Hong Kong Institute of Certified Public Accountants (HKICPA) this month released for private consultation the latest draft amendment to its standard form of comfort letter (HKSIR 400), together with the big four accounting firms.
If accepted, the suggested changes will see the HKSIR 400 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.
The move will undoubtedly provide a higher standard of due diligence comfort to banks.
The provision that a Hong Kong standard should also be followed on the Reg S tranche of Hong Kong transactions could, however, create confusion in an already disharmonised process.
Bankers are already nervous about what an enforced move away from the US-tracked AU634 lookalike or International Capital Market Association standards, commonly used in Reg S transactions, will involve.
The move is also likely to raise concerns about the impact of increasing differentiation in global accounting practices.
An International Accounting Standards Board (IASB) approved comfort letter standard could be a large step towards a more unified approach to accounting standards in the offering process.
An IASB comfort letter standard would be adopted by jurisdictions following International Financial Reporting Standards and would therefore encourage a global standard.
This would provide greater clarity to international institutions having to comply with disparate local standards.
Of course, it will take time for the international market to become familiar with any new standards. But using a global entity could be a viable alternative to the pushing through of a Hong Kong standard that may or may not be accepted.
Certainly questions remain as to whether banks operating in the city-state will be willing to comply. Expanding the scope of the letter to cover DCM took debt bankers by surprise.
While they may not end up being adamantly opposed to it, they haven't had any chance to think about it, which has created concern.
ECM bankers are also not completely behind the move. They would like to preserve the flexibility to use the AU634 lookalike.
But ultimately the final balance of power is with the accounting firms. They are in position to dictate on this, and having unilaterally imposed HKSIR 400 in 2004, could feasibly do so again.
If they do, the market will be left with little choice than to accept, and comply with, any changes imposed.