early-stage incubation enterprises and micro-enterprises with fewer than 20 employees and no operating history
  4. Focusing exclusively on hard-technology breakthroughs in national strategic frontier defense and aerospace sectors

Explanation

ChiNext is positioned to serve growth-oriented innovative and creative enterprises (三创: 创新、创造、创意), supporting the deep integration of traditional industries with new technologies, new industries, new business formats, and new models (四新: 新技术、新产业、新业态、新模式). Hard technology focuses primarily on the STAR Market, while blue chips focus on the Main Board.

Question 10Role knowledge and relevant Chinese legal/financial foundations

Under the revised ChiNext Listing Rules (2024 Revision), what are the updated financial thresholds for ChiNext Listing Standard 1 (First Set of Standards)?

  1. Net profit is positive in the past 2 consecutive fiscal years, cumulative net profit >= ¥100 million, and net profit in the most recent year >= ¥60 million Correct answer.
  2. Net profit is positive in the past 2 consecutive fiscal years, cumulative net profit >= ¥50 million, without any single-year profit floor
  3. Net profit is positive in the past 3 consecutive fiscal years, cumulative net profit >= ¥150 million
  4. Expected market capitalization >= ¥1.0 billion, and operating revenue in the most recent year >= ¥50 million

Explanation

Under the 2024 revised ChiNext Listing Rules, Standard 1 was raised to enhance quality: the issuer must have positive net profit in the past 2 consecutive fiscal years, with cumulative net profit of not less than ¥100 million (deducting non-recurring gains/losses, whichever is lower), and net profit in the most recent fiscal year of not less than ¥60 million.

Question 11Role knowledge and relevant Chinese legal/financial foundations

Which of the following is a mandatory prerequisite for an enterprise applying for a public offering and listing on the Beijing Stock Exchange (BSE / 北交所)?

  1. The enterprise must be an existing company listed in the Innovation Tier (创新层) of the National Equities Exchange and Quotations (NEEQ / 新三板) for at least 12 consecutive months Correct answer.
  2. The enterprise must have total registered share capital of at least ¥100 million prior to the offering
  3. The enterprise must have completed a pre-IPO convertible bond financing of at least ¥50 million
  4. The enterprise must have been rated as a National Manufacturing Single Champion (国家级制造业单项冠军) by the MIIT

Explanation

According to the BSE Stock Listing Rules, an issuer applying for a public offering and listing on the Beijing Stock Exchange must be a company that has been continuously listed in the Innovation Tier (创新层) of the NEEQ (新三板) for at least 12 consecutive months.

Question 12Role knowledge and relevant Chinese legal/financial foundations

Under BSE Listing Standard 1 (First Set of Standards), which combination of market capitalization and financial performance must the issuer satisfy?

  1. Expected market capitalization >= ¥200 million; net profit positive for the past 2 years with cumulative net profit >= ¥15 million (weighted average ROE >= 8%), OR net profit positive in the most recent year >= ¥25 million (weighted average ROE >= 8%) Correct answer.
  2. Expected market capitalization >= ¥500 million, and cumulative net profit over the past 3 years >= ¥50 million
  3. Expected market capitalization >= ¥100 million, and operating revenue in the most recent year >= ¥50 million
  4. Expected market capitalization >= ¥1.0 billion, and R&D expenses >= 10% of revenue in the past 2 years

Explanation

BSE Standard 1 requires an expected market capitalization of not less than ¥200 million, and either: (1) positive net profit in the past 2 years with cumulative net profit >= ¥15 million and weighted average ROE >= 8%; or (2) positive net profit in the most recent year of not less than ¥25 million with weighted average ROE >= 8% (deducting non-recurring gains/losses, whichever is lower).

Question 13Role knowledge and relevant Chinese legal/financial foundations

Under BSE Listing Standard 4 (Fourth Set of Standards, tailored for innovative R&D-driven SMEs), which criteria must be satisfied?

  1. Expected market capitalization >= ¥1.5 billion, and cumulative R&D investment over the past 2 years >= ¥50 million Correct answer.
  2. Expected market capitalization >= ¥800 million, and operating revenue >= ¥200 million with 50% CAGR
  3. Expected market capitalization >= ¥400 million, and operating cash flow >= ¥30 million in the most recent year
  4. Expected market capitalization >= ¥2.0 billion, without any R&D or revenue benchmark

Explanation

BSE Standard 4 caters to innovative enterprises that may not yet have high operating revenue or profitability. It requires an expected market capitalization of not less than ¥1.5 billion and cumulative R&D investment of not less than ¥50 million over the past 2 fiscal years.

Question 14Role knowledge and relevant Chinese legal/financial foundations

Under the Measures for the Administration of Securities Issuance and Listing Sponsorship (证券发行上市保荐业务管理办法), what is the statutory 'Dual-Signature System' (双签制) requirement for underwriting an IPO?

  1. Each IPO sponsorship project must be signed by at least two registered Sponsor Representatives (保荐代表人) who are formally designated by the sponsor institution Correct answer.
  2. Each IPO project must be signed by one Sponsor Representative and one independent external Certified Public Accountant
  3. Each IPO project must be signed by the Chairman of the sponsor firm and the Chairman of the issuer
  4. Each IPO project must be signed by two Project Assistants (项目协办人) who have passed the licensing examination

Explanation

Article 15 of the Sponsorship Measures mandates that a sponsor institution must designate two registered Sponsor Representatives (保荐代表人) to be specifically responsible for the sponsorship work of each issuance and listing project. Both sponsor representatives must sign the sponsorship letter and related due diligence documents.

