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Guide to Accounting and Accounting Standards in Hong Kong

Accounting is a crucial part of business management. No matter what your business is, whether small or big, the accounting professionals of HongKong Company Registration will help you meet your financial reporting requirements timely and will manage your financial performance more efficiently.

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Guide to Accounting and Accounting Standards in Hong Kong

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  1. Guide to Accounting and Accounting Standards in Hong Kong hkcompanyregistration.com info@hkcompanyregistration.com

  2. Guide to Accounting and Accounting Standards in Hong Kong +852 2780 0607 All companies registered in Hong Kong must ensure timely annual filing of statutory returns to the Companies Registrar, as per the provisions of the city’s Companies Ordinance (CO). This is in addition to the company’s profits tax returns which are filed to the Inland Revenue Department of the Government of the Special Administrative Region of Hong Kong. These compulsory statutory filings include all company’s annual returns, and changes in the company’s registered office address, and/or particulars of the company directors and the company secretary. If the above is not done, it may result in prosecution and fines for any person in a responsible position in the company, including the company directors and the company secretary. Notably, the fines are steep in Hong Kong, with the maximum penalty for every breach being HK$50,000. For continuing offending, a daily default fine of HK$1,000 is imposed. What are the Accounting Standards in Hong Kong These standards detail the measurement, presentation, recognition, and disclosure requirements of every transaction and event as it must be mentioned in a general-purpose financial statement Kong-incorporated company. of a Hong In general, accounting standards in Hong Kong are known as Hong Kong Financial Reporting Standards (HKFRS). These HKFRS as prevalent now were adopted by the city in 2005 and had been modelled on the International Financial Reporting Standards, issued by the International Accounting Standards Board. Scope of Hong Kong Financial Reporting Standards Notably, in Hong Kong, HKFRS includes not only the Financial Reporting Standards, but also the Hong Kong Accounting Standards (HKAS) and the Interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). Do note that the HKICPA is the accounting and auditing standard-setter, as well as in-charge of setting the professional ethical accountants in Hong Kong. standards for Copyright © 2019 · Hong Kong Company Registration. All rights reserved. (https://www.hkcompanyregistration.com/services/tax-and-accounting/) Last updated Dec 2019 | 1

  3. Guide to Accounting and Accounting Standards in Hong Kong +852 2780 0607 According to HKICPA: HKFRS apply to only profit-oriented entities’ general purpose financial statements and other financial reporting needs. As such, these standards doesn’t apply to the public sector or the government, or even to the non-profit activities of the private sector. ? HKFRS is applicable to all general purpose financial statements catering to the wider common information needs of creditors, employees, shareholders, and other interested parties of the public. These general purpose financial statements provide detailed information about the company’s performance, cash flow situation and financial position, which can be used in making economic decisions by the stakeholders. ? The HKFRS as of now consists of 15 financial reporting standards, 41 accounting standards, and several interpretations. And each of these is related to a specific topic. Some examples include specifying the minimum requirements of a financial statement and how to present it, and in which format; details of inventories; statement of cash flows; corporate tax paid; revenue generated from certain sales or transactions, etc. ? HKFRS addresses the concepts and framework underlying the information presented in general purpose financial statements of a company, which are aimed at giving a true and fair view of the entity’s financial position at any given time. ? HKFRS uses the accrual basis of accounting, which means a transaction’s effect is recognised when it occurs and is reported in the financial statement of the period it happens. This is useful as this method informs whomsoever reads the financial statements, of not only the past transactions but also of the future obligations that the company needs to settle. ? Hong Kong Financial Reporting Standards for SMEs On top of HKFRS, the HKICPA has also issued the SME Financial Reporting Framework (SME-FRF) and Financial Reporting Standard (SME-FRS) – for qualifying SMEs, as the standards of accounting practices. This has been done to simplify procedure for SMEs, which by definition are always short of resources. the reporting (SME-FRS) – for qualifying SMEs, as the standards of accounting practices. This has been done to simplify procedure for SMEs, which by definition are always short of resources. the reporting On top of HKFRS, the HKICPA has also issued the SME Financial Reporting Framework (SME-FRF) and Financial Reporting Standard Copyright © 2019 · Hong Kong Company Registration. All rights reserved. (https://www.hkcompanyregistration.com/business-guides/guide-to-taxation-in-hong-kong/) Last updated Dec 2019 | 2

  4. Guide to Accounting and Accounting Standards in Hong Kong +852 2780 0607 SMEs qualifying for reporting exemptions in Hong Kong Also note – as highlighted in paragraphs 22-43 of SME-FRF which was revised in February 2019 – from financial year beginning on or after February 1, 2019, exemption has been extended. This now also applies to groups comprising a mix of small private companies, eligible private companies and small guarantee companies, which may or may not be Hong Kong-incorporated. the reporting So now, there are three sets of size tests, as per the Schedule 3 to the new CO, which are used to define the reporting exemption: For small guarantee companies, or a group of small guarantee companies – a company limited by guarantee qualifies as a small guarantee company if its total annual revenue does not exceed HK$ 25 million; or the aggregate annual revenue of the group must not exceed HK$25 million ? Only certain companies, as detailed below, can qualify for the reporting exemption under the new CO. At a minimum, in accordance with section 359 of the new CO these companies (or groups) must be private companies (or groups) or companies (or a group of companies) limited by guarantee. For small private companies, or a group of small private companies – a private company qualifies as a small private company if does not exceed any two of the following: (a) total revenue of HK$100 million annually (b) by the end of the reporting period, total assets of HK$100 million (c) 100 employees ? According to section 9 of the new CO, a company is limited by guarantee in Hong Kong if: For larger “eligible” private companies, or a group of “eligible” companies – a private company qualifies as an “eligible” private company if does not exceed any two of the following: (a) total revenue of HK$200 million annually (b) by the end of the reporting period, total assets of HK$200 million (c) 100 employees (not 200 employees) ? it doesn’t have a share capital; and ? its constitution/articles limit the liability of its members to only the amount each member undertakes to contribute to the assets of the company, if the company wounds up. ? Copyright © 2019 · Hong Kong Company Registration. All rights reserved. (https://www.hkcompanyregistration.com/services/hong-kong-company-registration/) Last updated Dec 2019 | 3

