Understanding Hong Kong Accounting Standards

January 26th, 2021 by

Hong Kong Accounting Standards are a set of rules that regulate all financial transactions in Hong Kong and outline important accounting terms and conditions.

All companies incorporated in Hong Kong are to abide by these provisions and maintain proper accounts and meet statutory audit requirements.

These accounting standards are governed by the Financial Reporting Standards (FRS) which is based on the International Financial Reporting model (IFRS) established by the International Accounting Standards Board (IASB).

These standards were introduced to highlight the fundamental principles that define Hong Kong accounting terms and clarify their scope to ensure fairness and honesty in a company’s financial statements.

What are Hong Kong accounting standards?

There are 41 accounting standards and 15 financial reporting standards set out by the HKFRS along with other statutory interpretations.

Each standard represents a particular topic such as financial statements, cash flow statements, inventory, and taxes, to name a few. 

An overview of three important Hong Kong Accounting Standards (HKAS) is provided below.

How is accountancy regulated in Hong Kong?

The Hong Kong Institute of Certified Public Accountants (HKICPA) is the professional body responsible for regulating accountancy in Hong Kong and issued the updated HKFRS in January 2005.

The HKFRS outlines 41 accounting standards and 15 financial reporting standards that govern the accountancy profession in Hong Kong.

All companies are required to provide financial statements.

A financial statement is a record or a collection of reports that show the financial performance and business activities of a company or business entity.

Financial statements based on accrual accounting summarize all past transactions, and any future cash payment obligations and highlight where cash might accrue in the future.

These statements include the provision of a balance sheet or a statement of financial position, a statement of comprehensive income/a profit and loss account, a statement of change in equity or financial capital, and the auditor’s report along with additional explanatory notes and accounting policies.

Types of  Accounting Standards in Hong Kong

Hong Kong Accounting Standard 1 (HKAS 1) – Presentation of financial statements

HKAS 1 outlines the requirements regarding preparing and presenting financial statements by a business entity in terms of its structure and content.

  • The management is required to assess the entity’s ability to continue as a going concern unless they intend to stop trading and liquidate the entity.
  • Financial statements excluding cash flow information are required using the accrual basis of accounting.
  • Unless permitted by the HKFRS an entity cannot offset its assets and liabilities or income and expenses.
  • A complete set of financial statements is required at least once a year.

Hong Kong Accounting Standard 2 (HKAS 2) – Inventories

HKAS 2 outlines the provisions regarding the accounting standards for inventories in terms of the amount of cost that is to be recognized as an asset and how they are to be carried forward.

  • Inventories are to be calculated and measured at the lower cost of and net realizable value.
  • The cost of inventories must include the cost of purchases, the cost of conversions, and any other costs incurred that contribute to the inventory’s present location and condition

Hong Kong Accounting Standard 18 (HKAS 18) – Revenue

HKAS 18 outlines the accounting standards of revenue earned from particular types of business transactions and requirements regarding when revenue is to be recognized.

  • Revenue must be measured at the fair value of the consideration (received or receivable).
  • Revenue generated from the sale of goods can only be recognized when the following requirements are met;
  • The significant risks and rewards of ownership of goods have been transferred from the entity to the buyer.
  • The entity has no continuing managerial involvement in terms of ownership and control over the goods sold.
  • The amount of revenue is calculated reliably.

Learn more about HKICPA’s financial reporting standards

What is the scope of the HKFRS?

The HKFRS only applies to the general purpose financial statements and various means of financial reporting of all profit-oriented business entities.

All profit-oriented entities have been defined as those which participate in commercial and financial transactions.

This includes mutual entities such as insurance companies that distribute monetary benefits to their recipients.

Therefore, the HFRS does not apply to any non-profit activities in both the private and public sectors or those carried out by the government.

Lastly, the general purpose financial statements apply to the information of different stakeholders such as creditors, employees, and shareholders as well as the public.

What about SMEs?

In some circumstances, companies limited by guarantee and private companies are eligible for optional reporting exemption under the new Companies Ordinance as of March 2012.

