Enacted Summary

In Hong Kong, the Companies Ordinance governs accounting practices for listed companies, private enterprises, governmental, and not-for-profit organizations. The Hong Kong Institute of Certified Public Accountants (HKICPA) has the legal authority to set accounting standards to be applied for the preparation of financial statements for the above-mentioned companies. According to the Preface to Hong Kong Financial Reporting Standards (HKFRSs), in 2001, the HKICPA adopted the policy of achieving convergence of its standards with the standards set by the International Accounting Standards Board. As a result, Hong Kong adopted in January 2005 HKFRSs which were almost identical to the International Financial Reporting Standards (IFRSs). The only differences remaining were, in some cases, effective dates, and transitional provisions. The preface to HKFRSs states that the HKICPA may add additional disclosure requirements, if deemed appropriate, or in some cases it may depart from the text of IFRSs. All differences from the international equivalents are clearly identified in the text of the Hong Kong standards. As of May 2010, all subsequent annual improvements to IFRSs have been incorporated into HKFRSs. Starting January 1, 2005, eligible small and medium-size enterprises have been applying a simplified framework known as the Small and Medium-sized Entity (SME) Financial Reporting Framework and Financial Reporting Standard. On April 30, 2010, the HKICPA released the Hong Kong Financial Reporting Standards for Private Entities as an option to be used by larger private companies, instead of the full HKFRSs or the SME standards. These new standards are reported by the Deloitte IAS Plus website to be identical to IFRSs for SMEs, with the exception of modification regarding income tax requirements.

General Overview

As described on the Hong Kong country page of the Deloitte & Touche IAS Plus website, mandatory sources of the generally accepted accounting principles in Hong Kong are contained in the Companies Ordinance, the Hong Kong Financial Reporting Standards (HKFRSs) established by the Hong Kong Institute of Certified Public Accountants (HKICPA), and the Listing Rules of the Stock Exchange. The Companies Ordinance provides general requirements on maintaining accounting records for companies incorporated in Hong Kong. The Preface to the HKFRSs states that the standards issued by the HKICPA are intended for use by all profit-oriented entities in preparation of their annual statutory financial statements. Listed companies must also comply with the Listing Rules of the Stock Exchange, which specify disclosure and interim financial reporting requirements.

The 2005 HKICPA self-assessment indicates that the HKICPA is the regulatory body that oversees the accounting profession in Hong Kong. Some of HKICPA's objectives are to issue accounting, auditing, and ethical standards; register firms of certified public accountants; and regulate the practice of the accounting profession. The Professional Accountants Ordinance provides the HKICPA with the legal authority to set accounting and auditing standards. The HKICPA is a member of the International Federation of Accountants. According to the Preface to the Hong Kong Financial Reporting Standards, in 2001, the HKICPA adopted the policy of achieving convergence of its standards with the standards set by the International Accounting Standards Board. As a result, Hong Kong has adopted since January 1, 2005, HKFRSs which were almost identical to the International Financial Reporting Standards (IFRSs). The Preface to HKFRSs states that the HKICPA may add additional disclosure requirements, if deemed appropriate, or in some cases it may depart from the text of IFRSs. All differences from the international equivalents are clearly identified in the text of the Hong Kong standards. A review of the HICKPA Handbook as of May 2010 reveled that all subsequent annual improvements to IFRSs had been incorporated into HKFRSs. A 2010 PricewaterhouseCoopers report reiterates that HKFRSs have been converged with IFRSs, with differences remaining in transitional provisions.

