Preface to HKFRS Accounting Standards

Introduction

The Preface to HKFRS Accounting Standards is issued by the Council of the Hong Kong Institute of Certified Public Accountants (HKICPA) to establish the objectives, due process, scope, authority, and timing of application of HKFRS Accounting Standards.

Key Definitions

HKFRS Accounting Standards includes:

Hong Kong Financial Reporting Standards (HKFRS)

Hong Kong Accounting Standards (HKAS)

HK (IFRIC) Interpretations

HK Interpretations

HK (SIC) Interpretations

(Collectively referred to as "Interpretations")

Note: HKFRS Accounting Standards were previously known as Hong Kong Financial Reporting Standards, HKFRS, HKFRSs, and HKFRS Standards.

Legal Basis

Pursuant to section 18A of the Professional Accountants Ordinance (Chapter 50), Council may, in relation to the practice of accountancy, issue or specify any standards of accounting practices required to be observed, maintained, or otherwise applied by members of the HKICPA.

Standard-Setting Bodies

Body	Role
Council	Approves HKFRS Accounting Standards and related documents (Conceptual Framework, exposure drafts, discussion documents)
Financial Reporting Standards Committee (FRSC)	Develops financial reporting standards to achieve convergence with IFRS Accounting Standards; develops SME-FRF & SME-FRS; provides timely guidance on newly identified issues

FRSC Responsibilities:

Develop financial reporting standards for convergence with IFRS

Develop SME-FRF & SME-FRS

Form advisory sub-committees or specialist advisory groups

Provide timely guidance on newly identified financial reporting issues

Review and advise on HKICPA's overall strategy, policies, and processes for financial reporting standards

Give advice on priorities and major standard-setting projects

Objectives of Council (Paragraph 5)

In 2001, Council adopted the policy of achieving convergence of HKFRS Accounting Standards with IFRS Accounting Standards.

Council's Objectives:

(a) Develop, in the public interest, a single set of high quality, understandable, and enforceable financial reporting standards requiring high quality, transparent, and comparable information

(b) Promote the use and rigorous application of those standards

(c) Promote and support compliance with those standards by HKICPA members (as preparers or auditors)

(d) Maintain convergence of financial reporting standards with IFRS Accounting Standards

Scope and Authority of HKFRS Accounting Standards (Paragraphs 6-18)

How Council Achieves Objectives

Council achieves objectives by:

Developing and publishing HKFRS Accounting Standards

Promoting their use in general purpose financial statements and other financial reporting

Other financial reporting comprises information provided outside financial statements that assists in interpretation of a complete set of financial statements or improves users' ability to make efficient economic decisions.

Content of HKFRS Accounting Standards

HKFRS Accounting Standards set out:

Recognition requirements

Measurement requirements

Presentation requirements

Disclosure requirements

These deal with transactions and events important in general purpose financial statements, including those arising mainly in specific industries.

Conceptual Framework

HKFRS Accounting Standards are based on the Conceptual Framework, which addresses the concepts underlying information presented in general purpose financial statements. The objective is to facilitate consistent and logical formulation of HKFRS Accounting Standards and provide a basis for judgment in resolving accounting issues.

Applicable Entities

Category	Details
Primary	All profit-oriented entities (commercial, industrial, financial, similar activities)
Organizational forms	Corporate or other forms (mutual insurance companies, mutual cooperative entities)
Not-for-profit	Not designed for not-for-profit activities, but entities may find them appropriate

Complete Set of Financial Statements

A complete set includes:

Statement of financial position

Statement of comprehensive income

Statement of changes in equity

Statement of cash flows

Accounting policies and explanatory notes

Note: When a separate statement of profit or loss is presented in accordance with HKAS 1, it is part of the complete set.

Interim Financial Statements

HKAS 34 Interim Financial Reporting prescribes the minimum content of complete or condensed financial statements for an interim period.

Entities may provide less information in interim financial statements than in annual financial statements for timeliness and cost considerations.

Accounting Treatment Choices

The objective of setting HKFRS Accounting Standards is to require like transactions and events to be accounted for and reported in a like way and unlike transactions and events to be accounted for and reported differently, both within an entity over time and among entities.

Transactions and events for which HKFRS Accounting Standards permit a choice of accounting treatment will be reconsidered with the objective of reducing the number of those choices.

