Business entities registered in Hong Kong are required to prepare audited financial statements on an annual basis and ensure that the financial statements are processed in accordance with Hong Kong Accounting Standards or Hong Kong Financial Reporting Standards.
The introduction and general principles of these standards will be told to you in this article.
Hong Kong Accounting Standards /HKFRS?
Hong Kong Accounting Standards, also known as Hong Kong Financial Reporting Standards (HKFRS), are professional accounting rules for the industry established by the Hong Kong Institute of Certified Public Accountants (HKICPA).
In addition to effectively helping to manage financial transactions in Hong Kong, the standard is also the basic principle of local accounting obligations that Hong Kong company operators should abide by.
The framework of HKFRS broadly follows the Financial Reporting Standards (FRS) implemented in Hong Kong since January 2005.
The FRS model is based on the International Financial Reporting Standards (IFRS) under the International Accounting Standards Board (IASB).
HKFRS mainly outlines whether financial reporting is “truth and fairness” and aims to ensure that Hong Kong companies maintain a minimum level of disclosure to assist in the identification, measurement, and presentation of disclosure requirements for common financial statements, applicable to profit-oriented companies Commercial, financial and similar activities, but not for private or government non-profit activities.
What is the specific scope of HKAS?
The Hong Kong Accounting Standards provide operational guidelines for the fairness of a company’s financial statements and describe accounting terms, accounting principles, and disclosure requirements for financial transactions.
The Hong Kong Accounting Standards specifically include more than 41 accounting standards, 9 financial reporting standards, and some interpretations of the standards. Typical examples include:
• Presentation of Financial Statements, Hong Kong Accounting Standard 1 (HKAS 1):
• Inventories, Hong Kong Accounting Standard 2 (HKAS 2);
• Statement of Cash Flows, Hong Kong Accounting Standard 7 (HKAS 7);
• Income tax, Hong Kong Accounting Standard 12 (HKAS 12);
• Revenue, Hong Kong Accounting Standard 18 (HKAS 18);
• Employee Benefits, Hong Kong Accounting Standard 19 (HKAS 19).
In addition, according to the Hong Kong Companies Ordinance, any company incorporated in Hong Kong must comply with accounting and auditing requirements every year, and the financial statements must be executed in accordance with Hong Kong accounting standards.
Generally, the accounting reports of Hong Kong companies are closely related to the following:
• Balance sheet
• Company fixed assets such as stocks, securities
• Current liabilities for taxes, finance lease obligations, or creditor loans
• Shareholders’ undistributed profits, capital reserves, and other similar interests
• Income Statement and Summary of Turnover, Profit Before Tax, Taxes, Dividends, Retained Profit for Fiscal Year
Key Principles: Accrual Basis
One of the unique features of “Hong Kong Accounting Standards” is that it applies the “accrual basis”. The main principle is the accrual basis, but the cash flow statement is not in this principle. cash basis”.
On an accrual basis, accounting changes are recognized as transactions and events occur. For example, income, expenses, claims, etc. are only recognized when cash and rights are received, and all income or expenses in the current period, whether received or paid, should be treated as the current period.
SME Financial Reporting Framework and Financial Reporting Standards
In addition, the Hong Kong Institute of Certified Public Accountants has launched the Small and Medium Enterprises Financial Reporting Framework and Financial Reporting Standards (SME-FRF and SME-FRS).
These standards simplify the general requirements and disclose fewer affairs and related information than the “Hong Kong Accounting Standards”, which promote the proper preparation of financial statements for SMEs.
A company can obtain a reporting exemption under the SME Financial Reporting Framework and Financial Reporting Standards if it meets the following conditions.
• The enterprise passes the scale test;
• Large private company with more than 75% shareholder approval without objection;
• Certain Hong Kong companies and private companies limited by guarantee
The above information is for reference only. If you have any questions about HKAS, we welcome your inquiries.