Effective January 1, 2005, eligible small and medium-size enterprises have been applying a simplified framework known as the Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard (SME-FRF&FRS). The following types of entities may apply the SME-FRF&FRS: (1) Hong Kong companies that prepare financial statements under section 141D of the Companies Ordinance (private companies where all owners agree to apply that section); and (2) overseas incorporated entities that do not have public accountability and qualify on the basis of size criteria (total annual revenue not exceeding HKD50 million; total assets of HKD50 million at the balance sheet date; and a labor force not surpassing 50 employees). As explained in the 2006 HKICPA self-assessment. “the SME-FRF and SME-FRS are principally based on historical cost convention and therefore not converged with IFRSs” (p. 88). In May 2008, the HKICPA issued a consultation paper titled "Financial Reporting by Private Companies," where it was noted that "the application of HKFRSs by many private companies imposes a reporting burden on those companies without a corresponding benefit in the increased usefulness of the information provided to the users of the financial statements of those companies" (p. 5). The HKICPA, therefore, called for the stakeholders' views on simplifying the reporting requirements for private companies. Following this, on April 30, 2010, the HKICPA released the Hong Kong Financial Reporting Standards for Private Entities as an option to be used by larger private companies. The standard defines private entities as entities that do not have public accountability and that publish general purpose financial statements for external users. Per a press release issued by HKICPA, these standards are aimed to relieve private companies from applying the full HKFRSs, which are more suited to listed companies and “can be quite burdensome and produce more information than is necessary in some cases” (p. 1) when applied to private companies. These new standards are reported by the Deloitte IAS website to be identical to IFRSs for SMEs “except for a modification relating to income tax requirements.” The SME-FRF&FRS remain relevant for micro private companies.

Per the 2005 HKICPA self-assessment, the Securities and Futures Commission (SFC) is responsible for monitoring compliance with accounting and auditing standards and with reporting disclosure requirements of entities falling under its jurisdiction. However, the SFC does not set accounting standards and requires the application of HKFRSs issued by the HKICPA. A licensed company is required under Section 156 of the Securities and Futures Ordinance to submit its financial statements along with an auditor's report to the SFC. Listed companies are subject to dual reporting requirements and must submit financial statements both to the SFC and the Hong Kong Exchanges and Clearing Limited (HKEx). The HKEx monitors and enforces financial reporting, accounting, and auditing of listed companies by maintaining a "financial statements review program" with the objective of encouraging high standards of financial disclosure and to detect cases of improper disclosure. In addition, a member of the HKEx sits on the Professional Standards Monitoring Committee of the HKICPA. The Professional Standards Monitoring Committee, according to the HKICPA's 2005 report, reviews published financial statements to ensure the sound implementation of accounting and auditing standards of members in public practice.

Further, the 2005 HKICPA self-assessment notes that the Hong Kong Monetary Authority (HKMA) regulates licensed banks, restricted license banks, and deposit-taking companies. The HKMA does not set accounting and auditing standards and does not regulate the audit profession. However, it has issued financial disclosure standards to be followed by all entities under its supervision as prescribed by section 16(10) of the Banking Ordinance. Under the HKMA rules and guidelines, authorized institutions are required to comply with accounting, reporting, and auditing standards issued by the HKICPA. In the event of non-compliance, the HKMA can report the matter to the HKICPA for further procedures. Pursuant to the Insurance Ordinance, the Office of the Commissioner of Insurance (OCI) is responsible for the regulation of insurance companies in Hong Kong. The Insurance Companies Ordinance contains requirements on accounting, financial reporting, and auditing which are mandatory for the regulated entities. As in the case of securities and banking sectors regulators, the OCI does not set accounting and auditing standards, nor does it regulate the audit profession.

The Principles

ENIFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA in 2010, the equivalent of IFRS 1 is HKFRS 1 (Revised) issued in 2008 and effective
for annual periods beginning on or after July 1, 2009. As of January 1, 2010, there were minor "textual differences" (p. 2) between the two standards. HKFRS 1 (Revised) was subsequently amended to incorporate revisions resulting from Improvements to HKFRSs (based on the IASB’s annual improvements project) and issued in May 2010. These amendments (on accounting policy changes in the year of adoption, revaluation basis as deemed cost, and on the use of deemed cost for operations subject to rate regulation) are effective for annual periods beginning on or after July 1, 2010. HKFRS 1 (Revised), supersedes HKFRS 1 which had been effective for annual periods beginning on or after January 1, 2005.

