All companies registered in Hong Kong must ensure timely annual filing of statutory returns to the Companies Registrar, as per the provisions of the city’s Companies Ordinance (CO). This is in addition to the company’s profits tax returns which are filed to the Inland Revenue Department of the Government of the Special Administrative Region of Hong Kong.
These compulsory statutory filings include all company’s annual returns, and changes in the company’s registered office address, and/or particulars of the company directors and the company secretary.
If the above is not done, it may result in prosecution and fines for any person in a responsible position in the company, including the company directors and the company secretary. Notably, the fines are steep in Hong Kong, with the maximum penalty for every breach being HK$50,000. For continuing offending, a daily default fine of HK$1,000 is imposed.
What are the Accounting Standards in Hong Kong
In general, accounting standards in Hong Kong are known as Hong Kong Financial Reporting Standards (HKFRS). These HKFRS as prevalent now were adopted by the city in 2005 and had been modelled on the International Financial Reporting Standards, issued by the International Accounting Standards Board. These standards detail the measurement, presentation, recognition, and disclosure requirements of every transaction and event as it must be mentioned in a general-purpose financial statement of a Hong Kong-incorporated company.
Scope of Hong Kong Financial Reporting Standards
Notably, in Hong Kong, HKFRS includes not only the Financial Reporting Standards, but also the Hong Kong Accounting Standards (HKAS) and the Interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). Do note that the HKICPA is the accounting and auditing standard-setter, as well as in-charge of setting the professional ethical standards for accountants in Hong Kong.
According to HKICPA:
- * HKFRS apply to only profit-oriented entities’ general purpose financial statements and other financial reporting needs. As such, these standards doesn’t apply to the public sector or the government, or even to the non-profit activities of the private sector.
- * HKFRS is applicable to all general purpose financial statements catering to the wider common information needs of creditors, employees, shareholders, and other interested parties of the public. These general purpose financial statements provide detailed information about the company’s performance, cash flow situation and financial position, which can be used in making economic decisions by the stakeholders.
- * The HKFRS as of now consists of 15 financial reporting standards, 41 accounting standards, and several interpretations. And each of these is related to a specific topic. Some examples include specifying the minimum requirements of a financial statement and how to present it, and in which format; details of inventories; statement of cash flows; corporate tax paid; revenue generated from certain sales or transactions, etc.
- * HKFRS addresses the concepts and framework underlying the information presented in general purpose financial statements of a company, which are aimed at giving a true and fair view of the entity’s financial position at any given time.
- * HKFRS uses the accrual basis of accounting, which means a transaction’s effect is recognised when it occurs and is reported in the financial statement of the period it happens. This is useful as this method informs whomsoever reads the financial statements, of not only the past transactions but also of the future obligations that the company needs to settle.
- Read more about Accounting Standards in Hong Kong on this Hong Kong Company Registration blog.
