Will Hong Kong follow the IASB and change its simplified accounting standard for SMEs?

By Kannie Wu -
Assurance        

 
While the International Accounting Standards Board (IASB) was drafting its simplified accounting standards for small and medium-sized entities in August 2005, the Hong Kong Institute of Certified Public Accountants (HKICPA) released its home-grown Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard (SME FRF & FRS). On 15 February 2007, the IASB finally published the long awaited Exposure Draft of an International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). The HKICPA is now seeking views from commentators in Hong Kong regarding whether the proposed IFRS for SMEs, upon its finalisation, should be adopted in Hong Kong to replace our existing SME FRF & FRS. Any comments need to be with the HKICPA by 1 September 2007.

Both the HK SME FRF & FRS and the proposed IFRS for SMEs were developed with the main purpose of reducing the burden of the more complex financial reporting requirements on SMEs, while at the same time providing information useful to users. However, these two sets of standards have noteworthy differences. The salient ones are summarised as follows:

Under the proposed IFRS for SMEs, any entity that does not have public accountability and publishes general purpose financial statements for external users may adopt the proposed standard. The proposed standard does not have quantified size criteria. Each jurisdiction can have its own criteria. At present, companies incorporated in Hong Kong have to elect for the application of section 141D of the Hong Kong Companies Ordinance before they are qualified for preparing their financial statements under the HK FRF & FRS, whereas overseas entities have to meet the public accountability and size criteria under the HK FRF & FRS.

Section 141D of the Hong Kong Companies Ordinance has somewhat restrictive qualifying criteria. In March 2007, the HK SAR government issued a consultation paper on proposals to improve the accounting and auditing provisions of the Hong Kong Companies Ordinance. One of the key proposals is to relax the qualifying criteria to enable more private companies to take advantage of simplified reporting and disclosure requirements. Because of this proposed legislative amendment, Hong Kong incorporated companies currently not qualified to adopt the HK FRF & FRS may be eligible to do so in future.

Let us wait and see if there are any changes to the simplified financial reporting regime in Hong Kong and thelegislative financial reporting requirementsfor Hong Kong incorporated companies.  

kannie.wu@gthk.com.hk