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LISTING AGREEMENT

Submitted By:-

Amit Sareen (2313)

Arpan Majumdar (2314)

Priyanshi Gupta (2303)

Satish Kumar Gupta (2311)

Umang Jain (2331)

Vivek Verma (2332)


Listing
Listing means formal admission of a security to the trading platform of the Exchange. The
securities may be of any public limited company, Central or State Government, quasi
governmental and other financial institutions/corporations, municipalities, etc. The objectives
of listing are mainly to:

 provide liquidity to securities;

 mobilize savings for economic development;

 protect interest of investors by ensuring full disclosures.

Companies desirous of getting their securities listed are required to enter into an agreement
with a Stock Exchange called the Listing Agreement, under which they are required to make
certain disclosures and perform certain acts, failing which the company may face some
disciplinary action, including suspension/delisting of securities.

Under the Listing Agreement, a company undertakes, amongst other things, to provide
facilities for prompt transfer, registration, sub-division and consolidation of securities; to
give proper notice of closure of transfer books and record dates, to forward 6 copies of
unabridged Annual Reports, Balance Sheets and Profit and Loss Accounts to the stock
exchange, to file shareholding patterns and financial results on a quarterly basis; to intimate
promptly to the Exchange the happenings which are likely to materially affect the financial
performance of the Company and its stock prices, to comply with the conditions of Corporate
Governance, etc.

The Exchange has a separate Listing Department to grant approval for listing of securities of
companies in accordance with the provisions of the Securities Contracts (Regulation) Act,
1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines
issued by SEBI and Rules, Bye-laws and Regulations of the Exchange.

Benefits of Listing

 Listing provides an opportunity to the Corporates / entrepreneurs to raise capital to


fund new projects/undertake expansions/diversifications and for acquisitions.

 Listing also provides an exit route to private equity investors as well as liquidity to the
ESOP-holding employees.

 Listing also helps generate an independent valuation of the company by the market.

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 Listing raises a company's public profile with customers, suppliers, investors,
financial institutions and the media. A listed company is typically covered in analyst
reports and may also be included in one or more of indices of the stock exchanges.

 An initial listing increases a company's ability to raise further capital through various
routes like preferential issue, rights issue, Qualified Institutional Placements and
ADRs/GDRs/FCCBs, and in the process attract a wide and varied body of
institutional and professional investors.

 Listing leads to better and timely disclosures and thus also protects the interest of the
investors.

 Listing on a stock exchange provides a continuing liquidity to the shareholders of the


listed entity. This in turn helps broaden the shareholder base.

Listing Requirements
Listing requirements are the set of conditions imposed by a given stock exchange upon
companies that want to be listed on that exchange. Such conditions sometimes include
minimum number of shares outstanding, minimum market capitalization, and minimum
annual income.

Requirements by stock exchange

Companies have to meet the requirements of the exchange in order to have their stocks and
shares listed and traded there, but requirements vary by stock exchange:

• Bombay Stock Exchange: Bombay Stock Exchange (BSE) has requirements for a
minimum market capitalization of Rs.250 Million and minimum public float
equivalent to Rs.100 Million.
• London Stock Exchange: The main market of the London Stock Exchange has
requirements for a minimum market capitalization (£700,000), three years of audited
financial statements, minimum public float (25 per cent) and sufficient working
capital for at least 12 months from the date of listing.
• New York Stock Exchange: To be listed on the New York Stock Exchange (NYSE)
a company must have issued at least a million shares of stock worth $100 million and
must have earned more than $10 million over the last three years.

Eligibility Criteria for Listing(NSE)


An company which desires listing of its securities with NSE must fulfill the following pre-
requisites:
For Initial Public Offerings (IPOs)
For Securities of Existing Companies

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NSE staff welcome the opportunity to discuss a company’s eligibility to list before a formal
application is made. On fulfillment of the eligibility criteria, the company is required to fill in
the listing application form.

IPOs by Companies

Qualifications for listing Initial Public Offerings (IPO) are as below:

1. Paid up Capital

The paid up equity capital of the applicant shall not be less than Rs. 10 crores * and
the capitalisation of the applicant’s equity shall not be less than Rs. 25 crores**

Provided however that where the market capitalisation (at issue price) of the
applicant’s equity is not less than Rs.100 crores, the paid up capital of the applicant
can be less than Rs. 10 crores but in any case it shall not be less Rs. 5 crores.

2. Conditions Precedent to Listing:

The Issuer shall have adhered to conditions precedent to listing as emerging from
inter-alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956,
Securities and Exchange Board of India Act 1992, any rules and/or regulations framed
under foregoing statutes, as also any circular, clarifications, guidelines issued by the
appropriate authority under foregoing statutes.

3. Atleast three years track record of either:

a. the applicant seeking listing; or


b. the promoters/promoting company, incorporated in or outside India or
c. Partnership firm and subsequently converted into a Company (not in existence as a
Company for three years) and approaches the Exchange for listing. The Company
subsequently formed would be considered for listing only on fulfillment of conditions
stipulated by SEBI in this regard.

For this purpose, the applicant or the promoting company shall submit annual reports
of three preceding financial years to NSE and also provide a certificate to the
Exchange in respect of the following:

• The company has not been referred to the Board for Industrial and Financial
Reconstruction (BIFR).
• The networth of the company has not been wiped out by the accumulated losses
resulting in a negative networth
• The company has not received any winding up petition admitted by a court.

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4. The applicant desirous of listing its securities should satisfy the exchange on the
following:

a) No disciplinary action by other stock exchanges and regulatory authorities in


past three years

The applicant, promoters/promoting company (ies), group companies, companies


promoted by the promoters/promoting company (ies) have not been in default in
payment of listing fees to any stock exchange in the last three years or has not been
delisted or suspended in the past, and has not been proceeded against by SEBI or
other regulatory authorities in connection with investor related issues or otherwise.

b) Redressal Mechanism of Investor grievance

The points of consideration are:

o The applicant, promoters/promoting company(ies), group companies,


companies promoted by the promoters/promoting company(ies) track record in
redressal of investor grievances
o The applicant’s arrangements envisaged are in place for servicing its investor.
o The applicant, promoters/promoting company(ies), group companies,
companies promoted by the promoters/promoting company(ies) general
approach and philosophy to the issue of investor service and protection
o defaults in respect of payment of interest and/or principal to the
debenture/bond/fixed deposit holders by the applicant, promoters/promoting
company(ies), group companies, companies promoted by the
promoters/promoting company(ies) shall also be considered while evaluating a
company’s application for listing. The auditor’s certificate shall also be
obtained in this regard. In case of defaults in such payments the securities of
the applicant company may not be listed till such time it has cleared all
pending obligations relating to the payment of interest and/or principal.

c) Distribution of shareholding

The applicant’s/promoting company(ies) shareholding pattern on March 31 of last


three calendar years separately showing promoters and other groups’ shareholding
pattern should be as per the regulatory requirements.

d) Details of Litigation

The applicant, promoters/promoting company(ies), group companies, companies


promoted by the promoters/promoting company(ies) litigation record, the nature of
litigation, status of litigation during the preceding three years period need to be
clarified to the exchange.

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e) Track Record of Director(s) of the Company

In respect of the track record of the directors, relevant disclosures may be insisted
upon in the offer document regarding the status of criminal cases filed or nature of the
investigation being undertaken with regard to alleged commission of any offence by
any of its directors and its effect on the business of the company, where all or any of
the directors of issuer have or has been charge-sheeted with serious crimes like
murder, rape, forgery, economic offences etc.

Note: a) In case a company approaches the Exchange for listing within six months of an IPO,
the securities may be considered as eligible for listing if they were otherwise eligible for
listing at the time of the IPO. If the company approaches the Exchange for listing after six
months of an IPO, the norms for existing listed companies may be applied and market
capitalisation be computed based on the period from the IPO to the time of listing.

Securities of Existing Companies

Existing Companies listed on other stock exchanges

1. Paid up Capital & Market Capitalisation

a. The paid-up equity capital of the applicant shall not be less than Rs. 10 crores
and the market capitalisation of the applicant’s equity shall not be less than Rs.
25 crores.

Provided that the requirement of Rs. 25 crores market capitalisation under this
clause 1(a) shall not be applicable to listing of securities issued by
Government Companies, Public Sector Undertakings, Financial Institutions,
Nationalised Banks, Statutory Corporations and Banking Companies who are
otherwise bound to adhere to all the relevant statutes, guidelines, circulars,
clarifications etc. that may be issued by various regulatory authorities from
time to time.

or

b. The paid-up equity capital of the applicant shall not be less than Rs. 25 crores
(In case the market capitalisation is less than Rs. 25 crores, the securities of
the company should be traded for at least 25% of the trading days during the
last twelve months preceding the date of submission of application by the
company on at least one of the stock exchanges where it is traded.)

or

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c. The market capitalisation of the applicant’s equity shall not be less than Rs. 50
crores.

or

d. The applicant Company shall have a net worth of not less than Rs.50 crores in
each of the three preceeding financial years. The Company shall submit a
certificate from the statutory auditors in respect of networth as stipulated
above.

2. Conditions Precedent to Listing:

The applicant shall have adhered to conditions precedent to listing as emerging from
inter-alia, Securities Contracts (Regulations) Act 1956, Companies Act 1956,
Securities and Exchange Board of India Act 1992, any rules and/or regulations framed
under foregoing statutes, as also any circular, clarifications, guidelines issued by the
appropriate authority under foregoing statutes.

3. Atleast three years track record of either:


a. the applicant seeking listing; or
b. the promoters/promoting company, incorporated in or outside India or

For this purpose, the applicant or the promoting company shall submit annual reports
of three preceding financial years to NSE and also provide a certificate to the
Exchange in respect of the following:

o The company has not been referred to the Board for Industrial and Financial
Reconstruction (BIFR)
o The networth of the company has not been wiped out by the accumulated
losses resulting in a negative networth.
o The company has not received any winding up petition admitted by a court.

