Chapter 3: Financial Information Requirements and Transforming the Business
Comfort Letter on Other Matters
As part of their due diligence procedures, the Sponsor will request comfort letters from a company’s Reporting Accountant relating to information that appears in the registration statement outside of the Accountant’s Report. It is common for Sponsors to request comfort on as much information as possible. The applicable Hong Kong auditing standards for investment circular reporting allow the Reporting Accountant to provide comfort on information that is derived from accounting records that are subject to the company’s internal control over financial reporting. Generally, the more information the Sponsor seeks comfort on, the more expensive the process becomes. In light of this, and to avoid any misunderstandings and undue time delays, it is important that a company, the Reporting Accountant, and Sponsors agree, in the early stages of the drafting process, on the information about which the Reporting Accountant will be giving comfort. It is the responsibility of the Sponsors to determine what kind of procedures are appropriate, and the work performed by the Reporting Accountant does not release the Sponsors from their responsibilities under the listing rules. The Reporting Accountant will report to the company and Sponsors in a private letter not available to the public.
Other Financial Information to be Submitted to the HKEx
As part of the listing application process, the HKEx requires the listing applicant to submit additional schedules to the HKEx to assist in their vetting of the application. This additional information is not included in the prospectus and some items that need to be submitted may not be information that the applicant prepares or reviews on a regular basis. The information to be submitted as part of the first filing to the HKEx includes details of top five customers and suppliers, ageing analysis of accounts receivable and payable including details of subsequent settlement, ageing and usage of inventory. These areas are often problematic and time consuming for issuers to prepare. The Reporting Accountant is not required to provide any comfort on these schedules but may be asked to provide comments on the form and content of such information.
Transforming the Business
The IPO process is not the end of the story—it is only the beginning. Once listed, a company will be under far greater public scrutiny and will have a range of continuing obligations with which to comply. Any weakness in systems or failure to comply with regulations could cause management public embarrassment, reputational damage, and the potential for company and personal fines. The benefits of careful preparation and planning are realised within the first year of the IPO. Public companies are required to comply with a host of reporting and other requirements. The most significant change for many companies is the need to disclose and report publicly on their financial results on an accelerated timeline and to comply with corporate governance requirements and market expectations. This is a process the company will need to be fully prepared to meet; the inability to meet these requirements will shake investor confidence or
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