Proposed amendments to Hong Kongs comfort letter have
prompted calls for greater global harmonisation of comfort
Hong Kong Institute of Certified Public Accountants (HKICPA)
this month released for private consultation the latest draft
amendment to the citys standard form of comfort letter
(HKSIR 400), together with the big four accounting firms, IFLR
If accepted in their present form, the suggested changes
will see the HKSIR400 make the long-anticipated move from a
non-assurance to an assurance engagement.
But they will also require that the Hong Kong standard be
used for both the Hong Kong and Reg S portion of global
offering, and broaden the scope of the revised HKSIR 400
standard form comfort letter beyond equity offerings to the
debt capital markets (DCM) outside of the US.
Lawyers in Hong Kong have welcomed the move as providing a
higher standard of due diligence comfort to banks.
But the provision that a Hong Kong standard should also be
followed on the Reg S tranche of Hong Kong transactions may
create confusion in an already disharmonised process. And the
surprise inclusion of non-US DCM had created problems over
Bankers will be nervous about what an enforced move
away from the US-tracked AU634 lookalike or International
Capital Market Association (ICMA) standards, commonly used in
Reg S transactions, will involve, explained one Hong Kong
The move also raises concerns about increasing
differentiation in global accounting practices, he
He believed the establishment of an International Accounting
Standards Board (IASB) approved comfort letter standard would
be a significant step towards a more unified approach to
accounting standards in the offering process.
The development and imposition of local standards could
foster confusion. An IASB comfort letter standard would be
adopted by jurisdictions following International Financial
Reporting Standards (IFRS) and thereby better encourage the
establishment of a global standard.
Using a global entity would be a viable alternative to the
pushing through of a Hong Kong standard which may or may not be
accepted, said another.
It will take time for the international market to become
familiar with the new standards, he said.
Further consultation and coordination with the Hong Kong
market was also necessary.
Questions remain as to whether banks will be willing
to accept it, explained a Hong Kong lawyer.
Expanding the scope of the letter to cover DCM has taken DCM
bankers by surprise. While they may not end up being adamantly
opposed to it, they havent had any chance to think about
it, which has created concern.
It was not properly consulted on, said
Asia Securities Industry & Financial Markets
Associations (Asifma) executive director, Will Sage added
that it would be necessary to ensure a full and proper
consultation process between HKICPA and DCM participants.
Such consultation is important to ensure that any
revised form of HKSIR400 is suitable for and acceptable to debt
market participants, he said. It would also help to
define the appropriate scope of application of HKSIR 400 in the
debt market context before adoption.
ECM bankers are also not completely behind the move.
I think they would like to preserve the flexibility to
use the AU634 lookalike, explained the lawyer.
But it is likely the final balance of power is with the
accounting firms. They are in position to dictate on this, and
having unilaterally imposed HKSIR400 in 2004, could
feasibly do so again.
Ultimately if the market goes this way, people will have
to get used to it, the lawyer said.
It is unclear when the proposed changes will come into