Question 15Role knowledge and relevant Chinese legal/financial foundations

Under current CSRC and SAC sponsorship regulations, what is the policy regarding the concurrent number of active signing projects (签字项目数量) for a registered Sponsor Representative?

  1. The rigid project sign-off quota (formerly limited to '2+2' projects) has been replaced by dynamic risk management and quality-control evaluation, allowing sponsor representatives to concurrently sign projects based on the firm's internal capacity, subject to enhanced sponsor responsibility Correct answer.
  2. A Sponsor Representative is permanently restricted to signing only 1 IPO project and 0 refinancing projects nationwide
  3. A Sponsor Representative can sign up to 20 IPO projects simultaneously without any internal quality control review
  4. Only the legal representative of the securities company is permitted to decide the number of projects without notifying stock exchanges

Explanation

In the 2020/2023 revisions to the Sponsorship Measures, regulatory authorities eliminated the rigid historical sign-off limit ('two IPOs and two refinancings') in favor of market-oriented self-discipline, internal risk control, and dynamic regulatory scoring. However, the sponsor institution and representatives bear comprehensive legal liability for due diligence quality across all signed projects.

Question 16Role knowledge and relevant Chinese legal/financial foundations

What is the statutory minimum retention period for Sponsor Due Diligence Working Papers (保荐工作底稿) after the securities have been listed or the sponsorship agreement has been terminated?

  1. Not less than 20 years Correct answer.
  2. Not less than 5 years
  3. Not less than 10 years
  4. Permanently for 100 years without any exception

Explanation

According to the CSRC Measures for the Administration of Securities Issuance and Listing Sponsorship and the Working Paper Guidelines, sponsor institutions must properly preserve all due diligence working papers (工作底稿) and verification records for not less than 20 years from the date of listing or termination.

Question 17Role knowledge and relevant Chinese legal/financial foundations

When a sponsor institution and its sponsor representatives rely on professional reports issued by third-party intermediaries (e.g., CPA audit reports, legal opinions, asset valuation reports), what is their statutory due diligence obligation?

  1. The sponsor must perform independent verification and professional judgment on the basic principles, calculation logic, and source data, and cannot be exempted from liability merely by citing third-party reports Correct answer.
  2. The sponsor is automatically exempt from all legal liability for any misstatements contained in parts covered by external professional reports
  3. The sponsor must re-perform a complete independent 100% re-audit of the accounting records from scratch using its own internal accounting firm
  4. The sponsor only needs to verify that the third-party intermediary possesses a valid business license and official seal

Explanation

Under Article 35 of the Sponsorship Measures and judicial interpretations on false statements, sponsor representatives must maintain professional skepticism and perform independent review and verification (独立核查与职业判断) on professional opinions. They cannot blindly rely on third-party opinions or claim absolute immunity when obvious red flags or flaws exist in the source data.

Question 18Role knowledge and relevant Chinese legal/financial foundations

In an IPO initial inquiry process (初步询价) under the Comprehensive Registration-Based System, how is the statutory highest-quotation exclusion rule (剔除最高报价) applied?

  1. The issuer and lead underwriter must eliminate the highest quotation part, which shall not be lower than 1% and not higher than 3% of the total proposed subscription volume by all offline investors Correct answer.
  2. The highest 10% of all quotation prices must be unconditionally eliminated in all offline bookbuilding offerings
  3. No quotations may be eliminated; all submitted prices must be included in the weighted average price calculation
  4. The lead underwriter has full discretion to eliminate up to 50% of the lowest quotation volumes

Explanation

Under the unified Securities Issuance and Underwriting Management Measures under the Comprehensive Registration System, the lead underwriter and issuer must eliminate the highest quotation portion during preliminary inquiry, which must be not lower than 1% and not higher than 3% of the total offline subscription quantity. The eliminated bids cannot participate in offline allocation.

Question 19Role knowledge and relevant Chinese legal/financial foundations

An issuer plans an initial public offering of 100 million shares. If the issuer and lead underwriter decide to adopt the Over-Allotment Option ('Greenshoe' / 超额配售选择权), what is the maximum number of additional shares that may be over-allotted, and what is its primary stabilization mechanism?

  1. Up to 15 million shares (15% of initial offering size); if the secondary market price falls below the offering price within 30 days of listing, the lead underwriter uses over-allotment funds to buy shares in the secondary market to support the stock price Correct answer.
  2. Up to 30 million shares (30% of initial offering size); the lead underwriter must issue new shares at a 50% discount to retail investors
  3. Up to 5 million shares (5% of initial offering size); the funds are deposited into an escrow account and forfeited to the stock exchange if the price rises
  4. Up to 50 million shares (50% of initial offering size); the issuer must repurchase all over-allotted shares within 5 trading days

Explanation

The greenshoe option allows over-allotting up to 15% of the initial offering size (15 million shares on a 100M share base). Within 30 calendar days of listing: if the market price is below the offer price, the lead underwriter purchases shares in the secondary market to stabilize the price; if above the offer price, the underwriter demands the issuer issue new shares to fulfill delivery.

Question 20Role knowledge and relevant Chinese legal/financial foundations

What is the statutory lock-up period for Strategic Investors (战略投资者) participating in an IPO strategic placement, and what is the lock-up period for the sponsor's alternative investment subsidiary under the STAR Market mandatory follow-up investment (跟投) rules?

