The accounting standards in Hong Kong are known as the Hong Kong Financial Reporting Standards (HKFRS), which are a set of rules regarding the treatment of financial transactions of Hong Kong. These standards identify the measurement, presentation, recognition and disclosure requirements of transactions and events that must be included in a general-purpose financial statement of the company.
The Hong Kong Institute of Certified Public Accountants (HKICPA) also issued Financial Reporting Standards for qualifying SMEs (SME-FRS) to reduce reporting procedures for SMEs.
HKICPA also issued the Hong Kong Financial Reporting Standard for Private Entities (HKFRS for Private Entities) for companies that do not have public accountability as it will remove some accounting treatments, topics and disclosure requirements that do not apply to private entities.
The Hong Kong company’s fiscal year begins on the day of the company’s incorporation and ends on a date chosen by the company’s directors. The day should be decided by the Board before the first anniversary of the company.
If the Board fails to determine a fiscal year-end date, the last day of the month of the company’s first anniversary will be the finance year-end date. Most Hong Kong companies choose either 31 December or 31 March as their fiscal year – the latter date aligns with the government’s fiscal year.
All Hong Kong companies are required to maintain proper records and accounts to comply with the regulations on an annual basis. The records include their bank statements, expenses and sales receipts.
Bookkeeping ensures that all records of financial transactions are complete, correct and up to date. Income statements and balance sheets can be prepared once the bookkeeping is complete.
Annual financial statements
All companies in Hong Kong must prepare annual financial statements, including a profit and loss statement, balance sheet, cash flow statement and statement of changes in equity. Private companies may not be required to file annual financial statements with the Companies Registry, but proper accounts should be kept at the company’s office. Public companies must file their annual statements with the Companies Registry.
Financial statements, profits and taxes payable to the government are verified and audited by a third party in order to ensure that it complies with the Hong Kong laws. According to the Companies Ordinance, all Hong Kong incorporated companies are required to have an annual audit of the financial statements conducted by an auditor licensed as a Hong Kong Certified Public Accountant (CPA).
Financial statements that need to be presented to the auditor include:
- All bank statements
- All contracts
- All expenditure receipts
- All financial statements
- All management accounts
- All relevant accounting documents
- All sales and purchase invoices
- Balance sheet
- Ledger of business transactions
- Income statement
Once the auditor has reviewed the statements and documents, if there is a need to change anything, the auditor will offer their opinion on the statements. Audit opinions are made by the auditor in the Audit Report about whether the information in a company’s financial reports reflect an accurate, complete and fair representation of the company.
Small and medium-sized companies will be eligible for reporting exemption (the accounts must be audited but do not need to be lodged with the Companies Registry) if the companies meet the following criteria:
- A private company with no subsidiary and is not a subsidiary of another company
- Small private company – The company must not exceed:
- Total annual revenue of HKD 100 million
- Total assets of HKD 100 million at the end of the reporting
- 100 employees
- A group of small private companies which may include non-Hong Kong body corporates.
- Each company must qualify as a small private company
- Each non-Hong Kong body corporate have been qualified as a small private company for the financial year had it been incorporated under the new Companies Ordinance
- The aggregate amount for the group must not exceed 2 out of 3 of the criteria for the small private companies
- Small company limited by guarantee
- Total annual revenue must not exceed HKD 25 million
- A group of small companies limited by guarantee which may include non-Hong Kong body corporates
- Each company must qualify as a small company limited by guarantee
- Each non-Hong Kong body corporate has been qualified as a small private company for the financial year had it been incorporated under the new Companies Ordinance
- The aggregate income of the group must not surpass HKD 25 million
- Larger eligible private company – The private company must not exceed the following:
- Total annual revenue of HKD 200 million at the end of the reporting period
- 100 employees
- A group of eligible companies which may include non-Hong Kong body corporates.
- Each company must meet the criteria of either the small private company or larger eligible private company
- Each non-Hong Kong body corporate would have been qualified as either a small private company or a larger eligible private company for the financial year had it been incorporated under the Companies Ordinance based on its size
- The aggregate amounts for the ground in total must not exceed 2 of the 3 criteria for larger eligible private companies
- Mixed group consisting: a) one or more small and/or eligible private companies; and b) one or more small guarantee companies) which may include non-Hong Kong body corporates.
- In case that the holding company in the mixed group is a small private company, the aggregate amounts must not surpass 2 of the 3 criteria for a group of small private companies
- If the holding company is an eligible private company, the aggregate amounts must not exceed 2 of the 3 criteria for a group of larger eligible companies
- In the event that the holding company is a small guarantee company, the aggregate annual revenue must not exceed HKD 25 million
The article above gives you an introduction to Hong Kong accounting and an understanding of what you would have to fulfil as a company.
To ensure your financial statements and auditing correctly follows the Companies Ordinance, we recommend engaging Acclime to provide you with accounting services. We have a team of experienced accountants who will be able to walk you through the process and take care of your accounting professionally.
We can recommend an audit firm that is experienced in your business sector and we will liaise with the auditors to ensure an efficient audit with minimal disruption to your business.