2. The applicant should have been listed on any other recognised stock exchange for
atleast last three years

3. The applicant has paid dividend in atleast 2 out of the last 3 financial years
immediately preceding the year in which listing application has been made

or

The applicant has distributable profits ( as defined under section 205 of the
Companies Act, 1956) in at least two out of the last three financial years (an auditors
certificate must be provided in this regard).
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or

The networth of the applicant is atleast Rs. 50 crores

While considering the profitability / ability to distribute dividend, the non recurring
income/extraordinary income shall be excluded from the total income. Further in case
of companies where networth criteria is satisfied on account of shares being issued at
a premium for consideration other than cash, such cases be referred to the Listing
Advisory Committee (LAC) for consideration.

"Provided that Clause 4 and Clause 5 shall not be applicable for listing of:

a) Equity shares and securities convertible into equity issued by

i. a banking company including a local area bank (i.e. Private Sector Banks) set up
under sub-clause (c) of Section 5 of the Banking Regulation Act, 1949 and which has
received license from the Reserve Bank of India or

ii. a corresponding new bank set up under the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970, Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1980, State Bank of India Act, 1955 and the State Bank of India
(Subsidiary Banks) Act, 1959 (i.e. Public Sector Banks) or

iii. an infrastructure company – (a) whose project has been appraised by a Public
Financial Institution or Infrastructure Development Finance Corporation (IDFC) or
Infrastructure Leasing and Financial Services Limited (IL&FS) and (b) not less than
5% of the project cost is financed by any of the institutions referred to in clause (a)
above, jointly or severally, irrespective of whether they appraise the project or not, by
way of loan or subscription to equity or a combination of both.

b) Securities other than equity shares or securities convertible into equity shares at a
later date issued by Government Companies, Public Sector Undertakings, Financial
Institutions, Nationalised Banks, Statutory Corporations, Banking Companies and
subsidiaries of Scheduled Commercial Banks.”

4. The applicant desirous of listing its securities should also satisfy the Exchange on the
following:

a. No Disciplinary action has been taken by other stock exchanges and


regulatory authorities in the past three years

The applicant, promoters/promoting company(ies), group companies,


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companies promoted by the promoters/promoting company(ies) have not been
in default in payment of listing fees to any stock exchange in the last three
years or has not been delisted or suspended in the past and has not been
proceeded against by SEBI or other regulatory authorities in connection with
investor related issues or otherwise.

b. Redressal mechanism of Investor grievance

The points of consideration are:

 The applicant, promoters/promoting company(ies), group companies,


companies promoted by the promoters/promoting company(ies) track
record in redressal of investor grievances

 The applicant’s arrangements envisaged are in place for servicing its


investor

 The applicant, promoters/promoting company(ies), group companies,


companies promoted by the promoters/promoting company(ies)
general approach and philosophy to the issue of investor service and
protection

 defaults in respect of payment of interest and/or principal to the


debenture/bond/fixed deposit holders by the applicant,
promoters/promoting company(ies), group companies, companies
promoted by the promoters/promoting company(ies) shall also be
considered while evaluating a company’s application for listing. The
auditor’s certificate shall also be obtained in this regard. In case of
defaults in such payments, the securities of the applicant company may
not be listed till such time it has cleared all pending obligations relating
to the payment of interest and/or principal.
c. Distribution of shareholding

The applicant company/promoting company(ies) shareholding pattern on


March 31 of preceding three years separately showing promoters and other
groups’ shareholding pattern should be as per the regulatory requirements.

d. Details of Litigation

The applicant, promoters/promoting company(ies), group companies,


companies promoted by the promoters/promoting company(ies) litigation
record, the nature of litigation, status of litigation during the preceding three
years need to be clarified to the exchange.

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e. Track Record of Director(s) of the Company

In respect of the track record of the directors, relevant disclosures may be


insisted upon in the offer document regarding the status of criminal cases filed
or nature of the investigation being undertaken with regard to alleged
commission of any offence by any of its directors and its effect on the business
of the company, where all or any of the directors of issuer have or has been
charge-sheeted with serious crimes like murder, rape, forgery, economic
offences etc.

f. Change in Control of a Company/Utilisation of funds raised from public

In the event of new promoters taking over listed companies which results in
change in management and/or companies utilising the funds raised through
public issue for the purposes other than those mentioned in the offer
document, such companies shall make additional disclosures (as required by
the Exchange) with regard to change in control of a company and utilisation of
funds raised from public.

Note:

a) Where an unlisted company merges with a company listed on other stock exchanges and
the merged entity seeks listing on the NSE, the Exchange may grant listing to the merged
entity only if the listed company (prior to the merger with the unlisted company) meets all the
criteria for listing on its own account or the unlisted company meets the requirements for
listing on the Exchange, except for the market capitalisation condition, on its own account. In
case either of the above conditions are not met then such company may be considered for
listing after a minimum period of 18 months or after the publication of two annual reports
whichever is later, provided it satisfies the criteria at that point of time.

Listing Procedure

An Issuer has to take various steps prior to making an application for listing its securities on
the NSE. These steps are essential to ensure the compliance of certain requirements by the
Issuer before listing its securities on the NSE. The various steps to be taken include:

• Approval of Memorandum and Articles of Association


• Approval of draft prospectus
• Submission of Application
• Listing conditions and requirements

In case your company fulfils the criteria, please send the following information for further
processing:

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1. A brief note on the promoters and management.
2. Company profile.
3. Copies of the Annual Report for last 3 years.
4. Copies of the Draft Offer Document.
5. Memorandum & Articles of Association.

Approval of Memorandum and Articles of Association

Rule 19(2) (a) of the Securities Contracts (Regulation) Rules, 1957 requires that the Articles
of Association of the Issuer wanting to list its securities must contain provisions as given
hereunder.

The Articles of Association of an Issuer shall contain the following provisions namely:

a. that there shall be no forfeiture of unclaimed dividends before the claim becomes
barred by law;
b. that a common form of transfer shall be used;
c. that fully paid shares shall be free from all lien and that in the case of partly paid
shares the Issuer's lien shall be restricted to moneys called or payable at a fixed time
in respect of such shares;
d. that registration of transfer shall not be refused on the ground of the transferor being
either alone or jointly with any other person or persons indebted to the Issuer on any
account whatsoever;
e. that any amount paid up in advance of calls on any share may carry interest but shall
not in respect thereof confer a right to dividend or to participate in profits;
f. that option or right to call of shares shall not be given to any person except with the
sanction of the Issuer in general meetings.
g. permission for Sub-Division/Consolidation of Share Certificate.

Note: The Relevant Authority may take exception to any provision contained in the Articles
of Association of an Issuer which may be deemed undesirable or unreasonable in the case of
a public company and may require inclusion of specific provisions deemed to be desirable
and necessary.

If the Issuer's Articles of Association is not in conformity with the provisions as stated above,
the Issuer has to make amendments to the Articles of Association. However, the securities of
an Issuer may be admitted for listing on the NSE on an undertaking by the Issuer that the
amendments necessary in the Articles of Association to bring Articles of Association in
conformity with Rule 19(2)(a) of the Securities Contract (Regulation) Rules, 1957 shall be
made in the next annual general meeting and in the meantime the Issuer shall act strictly in
accordance with prevalent provisions of Securities Contract (Regulation) Act, 1957 and other
statutes.

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It is to be noted that any provision in the Articles of Association which is not in tune with
sound corporate practice has to be removed by amending the Articles of Association.

Approval of draft prospectus

The Issuer shall file the draft prospectus and application forms with NSE. The draft
prospectus should have been prepared in accordance with the statutes, notifications, circulars,
guidelines, etc. governing preparation and issue of prospectus prevailing at the relevant time.
The Issuers may particularly bear in mind the provisions of Companies Act, Securities
Contracts (Regulation) Act, the SEBI Act and the relevant subordinate legislations thereto.
NSE will peruse the draft prospectus only from the point of view of checking whether the
draft prospectus is in accordance with the listing requirements, and therefore any approval
given by NSE in respect of the draft prospectus should not be construed as approval under
any laws, rules, notifications, circulars, guidelines etc. The Issuer should also submit the
SEBI acknowledgment card or letter indicating observations on draft prospectus or letter of
offer by SEBI.

Submission of Application

For Issuers listing on NSE for the first time

Listing of further Issues by Issuers already listed on NSE

Listing Fees

Security deposit (for new & fresh issues and when NSE is the Regional Stock Exchange)

Supporting documents

For Issuers listing on NSE for the first time

Issuers desiring to list existing/new securities on the NSE shall make application for admission of
their securities to dealings on the NSE in the forms prescribed in this regard as per details given
hereunder or in such other form or forms as the Relevant Authority may from time to time prescribe
in addition thereto or in modification or substitution thereof.

Appendix 'A' - Clauses of Articles of Association.


Appendix 'B'- Application Letter for Listing.
Appendix 'C-1' - Listing Application providing pre-issue details of securities.
Appendix 'C-2' - Listing Application providing post-issue details of securities.
Appendix 'D'- Checklist for supporting documents ( as applicable to the issuer)
Appendix 'E' - Schedule of Distribution
Appendix 'F'- Listing Agreement

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Listing of further Issues by Issuers already listed on NSE

Issuers whose securities are already listed on the NSE shall apply for admission to listing on the NSE
of any further issue of securities made by them. The application for admission shall be made in the
forms prescribed in this regard or in such other form or forms as the Relevant Authority may from
time to time prescribe in addition thereto or in modification or substitution thereof.