  1. At least 12 months for standard strategic investors; exactly 24 months for the sponsor's alternative investment subsidiary co-investment shares Correct answer.
  2. At least 6 months for standard strategic investors; 12 months for sponsor co-investment shares
  3. At least 36 months for all strategic investors including sponsor subsidiaries
  4. Zero lock-up; strategic investors can sell on the secondary market from the first day of listing

Explanation

Under IPO underwriting regulations, strategic investors must lock up their allocated shares for at least 12 months from the date of listing. For the STAR Market, where the sponsor's alternative investment subsidiary is mandated to participate in follow-up co-investment (跟投), the subsidiary's lock-up period is strictly 24 months from listing.

Question 21Role knowledge and relevant Chinese legal/financial foundations

Under the STAR Market follow-up co-investment mechanism (保荐机构跟投制度), how is the co-investment ratio of the sponsor's alternative investment subsidiary determined based on the total IPO offering proceeds?

  1. Tiered from 2% to 5% of IPO offering size: 5% for offerings < ¥1.0B (cap ¥40M); 4% for ¥1.0B-¥2.0B (cap ¥60M); 3% for ¥2.0B-¥5.0B (cap ¥100M); 2% for >= ¥5.0B (cap ¥1.0B) Correct answer.
  2. A flat 10% co-investment across all IPO offering sizes without any monetary cap
  3. A flat 1% co-investment across all offerings capped at ¥10 million
  4. Zero co-investment unless the issuer has recorded net losses in the preceding 3 years

Explanation

SSE STAR Market underwriting guidelines mandate tiered co-investment for the sponsor's alternative investment subsidiary: (1) offering size < ¥1.0 billion: 5% (up to ¥40M); (2) ¥1.0B–¥2.0B: 4% (up to ¥60M); (3) ¥2.0B–¥5.0B: 3% (up to ¥100M); (4) >= ¥5.0 billion: 2% (up to ¥1.0B). Lock-up is strictly 24 months.

Question 22Role knowledge and relevant Chinese legal/financial foundations

For an enterprise applying for an IPO on the Main Board of SSE/SZSE, what are the statutory requirements regarding post-issuance total share capital (总股本) and the minimum proportion of publicly issued shares (公众股比例)?

  1. Post-issuance total share capital >= ¥50 million; publicly issued shares >= 25% of total share capital (or >= 10% if total share capital exceeds ¥400 million) Correct answer.
  2. Post-issuance total share capital >= ¥30 million; publicly issued shares >= 20% in all circumstances
  3. Post-issuance total share capital >= ¥100 million; publicly issued shares >= 35%
  4. Post-issuance total share capital >= ¥20 million; publicly issued shares >= 15%

Explanation

According to the Company Law and Main Board Listing Rules: (1) post-issuance total share capital must be not less than ¥50 million; (2) the publicly issued shares must account for at least 25% of the company's total shares; if total share capital exceeds ¥400 million, the public float proportion can be reduced to not less than 10%.

Question 23Role knowledge and relevant Chinese legal/financial foundations

For a red-chip enterprise (红筹企业) or an enterprise with Weighted Voting Rights (WVR / 差异化表决权架构) applying for an IPO on the STAR Market without meeting standard profitability, which market capitalization and revenue combination is required?

  1. Expected market capitalization >= ¥10.0 billion; OR expected market capitalization >= ¥5.0 billion with operating revenue in the most recent year >= ¥500 million Correct answer.
  2. Expected market capitalization >= ¥5.0 billion; OR expected market capitalization >= ¥2.0 billion with operating revenue >= ¥200 million
  3. Expected market capitalization >= ¥20.0 billion, regardless of revenue or technology sector
  4. Expected market capitalization >= ¥3.0 billion with positive net profit in the most recent 3 fiscal years

Explanation

Under the STAR Market Listing Rules for red-chip enterprises and enterprises with special voting rights arrangements, if the company is not yet profitable, it must satisfy either: (1) expected market capitalization >= ¥10.0 billion; or (2) expected market capitalization >= ¥5.0 billion and operating revenue in the most recent year >= ¥500 million.

Question 24Role knowledge and relevant Chinese legal/financial foundations

Under the Comprehensive Registration-Based System, after a stock exchange issues its review decision approving an issuer's IPO application and reports it to the CSRC, within how many working days must the CSRC make a decision on whether to grant registration?

  1. Within 20 working days (excluding the time used by the issuer and sponsor to respond to inquiries or resolve special issues) Correct answer.
  2. Within 3 calendar months strictly without any extensions
  3. Within 5 working days unconditionally
  4. Within 6 months, after which the application is automatically deemed approved

Explanation

According to the Measures for the Administration of Initial Public Offering and Listing Registration, the CSRC shall make a decision to grant or refuse registration within 20 working days upon receiving the stock exchange's review opinion and relevant registration application documents. The time consumed by the issuer answering CSRC inquiries, on-site inspections, or suspending review is excluded from the 20-day limit.

Question 25Role knowledge and relevant Chinese legal/financial foundations

What is the general statutory continuous operation timeline requirement for an issuer applying for an IPO in China, and how is it calculated if a limited liability company (LLC) converts into a joint stock company (JSC)?