Authority of Paragraphs

Statements approved by Council include paragraphs in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.

Interpretations

Purpose: Give authoritative guidance on:

Newly identified financial reporting issues not specifically addressed in HKFRS Accounting Standards

Issues where unsatisfactory or conflicting interpretations have developed or seem likely to develop

Application Requirements:

Entities shall apply Interpretations if their financial statements are described as being prepared in accordance with HKFRS Accounting Standards (HKAS 1, paragraph 16)

Interpretations apply to current and future reporting periods from the date of issue or other specified effective date

Transitional provisions are specified in the Interpretation

Withdrawal: An Interpretation becomes inoperative and is withdrawn when a HKFRS Accounting Standard or other authoritative document overrides or confirms a previously issued interpretation.

Compliance Statement Requirement

HKAS 1 includes the following requirement:

"An entity whose financial statements comply with HKFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with HKFRSs unless they comply with all the requirements of HKFRSs."

Obligation for Members to Observe HKFRS Accounting Standards or Justify Departures (Paragraphs 19-22)

General Obligation

Council expects HKICPA members who assume responsibilities in respect of financial statements to observe HKFRS Accounting Standards.

Directors and Other Officers

Where responsibility is evidenced by association of members' names with financial statements in the capacity of directors or other officers, the onus will be on them to ensure that the existence and purpose of HKFRS Accounting Standards are fully understood by non-member fellow directors and other officers.

Departure Requirements (HKAS 1, Paragraphs 19-20)

When Departure is Permitted:

In the extremely rare circumstances in which management concludes that compliance with a requirement in a HKFRS would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, the entity shall depart from that requirement in the manner set out in paragraph 20 if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

Disclosure Requirements for Departure:

When an entity departs from a requirement:

(a) Management has concluded that financial statements present fairly the entity's financial position, financial performance, and cash flows

(b) It has complied with applicable HKFRSs, except for the departure to achieve a true and fair view

(c) The title of the HKFRS from which departed, nature of departure, treatment HKFRS would require, reason why treatment would be misleading, and treatment adopted

(d) For each period presented, the financial effect of the departure on each item

Auditors and Reporting Accountants

Members who act as auditors or reporting accountants should be in a position to justify departures, to the extent that their concurrence with the departures is stated or implied. They are not required to refer in their report to departures with which they concur, provided adequate disclosure has been made in the notes.

Compliance with a Basis or Standard of Accounting Other Than HKFRS Accounting Standards (Paragraphs 23-25)

Companies Ordinance Requirements

Companies incorporated in Hong Kong are required by Part 9 of the Companies Ordinance (Cap. 622) to prepare annual financial statements which comply with section 380 requirements.

Section 380(4)(b): Financial statements must comply with "the accounting standards applicable to the financial statements," being accounting standards issued or specified by the HKICPA.

Implications for Hong Kong Companies

A company incorporated in Hong Kong which is:

Not eligible for the reporting exemption, OR

Does not take advantage of the reporting exemption

Will be in breach of section 380(4)(b) unless the statutory financial statements contain an explicit and unreserved statement of compliance with HKFRS Accounting Standards as issued by the HKICPA.

First-time Adoption

If a company has not previously included an explicit and unreserved statement of compliance with HKFRS Accounting Standards, it must comply with:

HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards, OR

Section 35 of the HKFRS for Private Entities Accounting Standard (if opting to adopt that Standard)

Dual Compliance

A statement of compliance with a basis or standard of accounting other than HKFRS Accounting Standards may be included in addition to the HKFRS compliance statement, provided the financial statements satisfy the requirements of both accounting frameworks.

Example: An existing IFRS Accounting Standard reporter wishing to assert dual compliance with HKFRS Accounting Standards and IFRS Accounting Standards must ensure no material changes to accounting policies or reported amounts were made as a result of applying HKFRS 1 on transition.

Members Using Other Accounting Standards

Where a member assumes responsibilities in respect of financial statements prepared under a basis or standard of accounting other than HKFRS Accounting Standards, the member should observe that other basis or standard of accounting.

Paragraphs 21-22 apply similarly to members using other accounting standards.

