With the Hong Kong business landscape being progressive and favorable, it’s no surprise that many businesses are flocking over there. The market is especially favorable to private entities, either foreign or local.
One thing you need to know before setting up a business in Hong Kong is how to handle accounting matters such as reporting your Hong Kong private company financial statements and more.
In this article, we will look at how the Hong Kong Financial Reporting Standard For Private Entities works.
Hong Kong Financial Reporting Standard For Private Entities
The Hong Kong Financial Reporting Standard For Private Entities came into effect in 2010. The main aim of the Hong Kong Financial Reporting Standard For Private Entities is to target private entities that have no public accountability.
Some of the accounting treatments that are allowed under the full Hong Kong Financial Reporting System are eliminated under the Hong Kong Financial Reporting Standard For Private Entities. It will also eliminate any topics or disclosure requirements that are irrelevant to private entities.
Overall, the Hong Kong Financial Reporting Standard For Private Entities will make it easier to measure and recognize the accounting standards of Hong Kong for private entities.
Hong Kong Financial Reporting Standard For Private Entities: Financial Reporting System
The Hong Kong Financial Reporting System (HKFRS), or as it is popularly known, the Hong Kong accounting standards, governs all financial transactions.
The HKFRS refers to the rules that determine how financial transactions are treated by establishing the basic principles, defining terms and establishing minimum disclosure levels. The HKFRS is the guiding principle behind true and fair financial statements in Hong Kong.
The HKFRS achieves this by establishing not only the guidelines for financial statements but interpreting any vagueness, prompting clarity in the accounting system of Hong Kong.
Hong Kong Financial Reporting Standard For Private Entities: Scope Of HKFRS
According to the Hong Kong Institute of Certified Public Accountants (HKICPA), the HKFRS is created to work for all financial reports and statements anywhere profit is concerned.
In keeping with this, non-profit organizations are not subject to the HKFRS, as they are not expected to generate any profits. As part of its operations, the HKFRS incorporate reporting standards, accounting standards and all other interpretations from the HKICPA.
In accordance with its mandate, it defines financial organizations as those engaged in financial, industrial, commercial and other related activities. All non-profit organizations, whether in the government, private or public sectors, are not subject to the HKFRS.
Hong Kong Financial Reporting Standard For Private Entities: Main Principle Of HKFRS
The main principle of the HKFRS is commonly known as the accrual accounting basis. The Accrual accounting basis is necessary for the Hong Kong accounting system. The only exception to the accrual accounting basis in Hong Kong is cash flow statements.
The accrual accounting basis leads to prompt detection of any transaction or event that may cause material accounting changes.
Thanks to this system, all generated financial statements can not only give details of past transactions but can also identify future transactions that may occur. It is most effective against transactions involving cash payments.
How We Can Help With Hong Kong Financial Reporting Standard For Private Entities
Private entities are on the rise in Hong Kong thanks to the favorable business landscape and conditions. There are multiple requirements that you are expected to meet and follow as a private entity, including financial reporting standards.
It is best to comply with the Hong Kong Financial Reporting Standard For Private Entities to avoid any legal issues. If you are having any problems comprehending these reporting standards or need help, you can reach out to us at SJH Global.
If you are going to incorporate and operate a company in Hong Kong, then you must comply with the accounting standards like the HKFRS. The system exists, and complying with it is the responsibility of every entrepreneur.
While it may be difficult to follow and, in some situations, may require outside help, you still have to comply with it. The good news is that you don’t have to worry too much, as SJH Global can help with the Hong Kong Financial Reporting Standard For Private Entities.
From consultancy to bookkeeping services, SJH Global has got you covered, freeing you to focus more on the success of the business. Thanks to an in-depth of the Hong Kong accounting standards and expert technicians, your financial reports are in the safest hands.
Hong Kong Financial Reporting Standard For Private Entities - Frequently Asked Questions
Hong Kong Financial Reporting Standards (HKFRS) is the set of accounting standards applied to private entities in Hong Kong. It is based on International Financial Reporting Standards (IFRS) and aims to ensure transparent and reliable financial reporting.
HKFRS covers areas like asset and liability recognition, measurement, presentation, and disclosure. Private entities in Hong Kong are required to comply with the Hong Kong Financial Reporting Standard For Private Entities.
All companies are liable to file returns annually in Hong Kong, but the filing times may vary depending on the type of company. For a private company, the filing date is 42 days after the incorporation date of the company annually.
In the case of limited guarantee companies, the filing date is 42 days after the company’s return date.
There are no companies that are exempt from filing annual returns in Hong Kong. All companies, regardless of type or earning, are required to file annually.
Failure to file attracts serious punishments, with the culprits not being limited to the company director with the secretary and other executives being liable.
Failing to file annual returns in Hong Kong is a grave offence and can attract severe punishments. Punishment for failing to file returns in Hong Kong is not limited to the company director or founder alone, with all top officials being liable.
From the director to the secretary can be fined or prosecuted, with the fine for a single breach being 50,000 HKD. Consequently, there is a daily fine of 1,000 HKD daily subsequently.
There are two different standards for financial reporting that are applicable to small and medium companies in Hong Kong.
The SME-FRF is mainly for those SMEs that are generally lacking resources. The content requirements for the financial statements and the director’s reports are what determine which standard applies to an SME.
There are 56 different accounting standards under the HKFRS, with 41 of them being accounting standards and 15 being reporting standards.
The different financial standards usually apply to different types of companies or financial conditions of companies. It isn’t possible for one company to qualify for every possible accounting standard in Hong Kong.
Hong Kong primarily uses International Financial Reporting Standards (IFRS) for financial reporting.
While some elements of US Generally Accepted Accounting Principles (GAAP) may be applicable in certain situations, the overall framework for financial reporting in Hong Kong is aligned with IFRS.
The Hong Kong Financial Reporting Standards (HKFRS) are based on IFRS and are the main set of accounting standards followed by private entities in Hong Kong.
Yes, Hong Kong companies can use International Financial Reporting Standards (IFRS). In fact, IFRS is the primary accounting standard used in Hong Kong for financial reporting.
The Hong Kong Financial Reporting Standards (HKFRS) are based on IFRS and are applicable to both private and public entities.
Using IFRS allows Hong Kong companies to ensure transparency, comparability, and consistency in their financial reporting, enabling better communication and understanding of their financial performance among stakeholders locally and internationally.
HKFRS (Hong Kong Financial Reporting Standards) is essentially based on IFRS (International Financial Reporting Standards), with some local modifications and interpretations.
The main difference lies in the specific disclosure requirements and interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) for adoption in Hong Kong.
While the core principles and concepts are aligned, HKFRS may include additional modifications to address specific local Legal requirements. Generally, HKFRS aims to ensure financial reporting consistency within Hong Kong and compatibility with IFRS standards.