  1. The issuer must have continuously operated for more than 3 years as a joint stock company; if an LLC converts into a JSC based on its original audited book net assets, the operating period of the LLC can be calculated consecutively Correct answer.
  2. The issuer must have operated for at least 5 years as a JSC; the prior operating period of the predecessor LLC is completely discarded
  3. The issuer only needs 1 full year of continuous operation if its registered capital exceeds ¥100 million
  4. The issuer must have operated for 10 years if applying for the Main Board, and 1 year for ChiNext

Explanation

Under the IPO Registration Measures, the issuer must have been established and continuously operated as a joint stock company for more than 3 years. Where a limited liability company is converted into a joint stock company based on audited book net assets (按原账面净资产值折股整体变更), the operating duration can be calculated consecutively from the date of establishment of the original limited liability company.

Question 26Role knowledge and relevant Chinese legal/financial foundations

During pre-IPO corporate restructuring, a Limited Liability Company with audited net assets of ¥180 million (including ¥50 million paid-in capital, ¥30 million capital reserve, and ¥100 million retained earnings) converts into a Joint Stock Limited Company (股份有限公司). Which of the following equity conversion structures complies with PRC Company Law and CSRC regulations?

  1. Converting the net assets into 100 million shares with par value of ¥1.00 per share (total share capital of ¥100 million), with the remaining ¥80 million credited to capital reserve (资本公积) Correct answer.
  2. Converting the net assets into 200 million shares with par value of ¥1.00 per share (total share capital of ¥200 million)
  3. Converting the net assets into 180 million shares with par value of ¥1.50 per share (total share capital of ¥270 million)
  4. Converting only the original ¥50 million registered capital into shares while distributing the remaining ¥130 million as cash dividends directly to shareholders without tax withholding

Explanation

Under PRC Company Law Article 168 (and 2023 revision Art. 216), when an LLC converts into a joint stock company, the total converted share capital (折合的股本总额) must not exceed the audited net asset value of the company. Converting ¥180 million net assets into ¥100 million share capital (100 million shares at ¥1.00 par) and ¥80 million capital reserve is fully compliant.

Question 27Role knowledge and relevant Chinese legal/financial foundations

During pre-IPO due diligence, the sponsor representative discovers that an early founder holds 10% of the issuer's shares on behalf of an undisclosed investor under a private Nominee Shareholding Agreement (股权代持协议). How must this issue be resolved prior to IPO application filing?

  1. The nominee shareholding arrangement must be completely dissolved and cleaned up (彻底清理解除), with clear equity transfer/restoration agreements signed, consideration settled, tax liabilities paid, and genuine equity ownership verified without any disputes Correct answer.
  2. The nominee arrangement can remain active as long as the nominee agrees to sign a power of attorney granting voting rights to the chairman
  3. The nominee agreement only needs to be notarized by a local notary office without public disclosure or restructuring
  4. The undisclosed beneficiary can simply be replaced by an offshore BVI shell company without penetrating the ultimate beneficial owner

Explanation

CSRC regulations require pre-IPO shareholding to be clear and unambiguous (股权清晰，权属明确). All nominee shareholding arrangements (代持股 / 委托持股) must be completely resolved, terminated, and clearly verified prior to filing. The sponsor must verify the original funds flow, tax settlements, and confirm there are no outstanding disputes or hidden legal risks.

Question 28Role knowledge and relevant Chinese legal/financial foundations

Under the CSRC Regulatory Guidelines for Shareholder Due Diligence (监管规则适用指引--关于申请首发上市企业股东信息披露), what is the definition and lock-up requirement for 'Pre-IPO Share Rushing' (突击入股)?

  1. New shareholders who acquire shares within 12 months prior to the date the IPO application is accepted by the stock exchange must commit to a lock-up period of 36 months from the date of completing commercial registration / obtaining equity Correct answer.
  2. New shareholders acquiring shares within 6 months prior to filing must lock up their shares for 12 months from the listing date
  3. Any shareholder who acquires shares within 24 months prior to filing must lock up their shares for 5 years from listing
  4. Shareholders acquiring shares within 3 months prior to filing must donate all capital gains to the Securities Investor Protection Fund

Explanation

Under CSRC shareholder information disclosure rules, shareholders who acquire shares in the issuer within 12 months prior to the acceptance of the IPO application (突击入股) must commit not to transfer or entrust others to manage their acquired shares within 36 months from the date of acquiring the equity (or completing industrial and commercial registration of the capital increase).

Question 29Role knowledge and relevant Chinese legal/financial foundations

Under the CSRC Provisions on Former CSRC-System Personnel Investing in Prospective Listed Companies (Trial), which set of post-departure investment prohibition periods is correct?

  1. 10 years for former issuance-regulation personnel or centrally managed cadres; 5 years for other former deputy-division-level or higher personnel; and 4 years for other personnel below that level Correct answer.
  2. Within 10 years for all former employees regardless of rank
  3. Within 6 months from departure for all staff members
  4. There is no cooling-off period if the former official invests through an open-ended mutual fund

Explanation

The trial provisions effective October 8, 2024 set a 10-year prohibition for a person who worked in an issuance-regulation post during the five years before departure or was a centrally managed cadre. Other former personnel at deputy-division level or above face 5 years, and other personnel below that level face 4 years. Intermediaries must conduct the prescribed look-through verification.

Question 30Role knowledge and relevant Chinese legal/financial foundations

An issuer has established a Pre-IPO Employee Stock Ownership Plan (ESOP / 员工持股平台) structured as a Limited Partnership (有限合伙企业) with 60 employee partners. Under what conditions is this partnership counted as a single shareholder (rather than 60 penetrated shareholders) for the statutory 200-shareholder limit (200人股东上限)?