Appendix 'E' - Schedule of Distribution


Appendix 'G'- Application Letter for Listing of further issues.
Appendix 'H' - Listing Application providing details of securities.
Appendix 'I' - Checklist for supporting documents submitted (as applicable)

Listing Fees

The listing fees depend on the paid up share capital of your Company:

Particulars Amount (Rs.)


Initial Listing Fees 25,000
Annual Listing Fees (based on paid up share, bond and/or debenture and/or debt
capital etc.)
Upto Rs. 1 Crore 10,000
Above Rs. 1 Crore and upto Rs.5 Crores 15,000
Above Rs. 5 Crore and upto Rs.10 Crores 25,000
Above Rs. 10 Crore and upto Rs.20 Crores 45,000
Above Rs. 20 Crore and upto Rs.30 Crores 70,000
Above Rs. 30 Crore and upto Rs.40 Crores 75,000
Above Rs. 40 Crore and upto Rs.50 Crores 80,000
Above Rs. 50 Crores and upto Rs.100 Crores 1,30,000
Above Rs. 100 Crore and upto Rs.150 Crores 1,50,000
Above Rs. 150 Crore and upto Rs.200 Crores 1,80,000
Above Rs. 200 Crore and upto Rs.250 Crores 2,05,000
Above Rs. 250 Crore and upto Rs.300 Crores 2,30,000
Above Rs. 300 Crore and upto Rs.350 Crores 2,55,000
Above Rs. 350 Crore and upto Rs.400 Crores 2,80,000
Above Rs. 400 Crore and upto Rs.450 Crores 3,25,000
Above Rs. 450 Crore and upto Rs.500 Crores 3,75,000

Companies which have a paid up share, bond and/ or debenture and/or debt capital, etc. of
more than Rs.500 crores will have to pay minimum fees of Rs.3,75,000 and an additional
listing fees of Rs.2,500 for every increase of Rs.5 crores or part thereof in the paid up share,
bond and/ or debenture and/or debt capital, etc.
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Companies which have a paid up share, bond and/ or debenture and/or debt capital, etc. of
more than Rs.1,000 crores will have to pay minimum fees of Rs.6,30,000 and an additional
listing fees of Rs.2,750 for every increase of Rs.5 crores or part thereof in the paid up share,
bond and/ or debenture and/or debt capital, etc.

Security Deposit

(Payable only for new and fresh issues and only when NSE is the Regional Stock Exchange)

The Relevant Authority shall not grant admission to dealings of securities of an Issuer which
is not listed or of any new (original or further) issue of securities of an Issuer excepting
Mutual Funds, which is listed on the NSE unless the Issuer deposits and keeps deposited with
the NSE (in cases where the securities are offered for subscription, whether through the issue
of a prospectus, letter of offer or otherwise, and NSE is the Regional Stock Exchange for the
Issuer) an amount calculated at 1% of the amount of securities offered for subscription to the
public and or to the holders of existing securities of the Issuer, as the case may be for
ensuring compliance by the Issuer within the prescribed or stipulated period of all
requirements and conditions hereinafter mentioned and shall be refundable or forfeitable in
the manner hereinafter stated:

1. The Issuer shall comply with all prevailing requirements of law including all
requirements of and under any notifications, directives and guidelines issued by the
Central Government, SEBI or any statutory body or local authority or any body or
authority acting under the authority or direction of the Central Government and all
prevailing listing requirements and conditions of the NSE and of each recognized
Stock Exchange where the Issuer has applied for permission for admission to dealings
of the securities, within the prescribed or stipulated period;

2. If the Issuer has complied with all the aforesaid requirements and conditions
including, wherever applicable, its obligation under Section 73 (or any statutory
modification or re-enactment thereof) of the Companies Act, 1956 and obligations
arising therefrom, within the prescribed or stipulated period, and on obtaining a No
Objection Certificate from SEBI and submitting it to NSE , NSE shall refund to the
Issuer the said deposit without interest within fifteen days from the expiry of the
prescribed or stipulated period;

3. If on expiry of the prescribed or stipulated period or the extended period referred to


hereafter, the Issuer has not complied with all the aforesaid requirements and
conditions, the said deposit shall be forfeited by the NSE, at its discretion, and
thereupon the same shall vest in the NSE. Provided the forfeiture shall not release the
Issuer of its obligation to comply with the aforesaid requirements and conditions;

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4. If the Issuer is unable to complete compliance of the aforesaid requirements and
conditions within the prescribed or stipulated period, the NSE, at its discretion and if
the Issuer has shown sufficient cause, but without prejudice to the obligations of the
Issuer under the laws in force to comply with any such requirements and conditions
within the prescribed or stipulated period, may not forfeit the said deposit but may
allow such further time to the Issuer as the NSE may deem fit; provided that

a. the Issuer has at least ten days prior to expiry of the prescribed or stipulated
period applied in writing for extension of time to the NSE stating the reasons
for non-compliance, and

b. the Issuer, having been allowed further time by the NSE, has before expiry of
the prescribed or stipulated period, published in a manner required by the
NSE, the fact of such extension having been allowed; provided further that
where the NSE has not allowed extension in writing before expiry of the
prescribed or stipulated period, the request for extension shall be deemed to
have been refused; provided also that any such extension shall not release the
Issuer of its obligations to comply with the aforesaid requirements and
conditions.
2. 50% of the above mentioned security deposit should be paid to the NSE in cash. The
balance amount can be provided by way of a bank guarantee, in the format prescribed
by or acceptable to NSE. The amount to be paid in cash is limited to Rs.3 crores.

Supporting Documents

Issuers applying for admission of their securities to dealings on the NSE shall submit to the
NSE the following:

• Documents and Information


The documents and information prescribed in Appendix D or Appendix I (as the case
may be) to this Regulation or such other documents and information as the Relevant
Authority may from time to time prescribe, in addition thereto or in modification or
substitution thereof together with any other documents and information which the
Relevant Authority may require in any particular case;

• Distribution Schedules
Distribution Schedules duly completed in respect of each class and kind of security in
the form prescribed in Appendix E (Table I, II & III) to this Regulation or in such
other form or forms as the Relevant Authority may from time to time prescribe in
addition thereto or in modification or substitution thereof.

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BSE

Guidelines for Listing

The Bombay Stock Exchange (BSE) has a dedicated Listing Department to grant approval for listing of
securities of companies in accordance with the provisions of the Securities Contracts (Regulation) Act,
1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines issued by SEBI
and Rules, Bye-laws and Regulations of BSE.

BSE has set various guidelines and forms that need to be adhered to and submitted by the companies.
These guidelines will help companies to expedite the fulfillment of the various formalities and disclosure
requirements that are required at various stages of

• Public Issues
o Initial Public Offering
o Further Public Offering
• Preferential Issues
• Indian Depository Receipts
• Amalgamation
• Qualified Institutions Placements

A company intending to have its securities listed on BSE has to comply with the listing requirements
prescribed by it. Some of the requirements are as under :

I Minimum Listing Requirements for New Companies


II Minimum Listing Requirements for Companies already Listed on other Stock Exchanges
III Minimum Requirements for Companies Delisted by BSE seeking relisting on BSE
IV Permission to Use the Name of BSE in an Issuer Company's Prospectus
V Submission of Letter of Application
VI Allotment of Securities
VII Trading Permission
VIII Requirement of 1% Security
IX Payment of Listing Fees
X Compliance with the Listing Agreement
XI Cash Management Services (CMS) - Collection of Listing Fees

[I] Minimum Listing Requirements for New Companies

The following eligibility criteria have been prescribed effective August 1, 2006 for listing of companies
on BSE, through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs):

1. Companies have been classified as large cap companies and small cap companies. A16
large cap
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Listing Guidelines

EQUITY

SOME OF THE IMPORTANT CLAUSES UNDER LISTING AGREEMENT ARE:-

Clause 16

The Company on whose stocks, derivatives are available or whose stocks form part of an
index on which derivatives are available, shall give a notice period of 30 days to stock
exchanges for corporate actions like mergers, de-mergers, splits and bonus shares.

Clause 18

The Issuer will publish in a form approved by NSE such periodical interim statements of its
working and earning as required by NSE, SEBI, or any statutory body or local authority or
anybody or authority acting under the authority or direction of the Central Government.

Clause 20

The Issuer will, immediately after the meeting of its Board of Directors has been held to
consider or decide the same, intimate to the Stock Exchanges where the company is listed,
(within 15 minutes of the closure of the board meeting) by phone, fax, telegram, e-mail:

a) all dividends and/or cash bonuses recommended or declared or the decision to pass any
dividend or interest payment;

b) the total turnover, gross profit/loss, provision for depreciation, tax provisions and net
profits for the year (with comparison with the previous year) and the amounts appropriated
from reserves, capital profits, accumulated profits of past years or other special source to
provide wholly or partly for the dividend, even if this calls for qualification that such
information is provisional or subject to audit

Clause 22

The Issuer will, immediately after the meeting of its Board of Directors has been held to
consider or decide the same, intimate to the Stock Exchanges where the company is listed,
(within 15 minutes of the closure of the board meeting) by phone, fax, telegram, e-mail :

a) short particulars of any increase of capital whether by issue of bonus shares through
capitalization, or by way of right shares to be offered to the shareholders or debenture
holders, or in any other way.

b) any other information necessary to enable the holders of the listed securities of the Issuer
to appraise its position and to avoid the establishment of a false market in such listed
securities.