The Small and Medium-sized Entity Financial Reporting Framework (SME-FRF) and the FRS came into effect in 2014.

According to the new SME-FRF, any entity that is not a company incorporated under the new Companies Ordinance as of March 2012 is subject to specific conditions under the jurisdiction of the place of its incorporation.

Companies are also excluded from the reporting exemption if they do not meet certain requirements.

Private companies are not eligible for reporting exemption if:

  • The company is authorized by the Banking Ordinance for banking business.
  • The company is licensed to perform regulated business activity under the Securities and Future Ordinance Part V
  • The company carries out insurance business (excluding business carried out through an agent)
  • The company accepts loans at interest or repayable at a premium through the business (excluding terms that involve debentures and securities).

Find out more on the complete guide to accounting standards for SME-FRS in Hong Kong.

Final words

Here is what you should always have in mind:

  • Accounting standards are a set of rules that regulate financial transactions and define important accounting terms and conditions.
  • The Hong Kong Institute of Certified Public Accountants (HKICPA) is the professional body responsible for regulating accountancy in Hong Kong.
  • There are 41 accounting standards and 15 reporting standards that govern accountancy in Hong Kong.
  • The HKFRS only applies to general-purpose financial statements and financial reporting of all profit-oriented entities
  • Private companies are eligible for optional reporting exemption if they meet certain requirements.

Are you looking for help with your accounting?

Register your business with Air Corporate and we’ll get you set up with the best accounting services with all your documents available online at any time.

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What are Hong Kong accounting standards?

Hong Kong accounting standards are a set of guidelines and regulations that govern how businesses operate in Hong Kong. These standards are designed to ensure that financial information is consistent, accurate, and transparent for individuals including investors, lenders, and regulators.

How do Hong Kong accounting standards differ from international accounting standards?

Hong Kong accounting standards consist of some key differences, such as requiring companies to disclose more information about related party transactions than international standards.

Moreover, Hong Kong accounting standards offer certain areas such as the treatment of research and development costs with more flexibility.

What is the penalty for non-compliance with Hong Kong accounting standards?

Non-compliance with Hong Kong accounting standards can result in penalties such as fines or reputational damage.

In certain cases, this can lead to legal action or criminal charges.

14 FAQs About Business Registration in Hong Kong

January 2nd, 2021 by

Listen to this article!

If you are doing business in Hong Kong, you need to obtain a business registration. This registration certificate makes your business official in Hong Kong.

It enhances your credibility and instills faith in your customers that you are carrying out business in compliance with the law. 

Let’s take a look at the various aspects of business registration and break it down for you. 

Who needs to obtain business registration?

The Business Registration Ordinance requires the following businesses to be registered:

  • Any activity that generates profits
  • Clubs that offer facilities to their members in exchange for a fee
  • Companies incorporated in Hong Kong and companies not incorporated in Hong Kong but registered with Companies Ordinance, irrespective of whether or not such company is currently carrying on any business in Hong Kong
  • A non-Hong Kong company with a representative or liaison office in Hong Kong
  • A non-Hong Kong company that has leased out its property located in Hong Kong regardless of whether it has set up a place of business in Hong Kong

An individual who holds an office or is employed by a company is not considered as carrying on any business.

As a result, such a person does not require any business registration. 

Certain businesses are also exempt from registration, such as:

  • Businesses that deal with agriculture, breeding, or rearing livestock or fishing, except if you have a company incorporated in Hong Kong or a non-Hong Kong company registered with the Companies Ordinance
  • Licensed hawkers carrying out their business except when the hawker stall is selling inside a building
  • Charitable institutions

What is the time frame for obtaining this registration?

If you operate as a sole-proprietorship, partnership, or an unincorporated body of persons, or you are a non-Hong Kong company or have a representative or liaison office in Hong Kong, the application should be made within a month of commencing business operations. 

For companies incorporated in Hong Kong or registered with the Companies Ordinance, the application for company registration is also an application for business registration.

Typically, the Companies Registry issues the registration along with the certification of incorporation. 

