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HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. |
Chapter 20
Due Diligence Guidelines –
Accountants
4. Bases and Assumptions
4.1 Standards
A sponsor should … assess whether material bases and assumptions (in the case of financial information, critical accounting policies and estimates) on which the accountant’s report is founded are fair, reasonable and complete. [Paragraph 17.7(c) of the Code of Conduct]
4.2 Guidance
The sponsor’s due diligence work to be conducted with respect to all material bases and assumptions on which the accountant’s report is founded is such that it can confirm it has reasonable grounds to believe and does believe (to the standard expected of a sponsor which is not itself an expert in the matters dealt with in the accountant’s report) that such bases and assumptions are fair, reasonable and complete.21
4.3 Recommended Steps
4.3.1 The sponsor should make such due diligence enquiries with the accountant to satisfy itself that the critical accounting policies and estimates on which the accountant’s report is founded are fair, reasonable and complete. These requirements will typically be satisfied if the accountant has confirmed to the sponsor that the accountant’s report has been prepared based on and complies with generally accepted accounting principles and the sponsor has discussed the critical accounting policies and estimates with the accountants and the listing applicant’s management.22
4.3.2 The sponsor should have reference to the total mix of information it has about the listing applicant, its business and its business plans when assessing the material bases and assumptions, including, but not limited to the disclosures in the “Strategies”, “Business” and “Futures Plan” sections of the listing document.23
4.3.3 Sample questions for the accountants as part of the due diligence exercise relating to the bases and assumptions on which the accountant’s report is founded are included in Appendix II.
Endnotes
21. Paragraph (c)(ii) of Appendix 19 to the Listing Rules.
22. Please see questions 4(a) to (d) in Appendix III. These questions should also be raised with the listing applicant.
23. Paragraph 14(e) Practice Note 21 to the Listing Rules.
Disclaimer
HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. See here for the full terms and conditions.