Clause 31

The Issuer will forward to NSE promptly and without application:-


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a) six copies of the Statutory and Directors’ Annual Reports, Balance Sheets and Profits &
Loss Accounts and of all periodical and special reports as soon as they are issued and one
copy each to all the recognized stock exchanges in India;

b) six copies of all notices, resolutions and circulars relating to new issue of capital prior to
their dispatch to the shareholders;

c) three copies of all the notices, call letters or any other circulars including notices of
meetings convened at the same time as they are sent to the shareholders, debenture holders or
creditors or any class of them or advertised in the Press.

d) copy of the proceedings at all Annual and Extraordinary General Meetings of the
Issuer;

e) three copies of all notices, circulars, etc., issued or advertised in the press either by the
Issuer, or by any Issuer which the Issuer proposes to absorb or with which the Issuer proposes
to merge or amalgamate, or under orders of the court or any other statutory authority in
connection with any merger, amalgamation, re-construction, reduction of capital, scheme or
arrangement, including notices, circulars, etc. issued or advertised in the press in regard to
meetings of shareholders or debenture holders or creditors or any class of them and copies of
the proceedings at all such meetings.

Clause 32

The Issuer will supply a copy of the complete and full Balance Sheet, Profit and Loss
Account and the Directors’ Report to each shareholder and upon application to any member
of NSE.

The issuer will also give cash flow statement along with the Balance Sheet and Profit and
Loss Account. The Cash Flow Statement will be prepared in accordance with the
Accounting Standard on Cash Flow Statement (AS-3) issued by the Institute of
Chartered Accountants of India, and the Cash Flow Statement shall be presented only
under the Indirect Method as given in AS-3. The statement shall be issued under the authority
of the Board and shall be signed on behalf of the Board of Directors in the manner provided
for the authentication of Balance Sheet and Profit and Loss Account in Section 215 of the
Companies Act, 1956

Consolidated Financial Statement:

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According to Accounting Standard (AS) 21 of ICAI:

Consolidated financial statements are the financial statements of a group presented as


those of a single enterprise.

Consolidated Financial Statement:

Companies shall be mandatory required to publish Consolidated Financial Statements in the


annual report in addition to the individual financial statements.

Audit of Consolidated Financial Statements by the statutory auditors of the company and the
filing of Consolidated Financial Statements audited by the statutory auditors of the company
with the stock exchanges shall be mandatory.

Related Party Disclosures :

According to Accounting Standard (AS) 18 of ICAI:

Related party - parties are considered to be related if at any time during the reporting period
one party has the ability to control the other party or exercise significant influence over the
other party in making financial and/or operating decisions.

Companies shall be required to make disclosures in compliance with the Accounting


Standard on "Related Party Disclosures" in the annual reports.

The Issuer agrees to make the following disclosure in the Annual Report:

i) In case the shares are delisted, it shall disclose the fact of delisting, together with reasons
thereof in its Directors Report

ii) In case the securities are suspended from trading, the Directors Report should explain the
reason thereof.

The above disclosures shall be applicable to all listed companies except for listed banks.

Clause 35

The company agrees to file the following details with the Exchange on a quarterly basis,
within 21 days from the end of each quarter, in the format specified as under:

• Statement showing Shareholding Pattern

• Statement showing Shareholding of persons belonging to the category “Promoter and


Promoter Group”

• Statement showing Shareholding of persons belonging to the category “Public” and


holding more than 1% of the total number of shares

• Statement showing details of locked-in shares.

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Clause 41

The company agrees to comply with the following provisions:-

I) Preparation and Submission of Financial Results

II) Manner of approval and authentication of the financial results

III) Intimation of Board Meeting

IV) Other requirements as to financial results

V) Formats

VI) Publication of financial results in newspapers

VII) Interpretation

We will explain some of the important subsections of this clause like I,IV,VI and VII

I) Preparation and Submission of Financial Results

A)The financial results filed and published in compliance with this clause shall be prepared
on the basis of accrual accounting policy and in accordance with uniform accounting
practices adopted for all the periods.

B)The company shall submit its quarterly, year to date and annual financial results to the
stock exchange in the manner prescribed in this clause.

C)The company has an option either to submit audited or unaudited quarterly and year to
date financial results to the stock exchange within one month of end of each quarter (other
than the last quarter), subject to the following:

1)In case the company opts to submit audited financial results, they shall be accompanied
by the audit report.

2) In case the company opts to submit unaudited financial results, they shall be subjected to
limited review by the statutory auditors of the company (or in case of public sector
undertakings, by any practicing Chartered Accountant) and a copy of the limited review
report shall be furnished to the stock exchange within two months from end of the quarter.
(vide SEBI order June 30, 2003)

D)In respect of the last quarter, the company has an option either to submit unaudited
financial results for the quarter within one month of end of the financial year or to submit
audited financial results for the entire financial year within three months of end of the
financial year, subject to the following:

1) In case the company opts to submit audited financial results for the entire financial year, it
shall intimate the stock exchange in writing within one month of end of the financial year,
about such exercise of option.
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2) In case the company opts to submit un-audited financial results for the last quarter, it shall
also submit audited financial results for the entire financial year, as soon as they are approved
by the Board. Such un-audited financial results for the last quarter shall also be subjected to
limited review by the statutory auditors of the company (or in case of public sector
undertakings, by any practicing Chartered Accountant) and a copy of the limited review
report shall be furnished to the stock exchange within two months from end of the quarter.

E) If the company has subsidiaries, -

it may, in addition to submitting quarterly and year to date stand alone financial results to the
stock exchange under item (c) i.e. within one month of the end of the quarter, also submit
quarterly and year to date consolidated financial results within two months from the end of
the quarter; and

while submitting annual audited financial results prepared on stand-alone basis under item
(c), it shall also submit annual audited consolidated financial results to the stock exchange.

IV) Other requirements as to financial results

a) Where there is a variation between the unaudited quarterly or year to date financial
results and the results amended pursuant to limited review for the same period, the
company shall submit to the stock exchange an explanation of the reasons for variations,
while submitting the limited review report.

b) If the auditor has expressed any qualification or other reservation in respect of audited
financial results submitted or published under this clause, the company shall disclose such
qualification or other reservation and impact of the same on the profit or loss, while
publishing or submitting such results.

c) If the auditor has expressed any qualification or other reservation in his audit report or
limited review report in respect of the financial results of any previous financial year or
quarter which has an impact on the profit or loss of the reportable period, the company shall
include as a note to the financial results –

◦ how the qualification or other reservation has been resolved; or

◦ if it has not been resolved, the reason therefore and the steps which the
company intends to take in the matter.

d) If the company has changed its name suggesting any new line of business, it shall
disclose the net sales or income, expenditure and net profit or loss after tax figures
pertaining to the said new line of business separately in the financial results and shall
continue to make such disclosures for the three years succeeding the date of change in
name.

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If the company had not commenced commercial production or commercial operations
during the reportable period, the company shall, instead of submitting financial results,
disclose the details of amount raised, the portions thereof which is utilized and that remaining
unutilized, the details of investment made pending utilization, brief description of the project
which is pending completion, status of the project and expected date of commencement of
commercial production or commercial operations.

e) The quarterly and year to date results shall be prepared in accordance with the recognition
and measurement principles laid down in Accounting Standard 25 (AS 25 – Interim Financial
Reporting) issued by the Institute of Chartered Accountants of India (ICAI)/Company
(Accounting Standards) Rules, 2006, whichever is applicable.

f) All items of income and expenditure arising out of transactions of exceptional nature
shall be disclosed.

g) Extraordinary items, if any, shall be disclosed in accordance with Accounting


Standard 5 (AS 5 – Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies) issued by the Institute of Chartered Accountants of India
(ICAI)/Company (Accounting Standards) Rules, 2006, whichever is applicable.

h) Changes in accounting policies, if any, shall be disclosed in accordance with


Accounting Standard 5 (AS 5 – Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies) issued by the Institute of Chartered Accountants of India
(ICAI)/Company (Accounting Standards) Rules, 2006, whichever is applicable.

i) Companies, whose revenues are subject to material seasonal variations, shall disclose the
seasonal nature of their activities.

j) The company shall disclose any event or transaction which occurred during or before
the quarter that is material to an understanding of the results for the quarter including but
not limited to completion of expansion and diversification programmes, strikes and lock-outs,
change in management and change in capital structure. The company shall also disclose
similar material events or transactions that take place subsequent to the end of the quarter.

k) The company shall disclose the following in respect of dividends paid or recommended for
the year, including interim dividends:

amount of dividend distributed or proposed for distribution per share; the amounts in respect
of different classes of shares shall be distinguished and the nominal values of shares shall
also be indicated.

l) The company shall disclose the effect on the financial results of material changes in the
composition of the company, if any, including but not limited to business combinations,
acquisitions or disposal of subsidiaries and long term investments, any other form of
restructuring and discontinuance of operations.

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V) Format

 Segment Reporting

If the company has more than one reportable primary segment in terms of Accounting
Standard 17 (AS 17 – Segment Reporting) issued by ICAI/Company (Accounting Standards)
Rules, 2006, it shall also submit quarterly or annual segment information as part of financial
results.

VIII) Interpretation

For the purposes of this clause, -

‘financial year’ means the period of twelve months commencing on the first day of April
every year, subject however to items (e) to (h);

‘annual results’ mean the financial results prepared in accordance with this clause in respect
of a financial year;

‘quarter’ means the period of three months commencing on the first day of April, July,
October or January of a financial year, subject however to items (e) to (h);

quarterly results’ mean the financial results prepared in accordance with this clause in respect
of a quarter;

Clause 43A

Statement of deviations in use of issue proceeds –

The company agrees to furnish to the stock exchange on a quarterly basis, a statement
indicating material deviations, if any, in the use of proceeds of a public or rights issue from
the objects stated in the offer document.

Clause 48

Companies should co-operate with the Credit Rating Agencies in giving correct and adequate
information for periodical review of the securities during lifetime of the rated securities.

