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How to exempt from HKFRS reporting? Which companies are eligible for the exemption?

Some companies are exempt from reporting certain information under HKFRS, including a “true and fair view” provided by the financial statements. In fact, this is the “Financial Reporting Framework and Financial Reporting Standards for Small and Medium-sized Enterprises” launched in 2014. The relevant standards have been simplified to make it easier for small and medium-sized enterprises to go down with limited resources. This article will discuss which companies are eligible for this qualification.

What is a reporting exemption?

Under the Hong Kong Companies Ordinance (section 359), certain Hong Kong companies are entitled to an exemption from reporting. However, the so-called “reporting exemption” means that eligible Hong Kong companies will be able to submit “simplified” financial statements and audit reports.

In these financial statements and audit reports, the scope of the exemption allows companies to delete or not provide the following accounting information:

• No need to declare the auditor’s remuneration in the financial statements in respect of the directors’ material interests in the relevant contracts;

• No need to provide a “true and fair view” of the financial statements;

• Auditors are not required to state a “true and fair view” of the financial statements;

• Acceptable lack of information on business reviews, donations, directors’ resignation explanations, directors’ benefit agreements, etc. regarding the acquisition of shares.

• Affiliates are not included in the consolidated financial statements.

How do I qualify for a reporting exemption?

Under the Hong Kong Companies Ordinance, most of those eligible for “Notification Exemption” belong to private companies and companies limited by guarantee. But before talking about which companies are eligible for the granted exemptions, certain types of companies are not exempt from any reporting under HKAS, including:

Companies that cannot be exempted

• Banking Ordinance (Chapter 155) to conduct banking business and obtain banking licenses;

• a business licensed under Part V of the Securities and Futures Ordinance (Cap. 571);

• engage in insurance-related business (other than a sole agency);

• The business of accepting loans with interest or repayment at a premium;

Eligibility for companies that are exempt from reporting

First of all, if the entity is a private company and it is not a holding company, subsidiary company of any subsidiary company, companies that do not engage in the above types of activities, they do not need to meet the conditions of the “size test”, and can also comply with the “SME Financial Reporting” Framework and Financial Reporting Standards, which, subject to written approval by all members, makes companies eligible for the reporting exemption.

If it is a small private company limited by guarantee, or its holding company, after the resolution of the general meeting of shareholders, more than 75% of the shareholders of the company vote in favor, and the other remaining voting members have no objection, they can be exempted.

For small private companies/limited by guarantee, commonly known as SMEs, the criteria can be identified by 3 criteria stipulated by Hong Kong law, including gross income, asset value, and a number of employees:

Small private companies:

• The total annual revenue does not exceed HK$100 million;

• The total asset value at the end of the reporting period does not exceed HK$100 million, plus

• No more than 100 employees.

Small company limited by guarantee:

• The total annual income does not exceed HKD 25 million;

Larger Eligible Private Companies:

• The total annual revenue does not exceed HKD 200 million;

• The total asset value at the end of the reporting period does not exceed HK$200 million, plus

• No more than 100 employees.

The above information is for reference only. If you have any questions about the HKFRS reporting exemption, we welcome your inquiry.

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