  1. The ESOP was established prior to the IPO application, has completed proper internal approval and registration, is closed to outside investors, and does not engage in external investments other than holding the issuer's shares Correct answer.
  2. The ESOP must be managed by an external licensed private equity fund manager and trade listed equities actively
  3. The ESOP must distribute all dividend income in physical cash within 24 hours of receipt
  4. The partnership must include at least 5 independent directors as limited partners

Explanation

Under CSRC guidelines, if an employee stock ownership platform is set up as a partnership prior to filing, is strictly limited to current employees, has closed membership, implements clear lock-up and retirement transfer rules, and does not engage in external investments, it is counted as one single shareholder when calculating the 200-shareholder threshold under the Securities Law.

Question 31Role knowledge and relevant Chinese legal/financial foundations

Under Chinese Accounting Standards for Business Enterprises (CAS 36) and stock exchange listing rules, which of the following natural persons or entities is definitively classified as a Related Party (关联方) of the issuer?

  1. A commercial enterprise directly controlled by the spouse of the issuer's Chief Financial Officer (CFO) Correct answer.
  2. A commercial bank that provides standard mortgage loans to the issuer's rank-and-file factory workers at market rates
  3. A utility power supply company that holds a natural local electricity distribution monopoly
  4. A customer who accounted for 3% of the issuer's total sales volume in the past fiscal year with zero equity relationship

Explanation

Under CAS 36 and Stock Listing Rules, senior management (including the CFO), directors, and their close family members (spouses, parents, children, siblings) are related natural persons. Any enterprise directly or indirectly controlled or significantly influenced by these close family members is a statutory related legal entity.

Question 32Role knowledge and relevant Chinese legal/financial foundations

What is the primary corporate governance requirement when an issuer's Board of Directors or General Meeting of Shareholders deliberates on a Related-Party Transaction (关联交易)?

  1. Related directors and related shareholders must recuse themselves from voting (回避表决), and the transaction must follow applicable approval, disclosure, and fair-pricing requirements Correct answer.
  2. The related party must cast an affirmative vote of at least 80% to ensure transactional commitment
  3. The transaction only requires verbal confirmation from the Chairman without recording board minutes
  4. Related-party transactions are strictly illegal and cannot be executed under any circumstances

Explanation

PRC Company Law, articles-of-association rules, and exchange listing rules require interested directors and shareholders to recuse themselves where the relevant conflict provisions apply. The issuer must also follow the transaction's applicable approval and disclosure process and substantiate fair pricing; the precise approval body and any independent opinion depend on the transaction and current rule.

Question 33Role knowledge and relevant Chinese legal/financial foundations

Under the Comprehensive Registration-Based System, what is the regulatory standard for evaluating Horizontal Competition (同业竞争) between an IPO applicant and its controlling shareholder / actual controller?

  1. The competition must not create a material adverse impact (重大不利影响); the sponsor must analyze the business relationship and apply the current regulatory presumption and rebuttal framework Correct answer.
  2. The controlling shareholder cannot own any other business entities in any industry sector worldwide
  3. Horizontal competition is completely ignored as long as the competing entity is located in a different city
  4. The issuer can simply pay an annual royalty fee to the controlling shareholder's competing business without disclosing it

Explanation

The registration framework focuses on whether horizontal competition creates a material adverse impact. Current guidance includes a rebuttable presumption tied to specified revenue or gross-profit proportions and requires substantive analysis of products, customers, suppliers, substitutability, and independence. It does not establish a generic alternative 10% test for every issuer.

Question 34Role knowledge and relevant Chinese legal/financial foundations

During pre-IPO due diligence, the sponsor representative discovers that the controlling shareholder has borrowed ¥30 million from the issuer for personal real estate investments without board approval. What is the mandatory regulatory requirement regarding this Non-Operating Fund Occupation (非经营性资金占用)?

  1. The controlling shareholder must fully repay the entire principal and corresponding market-rate interest, and completely rectify all non-operating fund occupations prior to the acceptance of the IPO application Correct answer.
  2. The controlling shareholder can sign an agreement promising to repay the loan within 5 years after the company successfully lists and raises IPO proceeds
  3. The ¥30 million can be written off as bad debt expense on the issuer's income statement to clean up the balance sheet
  4. The issuer can convert the loan into an unlisted corporate bond issued by the controlling shareholder's private shell company

Explanation

CSRC rules prohibit non-operating occupation of issuer funds by controlling shareholders, actual controllers, or their affiliates. An unresolved occupation is incompatible with IPO eligibility. The amount and appropriate interest must therefore be repaid, the control failure remediated, and the remediation independently verified before the application proceeds.

Question 35Role knowledge and relevant Chinese legal/financial foundations

An IPO applicant provided a loan guarantee of ¥50 million for an affiliated sister company 2 years ago, which violated internal decision-making procedures. What must the sponsor representative verify regarding this illegal external guarantee (违规担保)?