Clause 49

Corporate Governance

I)Board of Directors

(A) Composition Of Board


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 The Board of directors of the company shall have an optimum combination of
executive and non-executive directors with not less than fifty percent of the board of
directors comprising of non-executive directors. (SEBI in its circular to stock
exchanges in October 2004).

 Where the Chairman of the Board is a non-executive director, at least one-third of the
Board should comprise of independent directors and in case he is an executive
director at least half of the Board should comprise of independent directors.

(B) Non executive directors’ compensation and disclosures

All fees/compensation, if any paid to non-executive directors, including independent


directors, shall be fixed by the Board of Directors and shall require previous approval
of shareholders in general meeting. (SEBI vide its circular dated 26th August 2003)

(C) Additional duty on the independent director

An independent director would be supposed to periodically review the legal


compliance reports prepared by the Company and steps taken by the Company to
improve the taints. (SEBI vide its circular dated 26th August 2003)

(D) Code of Conduct for all Board members and senior management of the
Company.

The Board shall lay down the code of conduct for all Board members and senior
management of a company.

This code of conduct shall be posted on the website of the company. All Board
members and senior management personnel shall affirm compliance with the code on
an annual basis. The annual report of the company shall contain a declaration to this
effect signed by the CEO and COO. ((SEBI vide its circular dated 26th August 2003)

II) Audit Committee

(A) Qualified and Independent Audit Committee

(B) Meeting of Audit Committee

(C) Powers of Audit Committee

Other sub sections under this clause are-

III. Subsidiary Companies

IV. Disclosures

V. CEO/CFO certification

VI. Report on Corporate Governance

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VII. Compliance

There is some non-mandatory clauses for example- Whistle Blower Policy

Whistle Blower Policy(non-mandatory)

So as to detect frauds, irregularities and encouraging employees to come forward to


Audit Committee, concept of "Whistle Blower "has been introduced. The following
are the notable features of the 'Whistle Blower Policy" are:

1.Personnel who observe an unethical or improper practice (not necessarily a


violation of law) shall be able to approach the audit committee without necessarily
informing their supervisors.

2. Companies shall take measures to ensure that this right of access is


communicated to all employees through means of internal circulars, etc. The
employment and other personnel policies of the company shall contain provisions
protecting "whistle blowers" from unfair termination and other unfair prejudicial
employment practices.

Clause 50

Companies shall mandatorily comply with all the Accounting Standards issued by
ICAI from time to time

Listing of Debt Instruments

Wholesale Debt Market

The Wholesale Debt Market segment deals in fixed income securities. The Wholesale
Debt Market (WDM) segment of the Exchange commenced operations on June 30,
1994.This segment provides trading facilities for a variety of debt instruments
including Government Securities, Treasury Bills and Bonds issued by Public Sector
Undertakings/ Corporate/ Banks.

Retail Debt Market

With a view to encouraging wider participation of all classes of investors (including


retail investors) in government securities, the Government, RBI and SEBI have
introduced trading in government securities for retail investors. Trading in this retail
debt market segment (RDM) on NSE has been introduced w.e.f. January 16, 2003.In
the first phase, all outstanding and newly issued central government securities would
be traded in the retail segment.
26
Important Clauses

 The Issuer agrees to notify the Exchange regarding expected default in timely
payment of interest or redemption amount or both in respect of the debentures listed
on the exchange as soon as the same becomes apparent to the Issuer.

 Delay in Payment of Interest / Principal Amount

The Issuer will promptly notify the Exchange, as and when there is a delay in
timely payment of interest and / or the possibility of delay in repayment of the
principal amount.

Listing of IDRs

Indian Depository Receipts (IDRs) are basically financial instruments that allow
foreign companies to mobilise funds from Indian markets by offering equity and
getting listed on Indian stock exchanges. This instrument is similar to the GDRs and
ADRs that allow foreign companies to raise funds from European and American
markets, respectively.

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LISTING ON A FOREIGN STOCK EXCHANGE

BENEFITS AND DRAWBACKS

Benefits

There are many advantages that accrue to companies that attain a public listing of their
shares. Some of the key considerations and benefits are:
• Creating a market for the company’s shares;
• Enhancing the status and financial standing of the company;
• Increasing public awareness and public interest in the company and its products;
• Providing the company with an opportunity to implement share option schemes for
their employees;
• Accessing to additional fund raising in the future by means of new issues of shares or
other securities;
• Facilitating acquisition opportunities by use of the company’s shares; and
• Offering existing shareholders a ready means of realising their investments.

Drawbacks

While there are benefits to going public, it also means additional obligations and reporting
requirements on the companies and its directors:
• Increasing accountability to public shareholders
• Need to maintain dividend and profit growth trends
• Becoming more vulnerable to an unwelcome takeover
• Need to observe and adhere strictly to the rules and regulations by governing bodies
• Increasing costs in complying with higher level of reporting requirements
• Relinquishing some control of the company following the public offering
• Suffering a loss of privacy as a result of media interest

US accounting and reporting framework


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The US securities markets represent the largest source of capital in the world and present
many opportunities to foreign companies seeking to raise capital and to increase their global
profile.
However, because of the extensive information and compliance standards required by the US
regulatory environment, companies seeking to list on NASDAQ/NYSE must prepare
themselves for the technical challenges of demonstrating their ability to manage their
operations and financial health, of establishing and maintaining effective corporate
governance and internal controls, and of increasing their reporting transparency.
The principal regulator of the US capital markets is the SEC. Based in Washington, DC, it is
tasked with ensuring a fair and level playing field for publicly listed companies and their
investors. Before a company can sell securities to the public in the United States, it must first
submit a registration statement to the SEC, which includes information that adequately
informs potential investors about the company. Among other things, management of the
company must prepare financial information of the company according to SEC rules, which
is then audited by the company’s independent registered public accountant.
Foreign companies seeking to list in the US markets need to educate their management and
employees about the accounting and reporting framework regulated by the SEC.
Companies entering the US capital markets must also comply with the Sarbanes- Oxley Act
of 2002. This requires the company’s chief executive officer and chief financial officer each
to provide, when submitting financial information to the SEC, certain certifications regarding
the company’s financial statements and the effectiveness of the company’s disclosure
controls and procedures (Section 302 certifications). In addition, in the company’s second
annual report after it becomes an SEC registrant, the company must provide management’s
assessment as to the effectiveness of the company’s internal controls over financial reporting
(Section 404), and the company’s independent accountants must issue an attestation report on
the company’s internal control over financial reporting.

Accounting and reporting requirements of a US public offering


The registration statement
Form F-1 is the form on which most foreign private issuers file their registration statement
with the SEC, although Form F-3 (known as the ‘short form’) requires less detail and may be
used by foreign private issuers that are already SEC registrants and meet specific
requirements. Companies wishing to list without raising capital may use the Form 20-F
registration statement.
29
Preparing the registration statement
The process of preparing and filing a registration statement is complicated, time consuming
and technical. Furnishing the requisite information and complying with all applicable SEC
rules in an efficient manner requires significant planning and coordination. The company’s
management team, lawyers and accountants will expend a great deal of effort to help the
company meet these requirements.

Financial information
The SEC has specific and sometimes complex rules regarding the content and age of the
financial statements that must be presented in a registration statement and a company’s
independent accountant can be invaluable in helping to interpret these rules.
In a Form F-1 registration statement, a foreign private issuer must generally present audited
financial statements under US GAAP, IFRS or another comprehensive body of accounting
principles. If the basis of financial statement presentation is other than US GAAP or IFRS,
reconciliation from that comprehensive basis of presentation to US GAAP must also be
provided.
In light of the convergence of IFRS and US GAAP, companies contemplating an IPO are
now carefully considering the selection of their primary basis of accounting.
As IFRS and US GAAP continue to converge, a company should consult its accountants on
its choice of an accounting basis on which to prepare the financial statements.
If a non-US company chooses to present its financial statements under US GAAP or is a first-
time IFRS filer, it is required only to present the two most recent financial years’ audited
financial statements (i.e., balance sheet, income statement, statement of cash flows and
statement of changes in shareholders’ equity, together with related footnotes) in its initial
registration statement.

Elimination of US GAAP reconciliation


For financial years ending prior to November 15 2007, all financial statements prepared on a
basis other than US GAAP required reconciliation to US GAAP. In December 2007 the SEC
issued a new rule which eliminated the requirement for this US
GAAP reconciliation for foreign private issuers with financial statements prepared in
accordance with IFRS as issued by the International Accounting Standards Board.

30
The SEC was very specific that in order to qualify for the elimination of the US GAAP
reconciliation, the financial statements must be prepared in accordance with IFRS as issued
by the International Accounting Standards Board and not an equivalent IFRS basis (e.g.,
IFRS as adopted by the European Union would not qualify). As such, financial statements
prepared in accordance with a comprehensive body of accounting principles other than US
GAAP or IFRS as issued by the International Accounting Standards Board will continue be
required to be reconciled to US GAAP.

If a company chooses to present its financial statements according to a comprehensive body


of accounting principles other than US GAAP or IFRS as issued by the International
Accounting Standards Board, the following must be included:
• A balance sheet for the two most recent financial years;
• An income statement (profit and loss account) for the last three years;
• A statement of cash flows for the last three years; and
• A statement of changes in shareholders’ equity for the last three years.
Net income and shareholders’ equity must be quantitatively reconciled to US GAAP for the
last two financial years, and all material US GAAP and Regulation S-X disclosures must be
provided for such years. Such disclosure is required to be provided in the audited footnotes.
The reconciliations need to be detailed - as a rule of thumb, a user of the financial statements
generally should be able to prepare a US GAAP income statement and balance sheet using
the information presented.

