What HKFRS 18 and HKFRS 19 mean for Hong Kong businesses.

Hong Kong entities that prepare financial statements under Hong Kong Financial Reporting Standards (HKFRS) are moving into a new reporting cycle. HKFRS 18, Presentation and Disclosure in Financial Statements, and HKFRS 19, Subsidiaries without Public Accountability: Disclosures, apply for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.

The two standards go beyond a technical accounting update. They form part of a wider international effort to improve the clarity, comparability and usefulness of financial statements, so that stakeholders can better understand an organisation’s financial performance and position. For businesses already operating in Hong Kong, and for multinational groups establishing or expanding in the region, understanding the practical implications of these standards is becoming a meaningful part of financial governance and reporting strategy.

This article looks at why the changes matter, what HKFRS 18 changes in the statement of profit or loss, what HKFRS 19 offers to eligible subsidiaries and what the transition means in practice for businesses in Hong Kong.

At a glance

Why the change is happening

HKFRS 18 is Hong Kong’s equivalent of IFRS 18. It replaces HKAS 1, Presentation of Financial Statements, while carrying forward many existing requirements. The international standard was issued in April 2024, following the International Accounting Standards Board’s long-running Primary Financial Statements project, and its central aim is to give users of financial statements a clearer and more comparable basis for understanding financial performance.

The problem it addresses is a familiar one. Two companies can each report an “operating profit”, yet use different definitions and include different items in the calculation. The International Accounting Standards Board found that more than 60 of 100 companies studied reported operating profit, using at least nine different calculation approaches. This limits comparability, even when both companies apply the same accounting standards.

HKFRS 18 brings more structure and discipline to the statement of profit or loss, and makes company-defined performance measures more transparent. In most cases, it is not a new measurement standard: it typically does not change when income or expenses are recognised, or how they are measured. Instead, it changes how results are classified, grouped, described and connected to the performance story that management tells externally.

What HKFRS 18 changes

The standard introduces three main changes: a defined structure for the statement of profit or loss, more transparency around management-defined performance measures and stronger principles for grouping information.

A more structured statement of profit or loss

HKFRS 18 classifies income and expenses into five categories: operating, investing, financing, income taxes and discontinued operations. It also introduces two new defined subtotals, operating profit or loss and profit or loss before financing and income taxes. This gives readers a common starting point for assessing core operations separately from investment and financing effects.

These categories are not simply copied from the cash flow classifications in HKAS 7. Under HKFRS 18, items that do not fall into investing, financing, income taxes or discontinued operations are generally classified as operating. A business that assumes its existing cash flow mapping can be reused without further analysis risks avoidable errors.

The judgement involved can be more complex for a bank, insurer, investment business or diversified group. HKFRS 18 sets out specific requirements for entities whose main business activity is providing financing to customers or investing in assets. In these cases, the location of investment income and related expenses may better reflect how the business earns its returns, although the conclusion needs to be supported and applied consistently.

For a Hong Kong subsidiary within an overseas group, this analysis also needs to align with the group’s accounting policy and consolidation timetable. For an organisation newly expanding into Hong Kong, it is worth embedding into the chart of accounts and reporting design before local reporting becomes routine.

Performance measures move closer to the audited accounts

Many management teams use measures such as “adjusted operating profit”, “underlying earnings” or “normalised EBITDA” in results announcements, investor presentations and other public communications. These measures can help explain a business, but they can also be difficult to compare when the calculation and the reason for using it are unclear.

Under HKFRS 18, a qualifying management-defined performance measure (MPM) is an income and expense subtotal that is not specified by HKFRS Accounting Standards and is used in public communications to convey management’s view of an aspect of financial performance. Qualifying MPMs are disclosed in a single note to the financial statements, along with an explanation of why each measure is useful, how it is calculated and a reconciliation to the most directly comparable subtotal or total required by HKFRS Accounting Standards.

The operational implication is broader than it may first appear. Investor relations, corporate communications, senior management and the audit team benefit from agreeing a controlled inventory of externally used measures: where they appear, how they are defined and who approves changes. A measure used in a press release can carry financial statement consequences.

Better grouping of information and more demand for good data

HKFRS 18 includes enhanced principles on aggregation and disaggregation. In practice, this means grouping items with shared characteristics, while splitting out information where combining it would obscure material detail. It also brings greater transparency to operating expenses.

The reporting impact varies by organisation. One company may need only modest changes to its financial statement templates. Another may find that existing systems collect expenses in broad cost centres that do not support the explanations now expected in the notes. Manual workarounds can help during a short transition, but they tend to be a weaker long-term answer for recurring audited reporting, and can increase the risk of inconsistent classifications, late adjustments and thin audit trails.

The relevant question, then, is not only what the new income statement will look like. It is also whether existing systems can produce the necessary data consistently, and whether the judgement behind it can be explained.

What HKFRS 19 offers

HKFRS 18 focuses on presentation and disclosure across financial statements generally. HKFRS 19 serves a different, narrower purpose. It gives eligible subsidiaries without public accountability the option to apply reduced disclosure requirements, while continuing to follow the recognition, measurement and presentation requirements of other HKFRS Accounting Standards.

The intention is to reduce reporting complexity for qualifying subsidiaries, while maintaining the quality and consistency of financial information. For multinational groups operating across multiple jurisdictions, HKFRS 19 may offer scope to simplify certain reporting processes and reduce duplication between statutory and group reporting.

Eligibility, however, needs careful assessment. Not every entity qualifies, and the potential benefits vary depending on group structure, existing reporting arrangements and stakeholder requirements. As with any reporting framework decision, it is worth weighing both compliance considerations and broader business objectives when evaluating whether HKFRS 19 is a good fit.

What this means for businesses in Hong Kong

HKFRS 18 and HKFRS 19 reflect a wider trend in corporate reporting, in which regulators and standard setters increasingly expect financial information that is transparent, consistent and decision-useful.

For businesses in Hong Kong, the transition is an opportunity to look beyond financial statement formats. It can prompt a broader review of reporting frameworks, governance structures, internal controls, performance metrics and stakeholder communications. Companies expanding into Hong Kong may find value in building these requirements into reporting processes from the outset, while established organisations may use the transition to assess whether existing systems and controls continue to support their reporting objectives.

In many cases, a smooth transition depends on collaboration across finance, operations, treasury, tax, investor relations and management teams. An early assessment can help identify where additional analysis, system changes or policy decisions are needed, supporting a steadier transition and clearer reporting outcomes.

Conclusion

HKFRS 18 reshapes how income and expenses are classified, grouped and explained in the statement of profit or loss, while HKFRS 19 offers eligible subsidiaries a way to simplify disclosures without changing how transactions are recognised or measured. Together, the two standards point towards financial reporting that is more structured, more comparable and more transparent about the judgements behind the numbers.

For Hong Kong entities, and for groups expanding into the region, the 2027 effective date is closer than it may seem once 2026 comparatives and system changes are taken into account. Reviewing chart of accounts structures, MPM inventories and subsidiary eligibility now leaves more room to adjust before the transition becomes mandatory. Given how much depends on group structure and existing systems, it is worthwhile to discuss the practical implications with a qualified accounting or audit adviser before the effective date arrives.