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Hong Kong’s Financial Reporting Requirements: What Businesses Need to Know
In Hong Kong, businesses are subject to specific financial reporting requirements designed to provide transparency and accountability. As one of the two Special Administrative Regions (SARs) of China, Hong Kong has its own accounting standards, which differ from those in mainland China.
What is the Hong Kong FRS?
The HKFRS is a set of 41 distinct accounting standards, 15 financial reporting standards, and several interpretations. Each standard addresses a specific topic, such as presentation of financial statements, inventory accounting, cash flow reporting, income taxes, and more. The standards are designed to provide guidance on how to prepare financial statements that accurately reflect a company’s financial position and performance.
Key Principles
One of the fundamental principles of Hong Kong’s accounting standards is the accrual basis of accounting. This means that companies must prepare their financial statements using this method, which recognizes the impact of transactions and events when they occur, rather than when cash is received or paid.
Standards and Interpretations
Some key standards include:
- HKAS 1: Presentation of Financial Statements
- Outlines general requirements for financial statement presentation
- HKAS 2: Inventories
- Specifies accounting treatment for inventory valuation
- HKAS 18: Revenue
- Outlines revenue recognition principles
Financial Reporting Standards for SMEs
The HKICPA has introduced a specialized reporting framework for small and medium-sized enterprises (SMEs), known as the SME Financial Reporting Framework (SME-FRF) and Financial Reporting Standard (FRS) (SME-FRS). These standards aim to simplify financial reporting for SMEs, providing exemptions from certain requirements.
Eligibility Criteria
To qualify for reporting under SME-FRF and SME-FRS, a company must meet specific size requirements and obtain 75% shareholder approval. Hong Kong companies that are limited by guarantee or private may be eligible for reporting exemptions, subject to certain conditions.
Simplified Financial Statements
Under the SME-FRF and SME-FRS framework, financial statements can be prepared using the historical cost concept, without valuing assets or liabilities at fair value or deferring taxes. Disclosure notes in these simplified financial statements provide fewer details about the reporting entity’s affairs compared to full financial reports.
In conclusion, Hong Kong businesses must comply with specific financial reporting requirements set by the HKICPA. Understanding these standards and frameworks is essential for companies looking to maintain transparency and accountability in their financial transactions.