A directors’ report for a financial year must contain a business review that consists of a fair review of the company’s business; a description of the principal risks and uncertainties facing the company; particulars of important events affecting the company that have occurred since the end of the financial year; and an indication of likely future development in the company’s business.

To the extent necessary for an understanding of the development, performance or position of the company’s business, a business review must include an analysis using financial key performance indicators, a discussion on: (i) the company’s environmental policies and performance; and (ii) the company’s compliance with the relevant laws and regulations that have a significant impact on the company; and an account of the company’s key relationships with its employees, customers and suppliers and others that have a significant impact on the company and on which the company’s success depends.

The following companies are eligible for adopting SME-FRF & FRS:

• Small private company at any size, with 100% written approval from shareholders is required each year.
• Small private company passed size test that fullfill 2 criteria of 3 conditions: a: Total annual revenue less than $100m, b: Total assets less than $100m at the reporting date, c: less than 100 employees. If passed the test, then no shareholder approval is required.
• Companies limited by guarantee with no more than 25 million income a year.
• A group of small companies each limited by guarantee, each company in the group and in aggregation, not exceeds total annual revenue of HK$25 million
• Group of small private companies, each company in the group and in aggregation, passed the size test.
• Larger eligible private company does not exceed two of the 3 conditions: a) Total annual revenue of $200m b) Total assets of $200m at the reporting date and c) 100 employees.
• A company has to pass the size tests for two consecutive years in order to become eligible in the 3rd year, and vice versa. However, an exception to this two-year period for losing entitlement is where a new subsidiary enters the Group.

The following types of company are not eligible for the reporting exemption under the Companies Ordinance (Cap. 622) and so are not permitted to prepare their financial statements in accordance with SME-FRF:

• the entity carries on any banking business and holds a valid banking licence granted under the Banking Ordinance (Cap. 155);
• the entity accepts, by way of trade or business (other than banking business) loans of money at interest or repayable at a premium, other than on terms involving the issue of debentures or other securities;
• the entity is a corporation licensed under Part V of the Securities and Futures Ordinance (Cap. 571) to carry on a business in any regulated activity within the meaning of that Ordinance; or
• the entity carries on any insurance business, otherwise than solely as an agent

(For group companies, the holding company preparing consolidated financial statements with subsidiaries engaged in such business shall not apply SME-FRS)