ENIFRS 2: Share-based Payment (effective 2010)

According to a 2010 comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKFRS 2 and IFRS 2 are identical and have the same effective dates.

ENIFRS 3: Business Combinations (effective 2010)

According to a 2010 comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKFRS 3 (Revised) and IFRS 3 were identical, except for some differences in the effective dates. HKFRS 3 (Revised) was subsequently amended to incorporate revisions resulting from Improvements to HKFRSs (based on the IASB’s annual improvements project) and issued in May 2010. These amendments (on transition requirements, measurement of non-controlling interests and unreplaced and voluntarily replaced share-based payment awards) are effective for annual periods beginning on or after January 1, 2011. HKFRS 3 (Revised) supersedes HKFRS 3 which had been effective for annual periods beginning on or after January 1, 2005.

ENIFRS 4: Insurance Contracts (effective 2006)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKFRS 4 and IFRS 4 are identical. There are no differences in the effective dates.

ENIFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKFRS 5 and IFRS 5 are identical. There are no differences in the effective dates.

ENIFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKFRS 6 and IFRS 6 are identical. There are no differences in the effective dates.

ENIFRS 7: Financial Instruments: Disclosures (effective 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKFRS 7 and IFRS 7 were identical. There were no differences in the effective dates. HKFRS 7 was subsequently amended to incorporate revisions resulting from Improvements to HKFRSs (based on the IASB’s annual improvements project) and issued in May 2010. These amendments (on the clarification of disclosures) are effective for annual periods beginning on or after January 1, 2011. An amendment to paragraph 44B of HKFRS 7, also a result of the improvements project, is applicable for annual periods beginning or after July 1, 2010.

ENIFRS 8: Operating Segments (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKFRS 8 and IAS 8 are identical. There are no differences in the effective dates.

ENIAS 1: Presentation of Financial Statements (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 1 (Revised) and IAS 1 were identical, except for some "minor textual differences" (p. 5). There were, however, no differences in the effective dates. HKAS 1 (Revised) was subsequently amended to incorporate revisions resulting from Improvements to HKASs (based on the IASB’s annual improvements project) and issued in May 2010. These amendments (on the clarification of statement of changes in equity) are effective for annual periods beginning on or after January 1, 2011. HKAS 1 (Revised) supersedes HKAS 1 which had been effective for annual periods beginning on or after January 1, 2005.

ENIAS 2: Inventories (effective 2005)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 2 and IAS 2 are identical. There are no differences in the effective dates.

ENIAS 7: Cash Flow Statements (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 7 and IAS 7 were identical, except for differences in the effective dates. HKAS 7 was effective for annual periods beginning on or after January 1, 2005. HKAS 7 was revised in May 2010 and the revised standard is applicable for annual periods beginning on or after January 1, 2011. Per the text of the revised standard, HKAS 7 was revised in order to “maintain international convergence arising from the revision of IAS 1” (p. 5).

ENIAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 8 and IAS 8 are identical, except for some "minor textual differences," (p. 5). There are no differences in the effective dates.

ENIAS 10: Events after the Reporting Period (effective 2005)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 10 and IAS 10 are identical, except for some "minor textual differences," (p. 6). There are no differences in the effective dates.

ENIAS 11: Construction Contracts (effective 1995)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 11 and IAS 11 are identical, except for differences in the effective dates. HKAS 11 is effective for periods beginning on or after January 1, 2005.

ENIAS 12: Income Taxes (effective 2001)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 12 and IAS 12 are identical, except for differences in the effective dates, and more clarification and examples under HKAS 12. HKAS 12 is effective for periods beginning on or after January 1, 2005.

ENIAS 16: Property, Plant and Equipment (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 16 and IAS 16 are identical, except that HKAS 16 has "additional transition provisions" (p. 8). There are no differences in the effective dates.

ENIAS 17: Leases (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 17 and IAS 17 are identical. There are no differences in the effective dates.

ENIAS 18: Revenue (effective 1995)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 18 and IAS 18 are identical, except that there are differences in the effective dates. The effective date for HKAS 18 is on or after January 1, 2005.