  5. Guide to Accounting and Accounting Standards in Hong Kong +852 2780 0607 Hong Kong Financial Reporting Standards for Private Entities In 2010, the HKICPA issued the Hong Kong Financial Reporting Standard for Private Entities (HKFRS for Private Entities) as a financial reporting option for private entities in the city. These are much less cumbersome as compared to the HKFRSs, and were introduced to ease the reporting burden of private entities in the city. It must be noted that according to HKFRS for Private Entities, a complete set of financial statements of an entity incorporated in Hong Kong shall include all of the following: A definition of private entities, which can benefit from these standards, is provided in Section 1 of HKFRS for Private Entities. It says private entities are those that: a statement of the financial position of the company on the reporting date. ? do not have public accountability – which means its debt or equity instruments are traded in a public market, and it holds assets in a fiduciary capacity for a broad group of outside stakeholders, an example of which may be banks, insurance companies, mutual funds etc. ? a statement of comprehensive income and/or income, including all profits and losses incurred during the reporting period. ? a statement of changes (if any) in company’s equity position during the reporting period. ? publish statements for users outside the entity such as credit rating agencies, existing and potential creditors etc. general purpose financial ? a statement of the company’s cash flows during the reporting period. ? company notes, which may include significant accounting policies, and/or other explanatory information. ? Copyright © 2019 · Hong Kong Company Registration. All rights reserved. (https://www.hkcompanyregistration.com/business-guides/guide-to-taxation-in-hong-kong/) Last updated Dec 2019 | 4

  6. Guide to Accounting and Accounting Standards in Hong Kong +852 2780 0607 Now that we know the accounting standards in Hong Kong, the question is what are statutory returns that every Hong Kong-incorporated company must file to the Companies Registry every year. Below are the major ones. What are the Annual Filing Requirements in Hong Kong Annual Return, Form NAR1, is the form to be filled and submitted: 1 For a private company: to be done within 42 days after the anniversary of the date of incorporation each year. ? 1st January 2019 11th February 2020 Date of Incorporation Filing Annual return within 42 days after the anniversary date For a private company: to be done within 42 days after the anniversary of the date of incorporation each year. ? 1st January 2019 31 December 2019 Before 30 September 2020 11th November 2020 Date of Incorporation Date of financial year end Holding Annual General Meeting Filing Annual Return within 42 days after the anniversary date with the financial accounts Profit tax return is required to be filed: 2 1st January 2019 Financial year ended 31 December 2019 (Audit for 12 months) Financial year ended 31 March 2020 (Audit for 18 months) Date of Incorporation Profit filed on or before 15 August 2020 Profit filed on or before 15 November 2020 Loss filed on or before 15 November 2020 Loss filed on or before 15 February 2021 3 Change in registered office address, Form NR1, is to be submitted within 15 days after the change. Change (appointment/cessation) in company secretary and company director(s), Form ND2A, is to be submitted within 15 days after the change. 4 Change in particulars of company secretary and company director, Form ND2B, is to be submitted within 15 days after the change. 5 General accounting and bookkeeping compliance requirements in Hong Kong include monthly, quarterly and annual reviews; cash flow and budgeting; maintenance of accounts receivable and ledgers – general, accounts payable, fixed assets; as well as regular management reports and financial analysis. 6 7 Get accounts audited by a certified public accountant (CPA) every year. Last updated Dec 2019 | 5 Copyright © 2019 · Hong Kong Company Registration. All rights reserved.

  7. Guide to Accounting and Accounting Standards in Hong Kong +852 2780 0607 Consequences for non-filing of Annual Return Timely Filing Court Summons More than 12 months after the company's return date Within 42 days up to HK$3,000 excluding the penalty during the default period No Penalty Up to HK$50,000, a daily default fine of HK$1,000 for a continuing offence Not fulfilling the order by court and failing to comply with the provision Up to HK$3,480 42 days to 12 months Default period Maximum penalty Get Hassle- Free Accounting and Tax Service With us, you can rest assured that our qualified accountants will go the extra mile and do what it takes to get the job done well, allowing you to have the peace of mind and focus on growing your business. Talk to us Last updated Dec 2019 | 6 Copyright © 2019 · Hong Kong Company Registration. All rights reserved.

  8. HONG KONG COMPANY REGISTRATION Unit 912, 9/F, Two Harbourfront, 22 Tak Fung Street, Hunghom, Kowloon, Hong Kong ? ? +852 2780 0607 ? info@hkcompanyregistration.com ? hkcompanyregistration.com OUR REGIONAL PRESENCE The information contained herein is intended for general information purposes only and shall not be regarded as professional advice. Readers are therefore advised that before acting on any matter arising from these notes, they should discuss their particular situation with the Firm. No liability can be accepted for any action taken as result of reading the notes without prior consultation with regard to all relevant factors. FOLLOW US ON: Copyright © 2019 • Hong Kong Company Registration. All rights reserved.

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