If the last audited financial statements included in the registration statement are more than
nine months old, the foreign private issuer must also include consolidated interim financial
statements covering at least the first six months of the current financial year with
comparatives from the same period of the prior year.

SEC annual reporting requirements


Once a foreign private issuer has publicly placed securities in the United States, it must file
an annual report on Form 20-F with the SEC no later than six months after each financial
31
year-end. Such statements will disclose any substantial items of unusual or non-recurrent
nature and will show either net income before and after income taxes or net income and the
amount of income taxes.
In February 2008, in order to enhance the information that is available to investors, the SEC
proposed to shorten the filing deadline from within six months of an issuer's fiscal year-end
to within 90 days of the foreign private issuer’s fiscal year-end. The proposed rule includes a
two-year transition period for fiscal years ending on or after December 15 2010.

In addition, the foreign private issuer must submit some of the other information about the
business required in Form F-1, such as:
• The identity of the directors, senior management and advisors;
• Key information relating to the foreign private issuer’s financial condition, capitalization
and risk factors;
• Information on the company, including its operations, products and services, and plans for
future increases or decreases;
• Information relating to directors, senior management and employees, including
compensation paid to the company’s directors and members of its administrative, supervisory
or management bodies. This may be shown on an aggregate basis if the individual
information is not otherwise publicly available; and
• Major shareholders and related-party transactions.

The Corporation will publish at least once a year and submit to its stockholders at least fifteen
days in advance of the annual meeting and not later than three months after the close of the
last preceding fiscal year of the Corporation:
 a balance sheet and a surplus and income statement for such fiscal year of the
Corporation as a separate corporate entity and of each corporation in which it holds,
directly or indirectly, a majority of the equity stock; or in lieu thereof, eliminating all
intercompany transactions
• a consolidated balance sheet of the Corporation and its subsidiaries as of the end of its
last previous fiscal year and a consolidated surplus statement and a consolidated
income statement of the Corporation and its subsidiaries for such fiscal year.
The Corporation will publish quarterly statements of earnings on the basis of the same degree
of consolidation as in the annual report.

32
NASDAQ listing requirements
 Minimum of 1,250,000 publicly-traded shares upon listing, excluding those held by
officers, directors or any beneficial owners of more then 10% of the company.
 The company must have aggregate pre-tax earnings in the prior 3 years of >= $11
million, in the prior 2 years >= $2.2 million, and no one year in the prior 3 years can
have a net loss.
 Companies can be removed from the cash flow requirement if the average market
capitalization over the past 12 months is >= $850 million, and revenues over the prior
fiscal year are >=$90 million.
 The company must have a minimum aggregate cash flow >= $27.5 million for the
past 3 fiscal years, with no negative cash flow in any of the 3 years. In addition, its
average market capitalization over the prior 12 months must be >= $550 million, and
revenues in the previous fiscal year must be >= $110 million.
An issuer may comply with the annual report requirement either:
• by mailing the report to shareholders, or
• by posting the annual report to shareholders on or through the company's website.
An issuer that chooses to satisfy this requirement via a website posting must, simultaneous
with this posting, issue a press release stating that its annual report has been filed with the
Commission (or other appropriate regulatory authority).

Interim requirements
NASDAQ requires a non-US issuer to provide in a press release, which also must be
submitted on a Form 6-K, an interim balance sheet and semi-annual income statement, no
later than six months following the end of the issuer’s second fiscal quarter. Under the rule,
the information provided must be translated into English, but does not have to be reconciled
to US GAAP. The new rule is effective for interim periods ending after January 1 2006.

NYSE listing requirements

 1,100,000 common shares publicly held.


 Global market cap: $500 million
 Aggregate pre tax earnings over past 3 years: $10 million
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 Aggregate operating cash flow over past 3 years: $100 million, should be a positive
amount each year
 Revenues for the most recent fiscal year: $100 million

FINANCIAL STATEMENTS RELATED REQUIREMENTS

• A summary statement of earnings, prepared in conformity with generally accepted


accounting principles, for the last five fiscal years.

• Consolidated financial statements, prepared in conformity with generally accepted


accounting principles, together with the report of the company’s independent public
accountants.

• The latest available interim financial statements for the current fiscal year, prepared in
conformity with generally accepted accounting principles. The interim statements
shall include a report thereon by the company’s chief financial officer if such
statements have not been audited.

• Pro- forma or “giving effect” consolidated financial statements in cases where there
has been, or is contemplated, any major financing, recapitalization, acquisition or
reorganization.

• Parent Company Statements – Statements of the parent company as a separate


corporate entity may also be required if such statements appear essential or desirable.
In general, parent company statements are not required in cases where the subsidiaries
are wholly owned and do not have any substantial amount of funded debt outstanding.

• Form of Financial Statements – The Exchange does not attempt to prescribe the
form or detail of the financial statements included in the listing applications. It is
required that such statements be prepared in conformity with generally accepted
accounting principles. It is the practice of the Exchange to ask the company to submit
its financial statements, initially, in the form in which they have been published in the
annual reports to shareholders. Those statements are examined by the Exchange staff.

34
Such changes as may seem desirable are discussed with the company. When
preparing financial statements for inclusion in a listing application, it should be noted
that the Listing Agreement, filed by the company in support of the application,
requires that all financial statements contained in the company’s future annual reports
to shareholders be in the same form as the statements contained in the listing
application or as modified by agreement of the company and the Exchange.

• The Corporation will publish at least once a year and submit to its stockholders at
least fifteen days in advance of the annual meeting of such stockholders and not later
than three months after the close of the last preceding fiscal year of the Corporation, a
balance sheet as of the end of such fiscal year, and a surplus and income statement for
such fiscal year of the Corporation as a separate corporate entity and of each
corporation in which it holds, directly or indirectly, a majority of the equity stock; or
in lieu thereof, eliminating all intercompany transactions, a consolidated balance sheet
of the Corporation and its subsidiaries as of the end of its last previous fiscal year and
a consolidated surplus statement and a consolidated income statement of the
Corporation and its subsidiaries for such fiscal year. If any such consolidated
statement shall exclude corporations, a majority of whose equity stock is owned
directly or indirectly by the Corporation; (a) the caption of, or a note to, such
statement will show the degree of consolidation; (b) the consolidated income account
will reflect, either in a footnote or otherwise, the parent company’s proportion of the
sum of, or difference between, current earnings or losses and dividends of such
unconsolidated subsidiaries for the period of the report; and (c) the consolidated
balance sheet will reflect, either in a footnote or otherwise, the extent to which the
equity of the parent company in such subsidiaries has been increased or diminished
since the date of acquisition as a result of profits, losses and distributions. Appropriate
reserves, in accordance with good accounting practice, will be made against profits
arising out of all transactions with unconsolidated subsidiaries in either parent
company statements or consolidated statements. Such statements will reflect the
existence of any default in interest, cumulative dividend requirements, sinking fund or
redemption fund requirements of the Corporation and of any controlled corporation,
whether consolidated or unconsolidated.

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• All financial statements contained in annual reports of the Corporation to its
stockholders will be audited by independent public accountants qualified under the
laws of some state or country, and will be accompanied by a copy of the certificate
made by such firm with respect to its audit of such statements showing the scope of
such audit and the qualifications, if any, with respect thereto. The Corporation will
promptly notify the Exchange if it changes its independent public accountants
regularly auditing the books and accounts of the Corporation.

• All financial statements contained in annual reports of the Corporation to its


stockholders shall be in the same form as the corresponding statements contained in
the listing application in connection with which this Listing Agreement is made and
shall disclose any substantial items of unusual or non-recurrent nature.

• The Corporation will publish quarterly statements of earnings on the basis of the same
degree of consolidation as in the annual report. Such statements will disclose any
substantial items of unusual or non-recurrent nature and will show either net income
before and after income taxes or net income and the amount of income taxes.

• The Corporation will not make, nor will it permit any subsidiary directly or indirectly
controlled by it to make any, substantial charges against capital surplus, without
notifying the Exchange. If so requested by the Exchange, the Corporation will submit
such charges to stockholders for approval or ratification.

• The Corporation will not make any substantial change, nor will it permit any
subsidiary directly or indirectly controlled by it to make any substantial change, in
accounting methods, in policies as to depreciation and depletion, or in bases of
valuation of inventories or other assets without notifying the Exchange and disclosing
the effect of any such change in its next succeeding interim and annual report to its
stockholders.

• The Corporation will maintain an audit committee in conformity with Exchange


requirements.

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LUXEMBOURG STOCK EXCHANGE

Luxembourg is an attractive and accessible market for both international issuers and
investors. A Luxembourg listing has many advantages to offer non-EU companies seeking to
raise capital and to claim a greater share of the attention of international investors worldwide.
These benefits include:

• access to a large pool of international investment capital;


• access to a high proportion of institutional funds;
• a liquid and active secondary market in international equities;
• worldwide visibility for international companies through dedicated screen-based
trading systems;
• a flexible and cost-effective means of raising capital;
• high and well-respected standards of regulation;
• a range of products – equities, depositary receipts and debt issues, units in funds – to
meet the varied capital raising requirements of different issuers;
• the ability to passport these securities through to different EU member states by mere
notifications (if listed on the EU regulated Bourse de Luxembourg); and
• reasonable listing fees charged by the LuxSE.

In addition, Luxembourg is attractive because:

• it provides skilled services to issuers and their intermediaries;


• it pays careful attention to the implementation of important EU directives;
• it has the ability to recruit knowledgeable international staff with enhanced language
capabilities to offer support for international issuers (such as listing and paying agent
functions); and
• the LuxSE has a reputation for high professionalism and having a quick turnaround
time, which enables issuers to get their securities or units issued in a relatively short
period of time under flexible conditions.

It functions under the EU regulated and the Euro MTF market.