Companies that request for business registration simultaneously with company registration must notify the Inland Revenue Department within one month of commencement of business.

The notification is regarding the nature and description of the business. 

How can I apply for business registration?

You can use the one-stop company and business registration service. You can use the e-Registry portal to submit an online application for incorporating your company.

This application will also be considered as an application for business registration. 

The e-Registry makes filing a smooth experience by providing additional services such as e-reminders for filing the annual returns and e-monitor service to track the various filing records. 

Otherwise, you can fill up the relevant application form depending on your company structure and pay the required application fees online.

What is the registration fee and validity period?

It can either be valid for a year or for three years. 

Currently, the registration fee is HKD 250 for a certificate with one-year validity and  HKD 3,950 for a certificate with a three-year validity.

What is a business registration number?

This is a unique eight-digit number issued to a registered entity by the Inland Revenue Department.

The business registration certificate includes the business registration number. It is also known as the Tax Identification Number.

You need to quote this number whenever you communicate with any governmental agency, such as filing your returns. 

What happens if you don’t apply for business registration on time?

Failure to obtaining a business registration while conducting business is a punishable offense. You are liable to pay a fine of HKD 5,000 and/or face prison time for one year. 

If you apply for business registration 12 months after you have commenced business operations, you need to pay the fee for obtaining the business registration, along with the fees/levies for the current year and previous year.

Should the business registration use the same name as the Companies Registry?

No, you can obtain business registration for your company for a different business name. The additional name will be considered as a branch of your company.

 Accordingly, you will receive a separate business registration certificate for such a branch. 

Where do I need to display the business registration certificate?

It should be displayed at the address where you are carrying out the business. 

Ideally, the certificate in its original form, which includes the business address and details of the payment made, must be displayed.  

If you have been issued the certificate in e-form, display a printed copy. 

How can I renew my business registration certification?

Unless your business registration certificate is valid for three years, you need to renew it every year. 

The business registration office sends the renewal demand note via post. Usually, it is sent a month before the renewal is due.

Once you pay the renewal fees, the demand note will become a valid registration.

In case you don’t receive the demand note, make sure to write to the Commissioner of Inland Revenue Department within a month of the expiry of your registration certificate.

What is the procedure for renewing the business registration certificate in person?

 Schedule a visit to the business registration office and carry along your previous business registration certificate. You can ask for a demand note and pay the fees for renewal. 

In case you need to update the business address, you can fill up Form IRC 3111A. 

Can I renew the certificate via post?

Yes, mail a photocopy of the previous certificate along with a crossed cheque marked payable to “The Government of the Hong Kong Special Administrative Region” to the business registration office. 

You will receive the renewed business registration certificate at your business address.

If you need to update the records to reflect the change in business address, you can add a note when you mail the business registration certificate.

The note should include your business registration number, name of the business, particulars of both old and new address, and the date of the change. 

Apart from the registration, are there any other permits or licenses required for operating my business?

Depending on the nature of your business, you may need additional licenses or professional qualifications to carry out the operations.

For more information, please visit the website of the Hong Kong Trade and Industry Department.

Is there a way to access information about registered companies?

Yes, you can conduct searches online on the Company Search Mobile Service (CSMS) of the Integrated Companies Registry Information System (ICRIS). 

You can access the data about the registered companies and also check the relevant documents registered with the Registrar of Companies. 

What happens to the registration certificate if my business ceases operations?

You need to intimate the Commissioner of Inland Revenue within one month of cessation of the business and fill up Form IRC 3113. 

Final Words

If you want to run the operations of your business smoothly in Hong Kong, it is time to get the paperwork in place for obtaining the registration.

But doing this on your own can be overwhelming, and that’s why Air Corporate is here. 

Air Corporate can assist you in obtaining the registration certificate and also notifying the registration office in case of any changes in the particulars. Our team of experts clarify your doubts and simplify the process so that you can get your hands on the certificate without any hassle. Simply drop us a line at [email protected].

With Air Corporate, you can focus on your business. We’ll take care of the rest.