Thanks to its position as a listing gateway for mainland companies amid an economic slowdown in the West, Hong Kong has become the IPO capital of the world. If it is to consolidate its standing as a global financial centre, however, it must be wary of acquiring a 'cowboy' reputation for bringing companies to market that have accounting problems that can cost investors dearly. It has been a big problem with mainland companies in North America recently. One example is Toronto-listed timber and tree-plantation firm Sino-Forest, which has filed for bankruptcy and faces a fraud investigation after a short-seller accused it of inflating its assets. But the problem is increasingly washing up on Hong Kong's shores and will continue to do so without more rigorous scrutiny of listing candidates. Last month, trading in children's clothing maker and retailer Boshiwa International and Daqing Dairy were suspended after their auditor Deloitte resigned. Boshiwa, whose shares plunged by more than a third, said the auditor was not satisfied with some financial information. Since then, more mainland companies have been questioned over audit issues causing volatility in their share prices. The problem is not confined to individual companies, but is mostly due to shortcomings in the overall standard of corporate governance on the mainland. The Securities and Futures Commission has repeatedly expressed concern, echoed by the Monetary Authority, about the failure of investment banks to exercise 'professional scepticism' in conducting due diligence as listing sponsors, and about inadequate compliance with the listing rules. Lawyers and auditors have fallen short, too. As a result, listing documents have included questionable claims and statements and glaring omissions. In many cases the professionals investors rely on just took the applicant's word without checking, which may not be surprising given the lucrative fees involved. Uncovering flaws could delay listings and drive candidates into the arms of competitors. But this does nothing for the city's reputation as a financial centre, not to mention the credibility of companies coming to market in Hong Kong. Having risen to the top of the IPO table on the back of major mainland listings, Hong Kong is attracting more smaller private companies. As SFC chief executive Ashley Alder says, there are some very good ones and some not so good ones. His promised proposals for tightening oversight of listing sponsors are keenly awaited. We hope they will include liability for misstatements in offering documents, subject to the defence of reasonable grounds for believing they were true, which is similar to an underwriter's liability in the US. This would provide an incentive for conducting more stringent due diligence and greater assurance and protection for investors.