Chapter 12

Due Diligence Guidelines –

Financial

1. Scope and Key Interdependencies

1.1 Overview

1.1.1 This chapter focuses on the streams of due diligence activity most directly related to:

(a) Financial presentation of the listing applicant in the listing document; and

(b) Understanding of the listing applicant’s financial condition and performance underlying this presentation.

1.1.2 This chapter focuses on routine procedures and matters of general principles and approach.

1.1.3 This primarily encompasses consideration of a combination of:

(a) Financial matters: normally focusing on the listing applicant’s earnings and assets, its liabilities and commitments (including contingencies and off-balance sheet arrangements) and its financing arrangements (in particular, working capital and receivables);

(b) Accounting matters: focusing on factors affecting the presentation of the listing applicant’s financial information;

(c) Audit process;

(d) Changes (or potential for changes) subsequent to the last audit date; and

(e) The listing applicant’s forecasts and projections.

1.1.4 The primary purpose of IPO due diligence is for the sponsor to:

(a) Acquire a thorough knowledge and understanding of the listing applicant; and

(b) Satisfy itself in relation to the disclosure in the listing document.

See Paragraph 17.6(a) of the Code of Conduct.

1.1.5 A material risk or problem of any nature (e.g., commercial or legal) will usually have some impact (or potential impact) on the financial position or prospects of the listing applicant, and for this reason (i) it is not possible to isolate or “ring-fence” financial due diligence within the overall due diligence process and (ii) financial matters have to be considered as part of the broader whole.

1.1.6 Subject to that (and in the immediate context of the scope of this chapter), key inter-dependent due diligence streams are (in particular):

(a) Chapter 7 “Due Diligence Guidelines – Knowing the Listing Applicant and its Management”;

(b) Chapter 8 “Due Diligence Guidelines – Business Model”;

(c) Chapter 13 “Due Diligence Guidelines – Internal Controls”; and

(d) Chapter 20 “Due Diligence Guidelines – Accountants”.

1.1.7 The sponsor’s detailed financial review should be scoped on a case-by-case basis as required by the individual circumstances of a listing applicant.

1.1.8 Although not strictly part of due diligence, this chapter also records steps to be taken in confirming the listing applicant’s compliance with quantitative qualifications for listing.