Accounts, Financial Statements and Audit in Hong Kong -Company Formation_Trademark Registration_Tax Service - Hong Kong CPA

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Auditing - Hong Kong

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Accounts, Financial Statements and Audit in Hong Kong (3)

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(I) General Questions (continued)

Q：

Which financial reporting standards are applicable in preparing financial statements under Companies Ordinance?

A：

Pursuant to section 380(4)(b) of Companies Ordinance, a company’s directors must prepare financial statements for a financial year in compliance with applicable accounting standards.

Pursuant to section 357 of Companies Ordinance, accounting standards means statements of standard accounting practice issued or specified by the Hong Kong Institute of Certified Public Accountants ("HKICPA").

The applicable financial reporting standards issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") are as follow:

Hong Kong Financial Reporting Standards (“HKFRSs”);
Hong Kong Financial Reporting Standard for Private Entities (“HKFRS for PE”); and
Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard (“SME-FRF & SME-FRS").

Q：

What components should be included in the statutory annual report under Companies Ordinance?

A：

A complete set of statutory annual report should comprise under Companies Ordinance:

director’s report required under section 388 of Companies Ordinance;
an auditor’s report required under section 405 of Companies Ordinance; and
Financial statements required under section 379 of Companies Ordinance and in compliance with applicable accounting standards (as summarized below):

√ Required	HKFRSs	HKFRS for PE	SME-FRS
× Not allowed	HKFRSs	HKFRS for PE	SME-FRS
Statement of profit or loss	√	√	√
Statement of other comprehensive	√	√	×
Income Statement of financialposition	√	√	√
Changes in equity	Required to be presented either in a separate statement or notes to the financial statements
Statement of cash flows	√	√	Optional
Notes to the financial statements	√	√	√
Comparative information in respect of the preceding period	√	√	√

Q：

Is there any requirement to submit the audited financial statements to the HKSAR government or regulatory authority?

A：

Pursuant to Inland Revenue Ordinance, a company is required to file the profits tax return to Inland Revenue Department based on the figures in the audited financial statements for the year of assessment. If the company is not defined as a small corporation (e.g. gross income not exceeding HK$2,000,000), the audited financial statements are also required to be attached with the profits tax return submitted.

Pursuant to Companies Ordinance, the annual return of a company limited by guarantee (Part 3 of Schedule 6), public company (Part 3 of Schedule 6) or non-Hong Kong Company which is required by its place of incorporation to publish its accounts (section 789) are required to be filed together with the relevant audited financial statements to Companies Registry.

Besides, a company governed by a specific industry requirement maybe required to submit its audited financial statements to those regulatory authority. For example,

an authorized insurer regulated under section 20 of Insurance Ordinance is required to submit the audited financial statements to the Insurance Authority;
a company regulated under Securities and Futures Ordinance is required to submit the audited financial statements to the Securities and Futures Commission; and
a money lenders licensee regulated under Money Lenders Ordinance is required to apply annual renewal for the Money Lenders Licence and submit application together with the audited financial statements to Money Lenders Licensing Office.

Q：

Besides HKSAR government and regulated authority, what other parties may request for the audited financial statements?

A：

Below parties may request for the audited financial statements:

Members or shareholders of the company

According to section 435 of the Companies Ordinance provides that within 7 days after a demand is made by a member, a company must send to the member one copy of the latest audited financial statements.
Group auditor of parent company

The parent company’s auditor may request for the company’s audited financial statements for the group consolidation and audit purpose.
Investors or potential investors

The audited financial statements may give a true and fair view of the financial performance and position of the company for the financial year. Investors may rely on the audited financial statements to make their own investment decisions.
Banks or other financial institutions

When the company needs to borrow money or obtain favorable financing arrangement from banks or other financial institutions, banks or other financial institutions may request the audited financial statements in order to assess the company’s ability to repay the loan.

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