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Understanding Hong Kong Accounting Standards

Hong Kong, as one of China's Special Administrative Regions (SARs), possesses the autonomy to establish its accounting standards independently of mainland China. The Hong Kong Institute of Certified Public Accountants (HKICPA) is the authoritative body entrusted with formulating financial reporting and auditing standards for professional accountants in the region.

What are Hong Kong Financial Reporting Standards (HKFRS)?


Hong Kong Financial Reporting Standards (HKFRS) align closely with International Financial Reporting Standards (IFRS), providing a framework for general-purpose financial statements and other financial reporting activities of profit-oriented entities.

Key Standards and Frameworks

  1. HKFRS for Private Entities:

  • Tailored for private entities, this standard offers an alternative to the full HKFRS, easing reporting requirements.

  1. HKFRS for Small and Medium-sized Entities (SME-FRF & SME-FRS):

  • Designed for SMEs, this framework streamlines financial reporting processes. Qualification criteria, detailed in Division 2 of the Hong Kong Companies Ordinance (Cap. 622), categorize entities based on annual revenue, total assets, and average employees.

Scope and Principles of HKFRS HKFRS applies to profit-oriented entities involved in financial, commercial, and related activities, emphasizing the accrual basis of accounting. This principle ensures timely recognition of transactions and events, facilitating comprehensive financial reporting.

Notable HKFRS Standards

  • HKAS 1 (Presentation of Financial Statements):

  • Provides guidelines for financial statement structure and content, emphasizing the going concern principle and accrual basis accounting.

  • HKAS 2 (Inventories):

  • Prescribes accounting treatment for inventories, including measurement at lower cost and net realizable value.

  • HKAS 18 (Revenue):

  • Details revenue recognition criteria, focusing on fair value measurement and specific transaction conditions.

Financial Reporting Standards for SMEs (SME-FRS)

Company Type

Annual Revenue

Total Assets

Average Employees

Minimum Shareholder Approval

Small guarantee company/group

< HK$25 million (US$3,197)

No limit

No limit

≥ 75%

Small private company/group

< HK$100 million (US$12,788)

< HK$100 million (US$12,788)

< HK$100 million (US$12,788)

≥ 75%

Larger ("eligible") private company/group

< HK$200 million (US$25,577)

< HK$200 million (US$25,577)

< HK$100 million (US$12,788)

≥ 75%

Exemptions and Simplifications Certain Hong Kong companies, such as those limited by guarantee or private entities, may qualify for reporting exemptions. However, specific conditions, such as engagement in regulated financial activities, may disqualify SMEs from these exemptions.

Understanding Hong Kong's accounting standards, including HKFRS and SME-FRS, is essential for entities operating in the region. Adhering to these standards ensures transparent and accurate financial reporting, fostering trust and accountability in the business environment.


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Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

 

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