HKEX IPO Prep: A CFO's Financial Compliance Checklist

1. Understand the Financial Reporting Requirements

Under the HKEX Listing Rules, an applicant for the Main Board or GEM must present audited financial statements that comply with the relevant accounting standards. The financial statements must cover at least the three financial years immediately preceding the listing application (for Main Board) or the two years for GEM, as applicable. The reporting accountant (a qualified accountant) must audit these statements and issue an opinion. The CFO should ensure that the financial records are well-maintained and that the audit is completed within the acceptable timeframe.

2. Strengthen Internal Controls

The Listing Rules require the issuer to have an adequate internal control system. The CFO should work with the management to implement and document internal controls over financial reporting. The sponsor will assess the effectiveness of these controls. Specific areas to review include cash management, procurement procedures, and IT systems. A robust internal control environment helps prevent errors and fraud, and also facilitates a smoother audit.

3. Disclose Connected Transactions

Connected transactions are transactions between the issuer and its connected persons (e.g., directors, substantial shareholders, or their associates). The Listing Rules set out disclosure and approval requirements, including the need for periodic reports and announcements. The CFO must identify all connected transactions and ensure they are properly disclosed, either in the prospectus or in periodic filings. Transactions should be carried out on normal commercial terms and, where required, approved by independent shareholders.

4. Prepare Financial Forecasts

In some listing cases, the sponsor may require a profit forecast. If a forecast is included, it must be prepared with due care and based on reasonable assumptions. The reporting accountant must report on the forecast, and the sponsor must confirm that the assumptions are reasonable. The CFO should be involved in preparing the forecast, ensuring it aligns with the company's actual performance and future prospects.

5. Review Common Problem Areas

Common issues that delay IPO applications include:

• Incomplete financial records or significant accounting adjustments.
• Weaknesses in internal controls identified by the sponsor.
• Undisclosed connected transactions.
• Inconsistent financial information between the prospectus and other documents.

The CFO should address these areas proactively to avoid delays. Periodic internal reviews, coupled with regular communication with the sponsor and the reporting accountant, can help identify issues early.