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The 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 accounting terms and clarify their scope to ensure fairness and honesty in a company’s financial statements.
HKAS 1 outlines the requirements regarding preparing and presenting financial statements by a business entity in terms of its structure and content.
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.
HKAS 18 outlines the accounting standards of revenue earned from particular types of business transactions and requirements regarding when revenue is to be recognized.
A complete guide to the HKICPA’s financial reporting standards can be found here.
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the professional body responsible for regulating accountancy in Hong Kong and has 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, 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.
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 or public sector 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.
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, taxes, to name a few.
An overview three important Hong Kong Accounting Standards (HKAS) are provided below.
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:
A complete guide regarding the accounting standards for SME-FRS in Hong Kong can be found here.
Here is what you should always have in mind:
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