  1. The illegal guarantee must be completely released (彻底解除), or the guaranteed debt must be fully repaid and extinguished prior to filing the IPO application Correct answer.
  2. The guarantee can remain in place as long as the sister company provides a written verbal reassurance of solvency
  3. The guarantee must be increased to ¥100 million to demonstrate the issuer's financial strength
  4. The sponsor representative can sign an indemnity bond assuming personal responsibility for the guarantee

Explanation

Non-compliant or illegal external guarantees represent major contingent liabilities and governance flaws. Regulatory guidelines require that all illegal guarantees for controlling shareholders or affiliated parties must be fully released, cancelled, or the underlying obligations discharged before submitting an IPO application.

Question 36Role knowledge and relevant Chinese legal/financial foundations

What type of audit opinion must be issued by a qualified Certified Public Accounting (CPA) firm on the issuer's Internal Controls (内部控制鉴证/审计报告) for an IPO application to be acceptable under CSRC rules?

  1. An Unqualified Assurance/Audit Opinion (无保留意见) Correct answer.
  2. A Qualified Opinion (保留意见) with emphasis of matter on inventory management
  3. A Disclaimer of Opinion (无法表示意见) explaining system migrations
  4. An Adverse Opinion (否定意见) indicating material weaknesses in sales billing

Explanation

Under the IPO Registration Measures, the certified public accountant must issue an Unqualified Assurance Report or Audit Report (无保留意见的内部控制鉴证报告/审计报告) confirming that the issuer's internal controls over financial reporting are effective in all material respects.

Question 37Role knowledge and relevant Chinese legal/financial foundations

In financial due diligence, what is the primary objective of performing a Revenue Cut-Off Test (收入截止性测试 / 截断测试) around the balance sheet date?

  1. To verify whether revenue was recorded in the correct accounting period by cross-referencing sales contracts, shipping notes, customer delivery receipts (客户签收单), and export customs declarations (报关单) immediately before and after the period end Correct answer.
  2. To calculate the total amount of income tax depreciation write-offs for the next 10 years
  3. To verify whether all employees received their year-end performance bonuses before December 31
  4. To determine the replacement cost of factory real estate using the replacement cost valuation method

Explanation

A revenue cut-off test checks whether transactions are recorded in the proper accounting period and whether the stated transfer-of-control condition occurred. The team selects an appropriate window and sample around period end and traces contracts, shipping documents, acceptance records, bills of lading, customs documents, returns, and subsequent cash evidence. The window is risk- and methodology-dependent, not universally 15 days.

Question 38Role knowledge and relevant Chinese legal/financial foundations

When verifying an issuer with a distributor sales model (经销模式), which of the following red flags strongly indicates potential 'Channel Stuffing' (渠道压货 / 虚构渠道销售)?

  1. Distributor purchase volumes surge dramatically at the end of the fiscal year, distributor inventory levels are abnormally high, terminal sell-through rates (终端销售率) are low, and generous unconditional return agreements exist Correct answer.
  2. Distributors settle payments exclusively through bank wire transfers and maintain minimal warehouse inventory
  3. Distributors have operated in partnership with the issuer for over 10 years with steady monthly ordering patterns
  4. Distributors maintain electronic ERP data links that show rapid inventory turnover to third-party retail end-users

Explanation

Channel stuffing involves forcing excess inventory into distributor channels to artificially inflate current-period revenue. Key indicators include abnormal year-end sales spikes, bloated distributor warehouse stock, low end-user sell-through rates, and side agreements allowing post-year-end product returns or extended credit terms.

Question 39Role knowledge and relevant Chinese legal/financial foundations

What are the strict control requirements when a sponsor representative and auditor conduct Customer External Confirmations (客户函证与走访) during IPO due diligence?

  1. The audit and sponsor team must control the confirmation process independently, verify recipient details through sources independent of management, and use risk-based visits or other independent procedures for material customers Correct answer.
  2. The issuer's sales department can collect all confirmation letters from customers and deliver them in bulk to the sponsor's office
  3. External confirmations can be completely replaced by email screenshots forwarded by the issuer's CFO
  4. Confirmations are only required for customers who have experienced legal disputes with the issuer

Explanation

Under auditing standards and sponsor due-diligence rules, confirmations must remain under the intermediary's control from dispatch through receipt, and recipient contact details must be checked independently of issuer management. Material or higher-risk customers require sufficiently persuasive independent verification, which may include site visits, video procedures, records checks, or alternative procedures appropriate to the risk; a single universal visit rule should not replace professional judgment.

Question 40Role knowledge and relevant Chinese legal/financial foundations

Under CAS 14 (New Revenue Standard / 新收入准则), how should an enterprise determine whether revenue should be recognized on a Gross Basis (总额法) versus a Net Basis (净额法)?

  1. If the enterprise obtains control of the specified good or service before it is transferred to the customer (acting as Principal / 主要责任人), it recognizes revenue on a Gross Basis; if it only arranges for another party to provide the goods (acting as Agent / 代理人), it recognizes revenue on a Net Basis Correct answer.
  2. All trading companies must use the Gross Basis regardless of control or risk allocation
  3. The choice between Gross and Net is an accounting policy choice that can be changed freely every quarter to optimize revenue growth metrics
  4. Revenue must be recognized on a Net Basis whenever the gross profit margin is lower than 50%

Explanation

CAS 14 establishes the core test of 'control' (控制权): an entity acts as a Principal (recognizing gross revenue) if it controls the promised goods before transfer, bears primary responsibility for fulfillment, holds inventory risk, and possesses pricing discretion. If it acts as an Agent arranging third-party delivery without control, revenue must be recognized net of supplier costs.

