Chapter 12

Due Diligence Guidelines –


Code of Conduct Paragraphs








17.7(b) Note 1


Key Stock Exchange Guidance Letters

Exchange Guidance Letter GL6-09A

Exchange Guidance Letter GL27-12

Exchange Guidance Letter GL37-12

Exchange Guidance Letter GL38-12

Exchange Guidance Letter GL41-12

Exchange Guidance Letter GL58-13

Exchange Guidance Letter GL59-13

Exchange Guidance Letter GL82-15

Other Key References

Practice Note 21 to the Listing Rules

SFC Dual Filing Update of July 2012

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.


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.

financial due diligence

Listing Applicants Financial Matters

Key Interdependencies

Financial Matters Presentation Of The Listing Applicant In The Listing Document

Scope and Key Interdependencies

Understanding of the Listing Applicant’s Financial Condition and Performance

Financial Matters in Listing Document

Hong Kong Securities and Futures Commission (SFC)

Financial Presentation of the Listing Applicant

Audit Process
IPO due diligence

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