ENIAS 19: Employee Benefits (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 19 and IAS 19 are identical, except that there are differences in transitional provisions and the effective dates. HKAS 19 is effective for annual periods beginning on or after January 1, 2005.

ENIAS 20: Accounting for Government Grants and Disclosure of Government Assistance (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 20 and IAS 20 are identical, except that there are differences in transitional provisions and the effective dates. HKAS 20 is effective for annual periods beginning on or after January 1, 2005.

ENIAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 21 and IAS 21 are identical. There are no differences in the effective dates.

ENIAS 23: Borrowing Costs (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 23 and IAS 23 are identical, except that there are differences in transitional provisions and the effective dates. HKAS 23 is effective for annual periods beginning on or after January 1, 2005.

ENIAS 24: Related Party Disclosures (effective 2005)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 24 and IAS 24 are identical. There are no differences in the effective dates.

ENIAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 26 and IAS 26 are identical, except that there are differences in the effective dates and the wording in HKAS 26. HKAS 26 is effective for annual periods beginning on or after January 1, 2005.

ENIAS 27: Consolidated and Separate Financial Statements (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 27 (Revised) and IAS 27 were identical; however there were "minor textual differences" between the two standards (p. 12). There were no differences in the effective dates. HKAS 27 (Revised) was subsequently amended to incorporate revisions resulting from Improvements to HKASs (based on the IASB’s annual improvements project) and issued in March 2008. These amendments (on transition requirements) are effective for annual periods beginning on or after July 1, 2009. HKAS 27 (Revised), superseded HKAS 27, which had been effective for annual periods beginning on or after January 1, 2005.

ENIAS 28: Investments in Associates (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 28 and IAS 28 are identical. There are no differences in the effective dates.

ENIAS 29: Financial Reporting in Hyperinflationary Economies (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 29 and IAS 29 are identical, except that there are differences in the effective dates. HKAS 29 is effective for annual periods beginning on or after January 1, 2005.

ENIAS 31: Interests in Joint Ventures (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 31 and IAS 31 are identical. There are no differences in the effective dates.

ENIAS 32: Financial Instruments: Disclosure and Presentation (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 32 and IAS 32 are identical, except that HKAS 32 "has an additional transitional provision" (p. 13). There are no differences in the effective dates.

ENIAS 33: Earnings per Share (effective 2005)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 33 and IAS 33 are identical. There are no differences in the effective dates.

ENIAS 34: Interim Financial Reporting (effective 1999)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 34 and IAS 34 were identical, except that there were differences in the effective dates. HKAS 34 was subsequently amended to incorporate revisions resulting from Improvements to HKASs (based on the IASB’s annual improvements project) and issued in May 2010. These amendments (on significant events and transactions) are effective for annual periods beginning on or after January 1, 2011.

ENIAS 36: Impairment of Assets (revised 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 36 and IAS 36 are identical, except that there are differences in "transitional provisions" (p. 14) and the effective dates. HKAS 36 is effective for annual periods beginning on or after January 1, 2005.

ENIAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, the equivalent of HKAS 37 is IAS 37, however there are differences in "transitional provisions" (p. 15) and effective dates. HKAS 37 is effective for annual periods beginning on or after January 1, 2005.

ENIAS 38: Intangible Assets (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 38 and IAS 38 are identical, except that there are differences in "transitional provisions" (p. 16) and the effective dates.

ENIAS 39: Financial Instruments: Recognition and Measurement (effective 2010)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 39 and IAS 39 are identical, except that there are differences in "transitional provisions" (p. 17).

ENIAS 40: Investment Property (effective 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 40 and IAS 40 are identical, except that HKAS 40 has "additional transitional provisions" (p. 18).

ENIAS 41: Agriculture (effective 2009)

According to a comparison between HKFRSs and IFRSs issued by the HKICPA, as of January 1, 2010, HKAS 41 and IAS 41 are identical, except for differences in the effective dates.