Question 41Role knowledge and relevant Chinese legal/financial foundations

Under CAS 6 (Intangible Assets) and CSRC IPO financial review guidelines, what are the conditions for Capitalizing R&D Expenditures (研发支出资本化)?

  1. Expenditures during the Research Phase must be expensed; expenditures during the Development Phase can be capitalized only when technical feasibility, clear intention to complete, economic benefit generation, and reliable cost measurement are conclusively demonstrated Correct answer.
  2. All R&D expenses can be 100% capitalized from the moment an initial project idea is proposed by the R&D director
  3. R&D capitalization is strictly prohibited for all Chinese corporate entities under any circumstance
  4. R&D expenses can be capitalized only if the company has received a direct financial subsidy from the Ministry of Science and Technology

Explanation

Under CAS 6, internal R&D projects are split into Research and Development phases. All research phase costs must be expensed as incurred. Development phase costs can be capitalized only if all five statutory criteria are met: technical feasibility, intention to complete, ability to use or sell, demonstrable future economic benefits, and reliable measurement of development expenditures.

Question 42Role knowledge and relevant Chinese legal/financial foundations

When an issuer grants equity to key executives and core technical staff at ¥2.00 per share 6 months prior to IPO filing, while the contemporaneous fair value evaluated by independent appraisers is ¥8.00 per share for 5 million shares, how must this Share-Based Payment (股份支付) be treated?

  1. The difference of ¥6.00 per share (totaling ¥30 million) must be recognized as stock compensation expense (股份支付费用 / 管理费用) based on fair value, credited to capital reserve (资本公积), in accordance with CAS 11 Correct answer.
  2. No accounting entry is needed because the employees paid cash of ¥2.00 per share
  3. The entire ¥8.00 fair value (¥40 million) must be deducted directly from the issuer's registered share capital
  4. The ¥30 million difference must be recorded as non-operating revenue (营业外收入) on the income statement

Explanation

Under CAS 11 (Share-based Payment), granting equity below fair value to employees as compensation for services constitutes an equity-settled share-based payment. The spread between fair value and exercise price (¥8.00 - ¥2.00 = ¥6.00 * 5M shares = ¥30 million) must be recognized as management expense / stock compensation expense, with a corresponding increase in capital reserve.

Question 43Role knowledge and relevant Chinese legal/financial foundations

Under the IPO Registration Measures, what is the statutory requirement regarding the stability of the issuer's Main Business, Directors, and Senior Management (主营业务与董监高稳定性)?

  1. The issuer's main business, directors, and senior management must have experienced no material adverse changes within the past 3 years for Main Board applicants, or within the past 2 years for STAR Market, ChiNext, and BSE applicants Correct answer.
  2. All directors and senior executives must remain permanently identical for 10 consecutive years without any resignations
  3. The issuer must replace at least 50% of its senior management team every fiscal year to demonstrate active renewal
  4. There is no requirement regarding business or management stability as long as net profit is positive

Explanation

The IPO registration rules require operational continuity and governance stability: the issuer's main business, directors, and senior management must not have undergone major adverse changes during the applicable lookback-3 years for Main Board applicants and 2 years for STAR Market, ChiNext, and BSE applicants. Board-specific rules may separately address core technical personnel, so that additional concept should not be treated as a universal Main Board condition.

Question 44Role knowledge and relevant Chinese legal/financial foundations

What is the statutory requirement regarding the stability of the Actual Controller (实际控制人) of an IPO applicant under the Comprehensive Registration-Based System?

  1. There must have been no change in the actual controller during the past 3 years for Main Board applicants, or during the past 2 years for STAR Market, ChiNext, and BSE applicants Correct answer.
  2. The actual controller must have owned 100% of the equity for at least 10 years without any other shareholders
  3. The actual controller can change freely up until 3 days prior to the listing ceremony
  4. The actual controller must be a state-owned enterprise (SOE) approved by SASAC

Explanation

To ensure continuous operational stability and prevent deceptive backdoor listings at the IPO stage, CSRC rules mandate that the issuer's actual controller must have remained stable with no change (实际控制人没有发生变更) during the past 3 years for Main Board applicants, or during the past 2 years for STAR Market, ChiNext, and BSE applicants.

Question 45Role knowledge and relevant Chinese legal/financial foundations

When an IPO applicant asserts that two or more individuals constitute 'Joint Actual Controllers' (共同实际控制人), which standard must be satisfied under CSRC guidelines?

  1. The individuals must have jointly controlled the issuer and signed an effective Acting-in-Concert Agreement (一致行动协议) for at least the statutory stability period (2 or 3 years), with consistent voting history, and cannot use joint control designations artificially to evade lock-up rules or create temporary compliance Correct answer.
  2. Any group of two friends can verbally declare joint control on the day before the IPO prospectus is printed
  3. Joint controllers are strictly prohibited in Chinese capital markets; only a single individual is permitted
  4. Joint control is automatically established if two shareholders attend the same university

Explanation

CSRC Regulatory Guidance on Securities and Futures Laws specifies that recognition of joint actual controllers requires: (1) signed binding acting-in-concert agreements; (2) consistent decision-making and voting across shareholders' and board meetings for the statutory track record period (2/3 years); (3) shared governance responsibility. Artificially adding or removing joint controllers to bypass lockup or regulatory rules is prohibited.

Question 46Role knowledge and relevant Chinese legal/financial foundations

During financial due diligence, the sponsor representative discovers that an issuer in the consumer retail sector conducts 15% of its sales transactions in physical cash and through personal bank cards of executives (个人卡结算). How must the sponsor handle this issue?