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The EU regulated market offers a European passport for the admission to trading of securities
in more than one EU member state to issuers looking to enlarge their score of international
investors.
Non EU issuers are required to prepare their financial statements with accounting standards
deemed equivalent to IFRS.

On the other hand, the Euro MTF market is regulated by the stock exchange itself.
It is ideal for issuers who are not looking for a European passport, but want flexibility in
relation to preparation of financial statements.

At the time of listing the following documents need to be submitted:


 Prospectus
 Signed Application Form
 Letter of undertaking on future compliance with ongoing obligations for new issuers
 Compliance statement for issuers with already listed securities
 Latest audited annual accounts
 Latest half yearly report where it has been published

Continuing Obligations of companies listed in the EU regulated market


 Annual reports to be published within four months of issuer’s year end and
comprising of audited financial statements, a management report, a responsibility
statement and an auditor’s report.
 Semi annual reports to be published within two months of the issuer’s half year and
comprising a condensed set of financial statements, an interim management report and
a responsibility statement.
 Quarterly financial report in accordance with national law of the issuer.

Continuing Obligations of companies listed in the EURO MTF market


 Audited annual financial statements and management report in accordance with
issuer’s national law.

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 Semi annual financial statements within four months of issuer’s half year comprising
of at least information on revenues, profit\loss with a commentary on any material
factor having impacted the financial or trading position of the issuer.

LONDON STOCK EXCHANGE

London is home to a range of large, vibrant and successful financial markets. For example,
London is the principal centre for Eurobond underwriting and trading, with a market share of
some 70 per cent; it hosts the world’s largest foreign exchange market; and two-thirds of all
international equity underwriting occurs in London. Moreover, London has the world’s most
active international equity market with more international trading taking place on the London
Stock Exchange than on any other exchange in the world.

The FSA maintains an official list of all securities that it has approved for trading on financial
exchanges in the UK (the “Official List”). The Official List currently comprises three
different types of listings.
Primary Listing – This type of listing is the most stringent form of listing in terms of the
financial, governance and regulatory requirements or standards available for companies
seeking a listing on the Official List. In addition to the minimum requirements of certain EU
directives, a Primary Listing subjects the issuer to super-equivalent standards imposed by the
FSA. These standards include:
• The need for an issuer to provide a three year revenue earning record and an unqualified
working capital statement;
• Prior approval of an issuer’s shareholders before certain key transactions are undertaken by
the company;
• The need for an issuer to appoint a sponsor1 to advise on key transactions, particularly the
company’s IPO; and
• Following a Primary Listing of its equity securities, an issuer is then subject to a number of
ongoing obligations, including informing the market of (1) material changes and (2) about the
corporate governance of the company.
A Primary Listing is available only to equity securities (and not GDRs) issued by UK or
overseas companies.

39
Secondary Listing – A Secondary Listing subjects the issuer to the minimum standards
imposed by the EU directives and requires a prospectus to be approved by the FSA under the
EU Prospectus Directive. This type of listing is currently only available to equity securities
(and not GDRs) issued by overseas issuers. The requirements imposed by the EU directives
include ongoing disclosure requirements (such as publishing in the UK all company circulars,
notices, reports and resolutions) and restrictions on insider trading, but are less onerous than
those imposed on issuers with primary listings.
GDR Listing – This type of listing is available only to listings of GDRs issued by UK and
overseas issuers (although UK issuers are also required to list the underlying shares). A GDR
Listing subjects the issuer to the minimum standards imposed by the EU directives and
requires a prospectus to be approved by the FSA under the EU Prospectus Directive.

40
The prospectus
The prospectus is central to the listing process and has a dual purpose: to market the
company’s shares to potential investors, and to meet the listing requirements of the UK
Listing Authority (UKLA) in terms of what information must be disclosed to potential
investors.
The contents of the prospectus are governed by the UKLA Listing Rules. The main areas
covered in the prospectus are information relating to:
• The persons responsible for the listing particulars, the auditors and other advisors
• The company and its activities
• The management of the company, including background about the directors
• The company’s financial position, assets, liabilities, profits and losses
• The company's shares
It should be noted that for property or mineral companies, additional information will be
required in the prospectus.
Financial information that must be disclosed in the prospectus includes the following:
• Profit and loss accounts, balance sheets and cash flow statements for the last three
years.
• A statement of the accounting principles used
• Notes to the annual accounts.
• Text of the latest auditor’s report.

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• A statement of any significant change in the financial or trading position of the
company since the last accounts.
• A capitalisation table.

The latest audited accounts for a secondary listing should be made up to a date no more than
12 months
prior to the listing, or no more than six months for a primary listing. Also, all shares of a class
must be listed.
A comparative table or an accountants’ report must include the following financial
information, for at least three years up to the end of the latest audited financial period:

• profit and loss accounts;


• balance sheets;
• cash flow statements (or source and application of funds statement);
• accounting policies; and
• notes to the accountants’ report or comparative table

Alternative Investment Market (AIM)

The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange,
allowing smaller companies to float shares with a more flexible regulatory system than is
applicable to the main market.

The AIM was launched in 1995 and has raised almost £24 billion for more than 2,200
companies. Flexibility is provided by less regulation and no requirements for capitalisation or
number of shares issued. Some companies have since moved on to join the Main Market,
although in the last few years, significantly more companies transferred from the Main
Market to the AIM (The AIM has significant tax advantages for investors, as well as less
regulatory burden for the companies themselves). In 2005, 40 companies moved directly
from the Main Market to the AIM, while only two companies moved from the AIM to the
Main Market.

The AIM has also started to become an international exchange, often due to its low-
regulatory burden, especially in relation to the Sarbanes-Oxley Act (though only a quarter of
AIM-listed companies would qualify to list on a U.S. stock exchange even prior to passage of
the Sarbanes-Oxley Act[2]). As of December 2005 over 270 foreign companies had been
admitted to the Alternative Investment Market.
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The independent FTSE Group maintains three indices for measuring the AIM, which are
the FTSE AIM UK 50 Index, FTSE AIM 100 Index, and FTSE AIM All-Share Index

AIM is the world’s leading market for smaller, growing companies – and key to its success is
a balanced regulatory environment, specifically designed to make the process of going public
as smooth as possible for smaller companies, coupled with an increasing network of advisers,
investors and market practitioners supporting smaller companies on our markets. As a result,
over 2,800 companies have joined AIM since the market’s launch in 1995, raising more than
£49 billion.

Overview of the reporting accountant's role

The reporting accountant is a key member of the team of advisers working on a flotation and
takes responsibility for reviewing and reporting on a number of areas, including historical and
forecast financial information. The reporting accountant's financial expertise, as well as its
experience with the rigours and peculiarities of the flotation process, will help smooth the
directors' progression through the process as it
can quickly identify and assist in the resolution of issues that might otherwise hold up an
AIM admission.
The reporting accountant also brings a valuable independent perspective to the flotation
process as it does not have a vested interest in the outcome of the flotation. This
independence enables the reporting accountant to express impartial and often robust views,
even if these can seem unpopular at the time.
The company's directors have onerous responsibilities in relation to their AIM admission
document and the reporting accountant helps the directors discharge their responsibilities in a
number of areas. Indeed, the reporting accountant's work is a critical part of the process of
‘due and careful enquiry’ that underpins the AIM admission document.

Financial reporting

Sometimes companies going public have not been subject to audit, in which case the
reporting accountant will need to perform a full audit on the historical financial information.
This can be problematic in relation to the earlier years, as supporting documentation may not

43
be readily available. If a company that has not been subject to audit is contemplating going
public, it is worthwhile having an audit (even if this is not a legal requirement) to reduce
delays once the flotation process starts. Ensuring that historical
financial information is of appropriate quality, and is sufficiently up-to-date for inclusion in
an
AIM admission document, is a key part of pre-flotation ‘grooming’ that will save
considerable time and anguish at a later stage in the flotation process. In addition to providing
a true and fair opinion on the company’s historical financial information as prepared and
presented by the directors, the reporting accountant will often need to guide the directors on
the preparation and presentation of their historical financial information to be included in the
AIM admission document. Common items that cause problems are:

• when groups have not been required to produce consolidated accounts


• audited financial statements that do not have sufficient disclosures for the purposes of the
AIM admission document

• financial statements with qualified opinions, as it is usually unacceptable for an accountants'


report to contain a qualified opinion

• changes to the group structure in the last three years. The reporting accountant will
recommend options on how to deal with such situations based on its previous knowledge and
will discuss, as necessary,
particular issues with the Nomad. In certain instances, the reporting accountant and the
Nomad will also confer with the London Stock Exchange on a specific situation and the
proposed solutions.
Prior to flotation, companies should carefully re-evaluate their accounting policies and ensure
that they are in accordance with accounting standards and industry best practice, as once they
have joined AIM their accounting polices will be subject to close public scrutiny. In addition,
the last two years of historical financial information must be presented in a form consistent
with that which will be adopted in the company's next published annual financial statements,
having regard to the accounting standards, policies and legislation applicable to such
financial statements. This is discussed in more detail later
in this chapter.

Historical financial information

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Potential investors need to understand the historical performance of the company so that
they can assess the extent to which this, together with other information in the AIM
admission document, supports the proposed valuation of the company on flotation. Schedule
Two to the AIM Rules for Companies (or Annex 1 of the PD Regulations where a prospectus
is required) require disclosure of
historical financial information in the AIM admission document.

