AN ECONOMY that is experiencing rapid change, such as the mainland's, needs sound financial rules for its long-term success. It therefore makes perfect sense for the mainland to direct special attention to areas such as due diligence and corporate governance, and bring its own accounting practices in line with international standards. Paul Go, partner and head of risk and advisory services at Ernst & Young, said that due diligence, as it related to accounting and auditing, was more complex than it was five years ago, and addressed more areas. Hong Kong-based professionals looking to use their experience and expertise in the mainland should therefore pay extra close attention to this aspect of their work and impress upon clients the importance of adopting best international practices in all business activities. This becomes especially applicable when a company is preparing for an IPO (initial public offering), planning for a merger or acquisition or trying to attract foreign investment. For example, a company seeking a stock exchange listing must first satisfy sponsors and regulators that it meets a broad range of criteria, such as attesting to the management's competence in running the company and providing details of financial records and operations. Due diligence checks may also be required before a joint venture or a partnership is confirmed. Accountancy firms should also conduct similar checks on their own behalf to ensure they were working with reputable clients. Failure to satisfy regulatory requirements, such as Sarbanes-Oxley, and stipulations enforced by the Hong Kong Securities and Futures Commission, could result in stiff penalties and negative media coverage. 'In today's corporate world, due diligence goes further than compliance,' Mr Go said. 'It impacts on areas such as reputation, directors' liabilities and future shareholder value.' He said accountancy firms must have the correct systems to ensure clients met the stringent requirements and managed risk adequately. 'The need for professional accountants continues to be enormous as mainland companies move to align themselves with international rules and regulations,' Mr Go said. He said Hong Kong was well equipped in this respect, and that familiarity with IFRS (international financial reporting standards) and GAAP (generally accepted accounting practices) were key areas where Hong Kong accountants could help their mainland clients. The bigger accountancy firms make a point of giving their employees regular training and hold workshops to ensure they are up on the latest practices and regulatory changes. Mr Go said due diligence should never be compromised in the rush to forge ahead with new ventures. Overseas companies keen to set up partnerships do not always appreciate the cultural and business impediments that can make the process extra challenging, he added. 'For all its opportunities, the mainland market carries risks that are unique to the world's emerging economies,' he said. Hong Kong accountants are familiar with those risks and know what to expect in the unique corporate environment. There is now a push to establish clearer rules and procedures for reporting financial information, so as to increase international compatibility and the overall quality of accounting standards. Starting in January next year, companies listed on the Shanghai and Shenzhen stock exchanges will have to present their accounts based on IFRS. These are administered by the International Accounting Standards Board and are used in more than 70 countries. The move is seen as a commitment by Beijing to create rules and regulations that are friendly to foreign investors. The revised standards will be applied first to listed firms and then to other types of enterprises. But there will still be differences between IFRS and the revised Chinese Accounting Standards (CAS), reflecting circumstances specific to the mainland. Aligning CAS with IFRS is one of several initiatives taken in recent years to integrate China with the global economy. Investors and regulators have been calling for mainland enterprises to adopt consistent and reliable financial reporting standards, and the adoption of IFRS principles is seen as a commitment to transparency. C.K. Poon, managing director and head of the corporate finance department for Guangdong Securities, said solving problems after the fact often proved more costly than conducting a prudent investigation at the outset. 'Due diligence for an IPO is a tough, time-consuming and often high-pressure job requiring organisation and persistence.' Derek Chan, managing director of Tai Fook Capital, said the preparatory work for listing a mainland firm in Hong Kong was becoming increasingly complex. 'To maintain the integrity and reputation of the stock exchange, regulators are keen to see the standards and quality of firms pushed higher.'