  1. Perform rigorous due diligence to ensure all personal accounts are completely closed and returned to corporate accounts, verify the authenticity of all cash transactions through source receipts, confirm internal control remediation, and ensure no tax evasion or fund embezzlement occurred Correct answer.
  2. Advise the issuer to delete the transaction logs to prevent stock exchange reviewers from seeing the personal card statements
  3. Instruct the executive to transfer the personal bank card to an overseas offshore trust without accounting adjustments
  4. Personal card settlement is standard practice and requires no verification if total annual sales exceed ¥100 million

Explanation

Settlement through personal bank cards or large cash transactions is a major internal control deficiency and tax/fraud risk. The sponsor must conduct exhaustive fund flows verification (资金流水核查) on all personal cards, ensure complete cessation of personal card settlements, recover all corporate funds, perform tax catch-up rectifications, and confirm internal control efficacy.

Question 47Role knowledge and relevant Chinese legal/financial foundations

When an IPO applicant has a high customer or supplier concentration (e.g., a single customer or supplier accounts for > 50% of total revenue or procurement), what core aspects must the sponsor representative thoroughly investigate and verify?

  1. The commercial rationality of the concentration, whether related-party relationships or undisclosed interests exist, the sustainability and stability of business cooperation, contract pricing fairness, and whether the issuer faces severe dependency risks that impair going-concern ability Correct answer.
  2. The sponsor may rely on management's explanation if the counterparty confirms the current contract balance
  3. Customer concentration exceeding 50% is an automatic statutory ground for unconditional IPO rejection across all boards
  4. The sponsor need test pricing and related parties but may omit continuity and replacement-risk analysis if current contracts are valid

Explanation

CSRC guidelines do not automatically prohibit high concentration if justified by industry characteristics (e.g., semiconductor foundries, auto parts OEM). However, the sponsor must rigorously verify: (1) commercial reasonableness; (2) absence of hidden related ties or bribery; (3) pricing fairness; (4) contractual stability; (5) going-concern viability and alternative market adaptability.

Question 48Role knowledge and relevant Chinese legal/financial foundations

Under CAS 8 (Asset Impairment / 资产减值), how should an issuer account for and how should the sponsor verify long-term fixed assets (e.g., specialized manufacturing production lines) that have become obsolete or idle due to technological upgrades?

  1. Perform an impairment test by comparing the asset's carrying value with its recoverable amount (higher of net fair value less disposal costs vs value in use); recognize an asset impairment loss (资产减值损失) which cannot be reversed in subsequent accounting periods Correct answer.
  2. Continue depreciating the idle equipment over 50 years without recognizing any impairment to protect current-year profit
  3. Revalue the idle equipment upwards to market replacement price and record the gain in retained earnings
  4. Transfer the obsolete equipment to the labor union as an off-balance-sheet asset

Explanation

Under CAS 8, when indicators of impairment exist (e.g., technological obsolescence, physical idling), the enterprise must estimate the recoverable amount. If the carrying value exceeds the recoverable amount, an impairment loss must be recognized. Under Chinese GAAP, once recognized, impairment losses on long-term non-current assets cannot be reversed in future periods.

Question 49Role knowledge and relevant Chinese legal/financial foundations

Under CSRC Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Securities to the Public - Non-Recurring Gains and Losses (非经常性损益), which of the following items is generally classified as a Non-Recurring Gain/Loss?

  1. Gains or losses from disposal of non-current assets (e.g., selling a production plant or subsidiary equity), government grants unrelated to ordinary business, and fair value gains/losses on non-hedging financial assets Correct answer.
  2. Standard gross profit generated from the daily wholesale distribution of the issuer's primary manufactured goods
  3. Regular monthly salary and social insurance expenses paid to factory assembly line workers
  4. Standard utility electricity and water costs incurred in normal manufacturing operations

Explanation

Non-recurring gains and losses are transactions not directly related to ordinary operations or that distort the true ongoing earning capacity of the company. Examples include gains/losses on asset disposals, government subsidies not closely linked to ordinary business, debt restructuring gains, and fair value swings on held-for-trading investments.

Question 50Role knowledge and relevant Chinese legal/financial foundations

During legal due diligence, the sponsor discovers that an industrial chemicals issuer received an administrative penalty of ¥500,000 from the local Environmental Protection Bureau 18 months ago for wastewater discharge exceeding standards. How is this evaluated for IPO eligibility?

  1. The sponsor must verify whether the violation constitutes a 'Major Illegal Act' (重大违法行为): examine whether human casualties or severe environmental pollution resulted, verify complete payment and environmental remediation, obtain a formal written confirmation from the competent environmental authority, and confirm it does not impair listing eligibility Correct answer.
  2. Any environmental penalty of any monetary amount results in an automatic permanent 10-year ban from listing in China
  3. The issuer can hide the penalty by renaming the factory subsidiary and not disclosing it in the legal opinion
  4. The penalty is automatically erased if the issuer plants 100 trees on its factory campus

Explanation

A penalty does not answer IPO eligibility by amount alone. The sponsor and issuer's counsel must assess the conduct under the registration measure and the rules for the selected board, including its nature, consequences, sanction basis, responsible persons, and applicable lookback; verify payment and remediation; obtain competent-authority evidence where appropriate; and disclose material facts. A non-major, fully remediated violation is not an automatic permanent bar.