Understanding the difference between management accounts and statutory accounts is essential for business owners and decision-makers in Hong Kong.
All Hong Kong companies are required to prepare annual financial statements in accordance with Hong Kong accounting standards; most companies are subject to an audit, unless they are dormant under Section 447 of the Companies Ordinance.
Management accounts are optional but highly useful for tracking performance between year-end closes.
What Are Management Accounts in Hong Kong?
Management accounts are internal financial reports produced during the financial year to support planning, performance management, and cash control.
They represent cumulative financial statements prepared during the financial year of a business.
Most companies use them for better visibility and faster decision-making. These are not filed with authorities.
What Do Management Accounts Typically Include?
Typically, here’s what is included as part of management accounts:
- Balance sheet
- Profit and loss statement
- Cash flow statement
- Key performance indicators (KPIs) and executive summaries
- Customer and supplier analysis
- Project updates and operational metrics
These can be generated using software such as Xero, QuickBooks, or Sage, often with dashboards that update automatically.
Are Management Accounts Mandatory in Hong Kong?
Management accounts are not legally required under Hong Kong law. However, they can become helpful for.
- Startups tracking runway and projections
- SMEs improving financial visibility
- Companies preparing for audit or investment
- Businesses applying for bank loans or grants
Management accounts prevent surprises at year-end by surfacing issues early.
Small Businesses & Reporting Exemption (Not the Same as Management Accounts)
Do not confuse management accounts with the reporting exemption under the Companies Ordinance.
Reporting exemption lets qualifying companies prepare simplified statutory financial statements and directors’ reports.
It does not replace the usefulness of management accounts, and audit still applies unless the company is dormant under Section 447.
To qualify as a small private company, meet any two of three tests in a financial year:
- Annual revenue ≤ HK$100 million
- Total assets ≤ HK$100 million
- Employees ≤ 100
(For larger eligible private companies, simplified reporting may be adopted if size tests are met and members approve, typically by a 75% resolution with no objections.)
How Often Should Management Accounts Be Created?
Unlike statutory accounts, management accounts are flexible.
- Monthly reporting suits fast-growing or retail businesses that need frequent updates.
- Quarterly reporting can work for stable or seasonal businesses.
Rule of thumb: the faster your business changes, the more often you should review.
The faster your business changes, the more often you should review.
What Are Statutory Accounts in Hong Kong?
Statutory accounts are the annual financial statements that Hong Kong companies must prepare in accordance with Hong Kong Financial Reporting Standards (HKFRS) or the Small and Medium-sized Entity Financial Reporting Standard (SME-FRS) and with disclosure requirements in the Companies Ordinance (Cap. 622).
Most companies must have these accounts audited, except when the company is dormant under Section 447.
Companies choose their own financial year-end. The 1 April to 31 March period is the Government’s fiscal year, not a requirement for all companies.
Purpose of Statutory Accounts
The main goal of statutory accounts is to:
- Demonstrate financial performance to members and stakeholders
- Fulfill legal duties under the Companies Ordinance (Cap. 622)
- Comply with HKFRS or SME-FRS
- Present a true and fair view of financial position and results
What Should Be Included in Hong Kong Statutory Accounts?
Scope varies by size and framework, but typically includes:
- Statement of financial position, statement of profit or loss and other comprehensive income, cash flow statement (where applicable), statement of changes in equity, and notes
- Directors’ report and auditor’s report
Directors must approve and sign the statement of financial position under Section 387 of the Companies Ordinance. The auditor’s report is signed by a CPA (practising).
Compliance & Filing Obligations
All companies in Hong Kong, except those dormant under Section 447, must:
- Prepare financial statements per Sections 380–383 of the Companies Ordinance and applicable HKFRS/SME-FRS
- Appoint a CPA (practising) to conduct the annual audit
- Submit audited financial statements with the Profits Tax Return (PTR) to the Inland Revenue Department (IRD) unless an IRD-stated exception applies (for example, dormant companies)
- File the Annual Return (Form NAR1) with the Companies Registry on time. Private companies do not file their accounts with the Registry as part of NAR1.
Reporting Exemption & Simplified Accounts
Under the Companies Ordinance, qualifying private companies may prepare simplified financial statements and directors’ reports if they meet the size tests above or, for larger eligible private companies, obtain the required member approval.
An audit is still required unless the company is dormant under Section 447.
How Do Management Accounts Differ from Statutory Accounts?
| Item | Management Accounts | Statutory Accounts |
|---|---|---|
| Purpose | Internal planning and monitoring | Legal compliance and transparency |
| Audience | Executives, directors | Shareholders, IRD, regulators |
| Legal requirement | Not required by law | Required under Companies Ordinance (Cap. 622) and HKFRS/SME-FRS |
| Frequency | Monthly, quarterly, ad hoc | Annually |
| Format | Flexible, KPI-driven | Standardized per HKFRS/SME-FRS |
| Filing | Not filed with authorities | Filed with IRD with PTR; private companies generally do not file accounts with Companies Registry |
| Audit | Not applicable | Required unless dormant under Section 447 |
Why Both Management and Statutory Accounts Matter
Use management accounts for fast, data-driven decisions during the year; rely on statutory accounts for your audited, year-end position required under the Companies Ordinance (Cap. 622) and for filing with the Inland Revenue Department (IRD).
- Management accounts: Drive cash control, margin tracking, and forecasting; surface issues early so year-end close and tax prep run smoother. Ideal for board updates, lender talks, and runway planning.
- Statutory accounts: Provide the audited, year-end view needed for legal compliance under the Companies Ordinance (Cap. 622) and accurate IRD tax filings; give investors and lenders confidence in a true-and-fair picture.
Benefits of Management Accounts In Hong Kong
- Real-time visibility over cash flow, revenue, and costs
- Early detection of discrepancies that may indicate errors or fraud
- Better planning of dividends and provisional tax estimates
- Smoother audit with well-organized schedules and reconciliations
- Flexible format tailored to internal decision-making
Benefits of Statutory Accounts In Hong Kong
- Comprehensive, regulated picture of financial performance
- Trusted by investors, lenders, and other stakeholders
- Ensures compliance with the Companies Ordinance (Cap. 622) and supports accurate tax filing
- Establishes an audit trail that can surface anomalies
Bottom Line
Timely, accurate accounting supports daily decisions and long-term compliance.
Air Corporate can prepare management packs, coordinate your annual audit, and assist you in filing a complete PTR with the IRD.
FAQs
Where Section 789 applies, a registered non-Hong Kong company must deliver a certified copy of its latest published accounts with its annual return (Form NN3) within 42 days after each anniversary of registration.
An unqualified opinion indicates the financial statements present a true and fair view in accordance with HKFRS/SME-FRS. A qualified, adverse, or disclaimer opinion signals limitations or departures that users should consider.
There is no direct penalty in the Companies Ordinance for the time taken to prepare accounts, but late or incorrect filing of the PTR and supporting audited financial statements with the IRD can lead to penalties under tax law. File on time and keep complete working papers.
