On Friday, the Hong Kong Stock Exchange issued its Consultation Conclusions on acceptance of Mainland Accounting and Auditing Standards and Mainland audit firms for Mainland incorporated companies listed in Hong Kong.

Below is a summary of the changes, which the Stock Exchange expects will reduce compliance costs for Mainland companies listed in Hong Kong and increase market efficiency.

Mainland accounting and auditing Standards

The amendments to the Listing Rules will allow Main Board and GEM listed companies which are incorporated in the Mainland to prepare their financial statements (for use in IPOs, annual reports and circulars) using Mainland accounting standards, namely China Accounting Standards for Business Enterprises (CASBE) and to have them audited with China Auditing Standards. This provides an alternative for Mainland companies to the current requirements that financial statements are prepared in accordance with Hong Kong Financial Reporting Standards (HKFRS) or International Financial Reporting Standards (IFRS).

Mainland audit firms

Mainland incorporated issuers will be able to engage the services of Mainland audit firms who have been approved by the China Ministry of Finance and the China Securities Regulatory Commission as being suitable to act as an auditor or a reporting accountant for these purposes.

Reciprocal arrangement for Hong Kong companies listed on Mainland stock exchanges

Reciprocal arrangements have been agreed with Mainland authorities to allow Hong Kong incorporated or registered companies listed on Mainland stock exchanges to prepare their financial statements using HKFRS or IFRS and be audited by Hong Kong firms approved by the Hong Kong Institute of Certified Public Accountants using Hong Kong Standards on Auditing or International Standards on Auditing.

Effective Date

The amended Listing Rules will come into effect on 15 December 2010. In preparing periodic financial reports for annual accounting periods ending on or after 15 December 2010, Mainland incorporated issuers or listing applicants may use CASBE. It should be noted that if a company adopts CASBE, the financial information for all periods presented in the prospectus or circular must also be presented in CASBE.

For a copy of the consultation paper, please click here.

The revised Main Board Listing Rules can be found here