As a Hong Kong business entity, your company must prepare audited financial statements on an annual basis. Please make sure your financial transactions are handled based upon the Hong Kong accounting standards. So, what are these standards?
This article will tell you fundamental facts about Hong Kong accounting rules and how to comply with accounting requirements in Hong Kong!
An Overview of Hong Kong Accounting Rules
Hong Kong accounting standards, or Hong Kong Financial Reporting Standards (HKFRS) refer to a set of accounting rules set out by the Hong Kong Institute of Certified Public Accountants (HKICPA). This framework follows the Financial Reporting Standards (FRS), which has been applied in Hong Kong since January 2005. The FRS model is based upon the International Financial Reporting Standards (IFRS) under the International Accounting Standards Board (IASB).
Accounting standards in Hong Kong include 41 accounting standards, some interpretations, and 9 financial reporting standards. Some typical examples of accounting standards include:HKAS 1: Presentation of Financial StatementsHKAS 2: InventoriesHKAS 7: Cash Flow StatementsHKAS 12: Income taxesHKAS 18: RevenueHKAS 19: Employee benefits
Hong Kong accounting standards focus on the company’s financial statements – related accounting terms, accounting principles, disclosure requirements for financial transactions, how-to guide to fairness for the company’s financial reports.
Pursuant to the Hong Kong Companies Ordinance, any company incorporated in Hong Kong must comply with the accounting and audit requirements every year. The financial statements must be performed in accordance with accounting standards in Hong Kong. Also, note that Hong Kong accounting rules stay a strong connection with your chosen financial year end in Hong Kong. Commonly, an accounting report for Hong Kong companies is well attached to the following issues:Balance sheetFixed assets of the company like stocks, securitiesPresent liabilities on taxation, finance lease obligations, or creditors’ loansShareholders’ retained profits, capital reserves, and other similar equitiesProfit and loss account and summaries of turnovers, profits before tax, tax, dividends, retained profits of the fiscal year
2. Financial Reporting Requirements Based on Hong Kong Accounting Standards
Accounting and auditing requirements may vary according to different types of companies in Hong Kong. A general rule applied by the HKICPA is that HKFRS is only applicable to financial statements for general purposes of profit-generated entities.Below are general requirements for private companies and listed companies that you should know!Note: Listed companies refer to public companies and companies limited by guarantee in Hong Kong.
General Requirements for Private CompaniesPrivate company is considered the most common type of business entity in Hong Kong. As per the country’s laws, private companies must submit their annual financial statements to the Inland Revenue Department as part of the tax filing duty of the company.These financial statements must be assured to comply with relevant Hong Kong accounting standards for the company – i.e., HKFRS, HKFRS for Private Entities, or the SME-FRF & SME-FRS, depending on each case. Furthermore, some business sectors like banking and insurance businesses may impose different sets of regulations on the filing of financial statements. Each sector can also have its respective regulator to which the company needs to file its financial reports.
Only a private company with qualified dormant status, meaning a company that has no relevant accounting transactions during a financial year, according to the Companies Ordinance would be exempted from filing this annual financial report.Private companies are also required to keep the books of account at the registered office of the company. Note, however, that such reports would be kept out of view on the public record.
3. Required Documents for Financial Reporting of Hong Kong Companies
Section 380 (4) of the Companies Ordinance stipulates that accounting standards shall be applicable to any financial statements of a Hong Kong company. Accordingly, HKICPA requires a set of financial documents in case an eligible company needs to prepare the financial statements in compliance with Hong Kong accounting standards. The needed information includes:A statement of financial position/Balance sheet at the end of the periodStatement of comprehensive incomeStatement of cash flowAccounting policiesExplanatory notesEquity or capital transactions changes
As a really important compliance requirement for any company incorporated in Hong Kong, financial reporting and accounting related duties are worth considering. Seeking a reliable partner like Elitestage to conduct an annual audit or accounting services in Hong Kong for your company will be a wise choice.