Accounting Standards in Hong Kong
In Hong Kong, there are set standards on which companies base their financial reporting and accounting. These standards give transparency, consistency, and comparability to financial reporting. Such standards are known as Hong Kong Financial Reporting Standards; their issuance is by the Hong Kong Institute of Certified Public Accountants-the statutory body regulating Hong Kong’s accounting profession.
Hong Kong Financial Reporting Standards (HKFRS)
HKFRS is the framework within which Hong Kong companies prepare and present their financial statements. HKFRS is by and large a duplicate of the International Financial Reporting Standards currently issued by the International Accounting Standards Board (IASB), thus offering a convenient way for Hong Kong companies to present statements close enough to what most of the world does.
HKFRS addresses different issues, including recognition, measurement, presentation, and disclosure of information in financial statement reporting by entities. These standards are continuously amended since financial reporting practices in Hong Kong are affected by both global environment and economic reality changes.
Types of Accounting Standards in Hong Kong
- HKFRS for General Purpose Financial Statements: HKFRS standards target general-purpose financial statements and relate to all companies in Hong Kong, particularly those listed on the public exchange. The standards cover the following aspects:
- Revenue Recognition-HKFRS 15: The standard provides guidance on when and how revenue from contracts with customers is recognized.
- Financial Instruments: HKFRS 9: This provides requirements for the classification and measurement of financial instruments, impairment of financial assets, and hedge accounting.
- Leases (HKFRS 16): This prescribes how to account for lease contracts. Lessees are required to recognize lease liabilities, which also means recording right-of-use assets.
- Hong Kong Accounting Standards [HKAS]: HKAS represents part of HKFRS and usually covers some specific accounting treatments relating to property, plant, and equipment [HKAS 16], employee benefits [HKAS 19], and cash flow statements [HKAS 7]. These standards give further precise and focused means of handling certain transactions and items in the financial statement.
- Small and Medium-sized Entity Financial Reporting Standard-SME-FRS: For smaller businesses, even private ones, which do not have public accountability, Hong Kong provides a simpler alternative to full HKFRS; for example, SME-FRS. These standards are not so complicated; therefore, it would be easier for smaller businesses to comply with them, although it makes sure that there will also be transparency and consistency in the financial reporting.
- HKFRS for Private Entities: This was introduced in the year 2010 and is a self-sufficient, simplified HKFRS standard for private entities that are not publicly accountable. It reduces the burden on the smaller companies by simplifying recognition, measurement, and disclosure requirements while maintaining a high level of transparency.
Convergence with International Standards
Hong Kong’s accounting standards have converged with that of the IFRS to a big extent. Financial statements from Hong Kong companies can be projected in line with international practices. Thus, comparability for international investors and other stakeholders strengthens, and thus makes it easier for Hong Kong companies to operate on an international level.
Regulatory Compliance
All the listed companies in Hong Kong are required to apply for the HKFRS, according to the requirements of the Hong Kong Stock Exchange or HKEX. Furthermore, companies incorporated in Hong Kong will also be required to file financial statements, which must be presented in accordance with the applicable HKFRS or SME-FRS requirements concerning their size and complexity.
Conclusion
The standards adopted in Hong Kong allow clarity for the presentation and preparation of financial statements by companies in a crystal-clear, consistent, and transparent way. From HKFRS applied by larger companies to the SME-FRS for small entities, the standards ensure that businesses comply with regulatory requirements and provide relevant financial information to stakeholders. At One IBC, we support companies in navigating these standards, ensuring compliance and maintaining financial integrity. The convergence to IFRS also promotes international business and investment, hence helping Hong Kong become an international finance center.