Minimum period to be covered


Companies that are going public are usually required to disclose audited historical financial
information for three financial years prior to flotation, although there are some exceptions (if
a company has not been trading for three years it may still be admitted to AIM on the basis of
historical financial information covering the period from its date of incorporation). If the
AIM admission document is dated more than nine months after the end of the last audited
financial year, it must also contain interim historical financial information, which may be un-
audited, but must cover at least the first six months of the financial year following the last
audited year. Any interim financial information presented must include comparative
information for the corresponding prior period, except that the requirement for comparative
balance sheet information may be satisfied by presenting the year-end balance sheet.
Furthermore, even when interim financial information is presented, the end of the last full
year of audited historical financial information must be within 15 months of the date of the
document if the interim financial information in un-audited, or 18 months of the date of the
document if the interim financial information in audited.

These are the minimum requirements under the regulations; the Nomad’s and market
expectations, however, may dictate that more recent financial information is included in the
AIM admission document, as this will provide more up-to-date trading information and will
usually add further credence to the company’s valuation on flotation.

Generally Accepted Accounting Principles (‘GAAP’)

Companies are required to present at least the two most recent financial years of their
historical financial information under the same GAAP and accounting basis as will be
adopted in their next set of published annual financial statements, having regard to the
45
accounting standards, policies and legislation applicable to such financial statements.
Companies on AIM incorporated in the European Economic Area (‘EEA’) are
required to adopt International Financial Reporting Standards (‘IFRS’) as adopted foruse in
the European Union for accounting periods commencing on or after 1 January 2007 if they
have subsidiaries; they may use their local country GAAP if they have no subsidiaries.
Companies on AIM incorporated in a non-
EEA country are required to prepare their future financial statements under one of the
following GAAPs:

• IFRS
• US GAAP
• Canadian GAAP
• Australian IFRS, as issued by the Australian Accounting Standards Board (the directors
should consult the reporting accountant on the suitability of Australian IFRS if an AIM
admission document compliant with the PD Regulations is required )
• Japanese GAAP.

Companies must bear these future reporting requirements in mind when determining the
GAAP that the two most recent financial years of their historical financial information should
be prepared under. The rules regarding acceptable GAAP in an AIM admission document are
subject to change, particularly if a company is required to issue a document compliant with
the PD Regulations. The directors should therefore consult the reporting accountant as to
acceptable GAAP at an early stage.

Format of historical financial information

Assuming the financial information meets the GAAP requirements set out above, the
company may meet its obligation to disclose historic financial information by publishing its
audited financial statements in the AIM admission document, together with the audit reports
previously given on those financial statements. Strictly, the company is not even required
under the regulations to seek its auditor's permission to do so.
However, it is more usual for a Nomad to request that the reporting accountant issue its own
true and fair opinion on the historical financial information, with the financial information to
be set out in a columnar format showing all of the years together, for ease of comprehension
46
by investors. This is particularly the case where the company that is being floated has had a
complex financial history within the period being reported on, for instance when it has been
carved-out of a larger group, or it has undertaken previous acquisitions or disposals, or has
undergone a group reconstruction. A new true and fair opinion by the reporting accountant
will also be necessary in cases where adjustments are required to the audited historic financial
statements to represent the historical financial information to comply with relevant regulation
in the AIM admission document. This could be where the historical financial statements were
prepared under a GAAP different to that which the company will apply going forward; past
audit opinions were qualified; there were mistakes or errors in the previously audited
financial statements; or indeed where the company has never prepared consolidated financial
statements or such statements have not previously been subject to audit. Where the company
has acquired a material subsidiary since the start of the first period being reported on, there
will be a necessity to include historical financial information for the period prior to its
acquisition on that entity too. The requirements in relation to historical financial information
can be complex. The reporting accountant can draw on its
considerable experience to help directors identify solutions to difficult areas, including
advising the directors on how to regard and make appropriate disclosure of accepted
conventions which have been developed for the preparation and presentation of historical
financial information in an AIM
admission document.

Accountant’s report on historical financial information

The preparation and presentation of historical financial information in the AIM admission
document is the responsibility of the directors of the company. The financial information is
presented in a similar format to the annual financial statements, except that there are typically
three years of figures, and will comprise:

• the company’s accounting policies


• the company’s income statements
• the company’s balance sheets
• the company’s cashflow statements
• the company's statement of recognised income and expense or changes in equity
• notes to the financial information.
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If the company has subsidiaries, information will be presented, whenever applicable, on a
consolidated basis for the group. The reporting accountant's true and fair opinion
(accountant's report) on this historical
financial information is presented in a similar format to an audit report. The reporting
accountant will need to perform the necessary procedures to be able to give a true and fair
opinion on the information, with relevant guidance provided by Standards for Investment
Reporting 1000 – Investment reporting standards applicable to all engagements in connection
with an investment circular and 2000 – Investment reporting standards applicable to public
reporting engagements on historical financial information. Where the underlying financial
information has been previously audited, the reporting accountant normally reviews the
auditor’s working papers (even if the same firm acts as reporting accountant and auditor), if
granted permission to do so under a release letter. It will then determine whether any
additional
procedures need to be performed, for example, where the audit work appears insufficient or
access has not been granted to certain working papers. This may involve re-performing
elements of the audit work. If access to working papers is denied by the auditors, the
reporting accountant will effectively need to
re-perform the audits.

Pro forma financial information

At the company's discretion (as this is optional under the AIM Rules for Companies), taking
into account the views of its Nomad, the AIM admission document may include pro forma
financial information to
illustrate how, where relevant, the placing proceeds and/or any acquisitions or other
adjustments directly attributable to the transaction, affect the financial information of the
company. The most common financial information given is a pro forma statement of the
company’s net assets. If the AIM admission document is required to be compliant with the
PD Regulations then the disclosure of pro forma financial information
showing the effect on assets, liabilities and earnings is mandatory if there is a significant
gross change as a result of the float transaction. The reporting accountant may advise the
directors in compiling their pro forma financial information and will discuss appropriate
adjustments with them. However, the pro forma financial information remains the sole
responsibility of the directors. If such pro forma information is included, the reporting
48
accountant will generally provide a letter giving limited comfort regarding the pro forma
financial information. This comfort covers whether the pro forma financial information has
been properly complied on the basis stated and whether such basis is consistent with the
accounting policies
of the issuer. Such a letter is mandatory where the AIM admission document is required to be
compliant with the PD Regulations; for AIM-PD documents such a letter is not mandatory
but often requested and provided.

Forecast financial information

Disclosure of forecast financial information is relatively uncommon as it gives investors an


obvious target to attack if the performance of the company does not meet expectations.
However, in certain circumstances the Nomad may advise the company to include such
information. If forecast financial information is included in the AIM admission document, the
reporting accountant will generally provide a report that gives limited comfort on it. This
report includes an opinion along the following lines:
AIM-PD documents such a letter is not mandatory, but is ‘expected’ in accordance with the
guidance notes to the AIM Rules for Companies, as the Nomad is expected to confirm that
the forecast has been made after due and careful enquiry, typically requested in any event.
However, in the case of an
AIM-PD document, the reporting accountant may provide comfort to the Nomad through a
private report rather than a public report – the exact nature of such a report would be agreed
between the Nomad and the reporting accountant. The reporting accountant will have to
perform specific procedures, such as testing how the forecast information was compiled, in
order to give its report. This work may be combined
with the review undertaken as part of its preparation of the working capital report as
discussed previously.
The AIM Rules for Companies place an onerous responsibility on the Nomad in relation to
profit forecasts. Therefore, unless there is a commercial imperative for it, forecast financial
information is included very infrequently.

49
Financial reporting procedures

It is important that quoted companies have robust and reliable financial information systems
so that accurate information is readily available to management on a timely basis. As part of
its obligations, the Nomad will seek written confirmation from the company that the directors
have established procedures which give a reasonable basis for them to make proper
judgements as to the financial position and prospects of the company and its group and that
they have made their statement after due and careful enquiry. Typically, companies being
floated on AIM have been private companies up to that point and have been managed,
controlled and operated as private companies. In most cases, their management information
systems, accounting systems and internal controls would have been appropriate for a private
company. Life as a public company is very different, not just because of the presence of
external shareholders and stakeholders, but also as a result of the need for compliance with
the rules and regulations governing public companies. Consequently, one of the reporting
accountant’s key responsibilities is to provide an opinion to the Nomad on whether the
directors’ statement that they have established adequate financial reporting procedures has
been made after 'due and careful enquiry’. As part of its work, the reporting accountant will
review the company’s financial and management information systems and controls. Using the
information gained, together with its experience on the subject, the reporting accountant will
then form a view regarding the directors’ statement.
The confirmation given by the reporting accountant is usually included in a separate letter
that refers to the reporting accountant’s work in this area (which may be set out within the
longform report).
Occasionally, current systems and procedures are not of a sufficient standard for a quoted
company and the reporting accountant’s confirmation may refer to actions that must be taken
within a certain time period and state that its confirmation is given only on the basis that the
company will complete these actions.

Significant change statement

Any significant changes in the company’s financial or trading position since the date of the
latest financial information in the AIM admission document should be disclosed in the
admission document. The reporting accountant is asked to provide a letter confirming that
50
they are not aware of any such changes that have not been disclosed. To give this comfort,
the reporting accountant will need to perform specific procedures just prior to the AIM
admission document being published, such as reviewing the latest set
of management accounts and discussing recent trading with management.

Other requirements

The reporting accountant also has to provide other documents as part of the flotation process.
Most of these are short letters providing comfort to the company and/or the Nomad on
various subjects
For instance, the AIM admission document may include financial information outside the
sections covered by the reporting accountant’s opinion – a typical example is a summary of
key financial data at the front of the AIM admission document. The reporting accountant will
typically be asked to check that this information is correctly extracted from either the
directors’ historical financial information, or from the company’s records and to provide a
letter confirming that this is the case. The reporting accountant is also typically asked to give
a comfort letter on the wording of tax disclosures in the AIM admission document relating to
the tax treatment of shareholders

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