Coordination with International Due Process (Paragraph 26)

Council has aligned the HKICPA's due process with the IASB's due process as closely as possible, including timing of issuing:

Consultation documents

Standards

Interpretations

Key Documents:

Information Paper: Setting HKFRS Accounting Standards (published June 2006, revised February 2025) - outlines steps Council plans in supporting IFRS development and HKFRS implementation

Statement of Best Practice: Working Relationships between the IASB and other Accounting Standard Setters (issued by IASB February 2006) - identifies activities for IASB and standard-setters to facilitate ongoing convergence

Due Process of HKFRS Accounting Standards (Paragraphs 27-29)

Participants in Due Process

HKFRS Accounting Standards are developed through a due process involving:

Members of HKICPA

Assurance practitioners

Listed companies in Hong Kong

The stock exchange

Regulatory and legal authorities

Academics

Other interested individuals and organizations

Due Process Steps

The FRSC conducts the following steps (except where noted):

Step	Description
(a)	Identify and review all issues associated with IASB exposure drafts or draft interpretations for possible adoption in Hong Kong; consider Conceptual Framework application
(b)	Study pronouncements of IASB and other standard-setting bodies and accepted industry practices
(c)	Form an advisory group to give advice on the project
(d)	Publish for public comment a consultation document or draft interpretation; issue invitation to comment on IASB documents with request for comment before IASB deadline
(e)	Publish a basis for conclusions within an exposure draft
(f)	Consider all comments received within the comment period; prepare comment letter to IASB when appropriate
(g)	Following publication of finalized IFRS Accounting Standard or IFRIC Interpretation, consider changes made by IASB and adopt with same effective date
(h)	Approve standard or Interpretation (including converged version) by Council
(i)	Publish a basis for conclusions within a standard; for converged standards, publish IASB Basis for Conclusions with explanation of extent of Council's agreement

Hong Kong-Specific Issues

On occasion, the FRSC may consult and raise issues specific to Hong Kong proactively with the IASB.

Timing of Application of HKFRS Accounting Standards (Paragraphs 30-32)

Effective Date

HKFRS Accounting Standards apply from a date specified in the document. New or revised HKFRS Accounting Standards set out transitional provisions to be applied on their initial application.

No General Exemption Policy

Council has no general policy of exempting transactions occurring before a specific date from the requirements of new HKFRS Accounting Standards.

Contractual Implications:

When financial statements are used to monitor compliance with contracts and agreements, a new HKFRS Accounting Standard may have consequences not foreseen when the contract was finalized (e.g., covenants in banking and loan agreements).

Council believes the fact that financial reporting requirements evolve and change over time is well understood and would be known to the parties when they entered into the agreement. It is up to the parties to determine whether the agreement should be insulated from the effects of a future HKFRS Accounting Standard.

Exposure Drafts

Exposure drafts are issued for comment and their proposals are subject to revision. Until the effective date of a HKFRS Accounting Standard, the requirements of any HKFRS Accounting Standard that would be affected by proposals in an exposure draft remain in force.

Relationship with IFRS Accounting Standards (Paragraph 33)

Convergence Policy

Although Council has a policy to achieve convergence of HKFRS Accounting Standards with IFRS Accounting Standards, Council may consider it appropriate to include additional disclosure requirements in a HKFRS Accounting Standard or, in some exceptional cases, to deviate from an IFRS Accounting Standard.

Compliance Information

Each HKFRS Accounting Standard contains information about the extent of compliance with the equivalent IFRS Accounting Standard.

Priority Rule

Where the requirements of a HKFRS Accounting Standard and an IFRS Accounting Standard differ, the HKFRS Accounting Standard should be followed by entities reporting within the area of application of the HKFRS Accounting Standards.

Scope and Application of Accounting Guidelines (Paragraphs 34-35)

Nature

Accounting Guidelines are those guidelines that have been approved for issue by Council.

Authority

Accounting Guidelines have effect as guidance statements and indicators of best practice. They are persuasive in intent.

Comparison with HKFRS Accounting Standards

Aspect	HKFRS Accounting Standards	Accounting Guidelines
Mandatory	Yes	No
Nature	Required standards	Guidance statements
Intent	Mandatory	Persuasive

Application

Unlike HKFRS Accounting Standards, Accounting Guidelines are not mandatory on members of the HKICPA but are consistent with the purpose of HKFRS Accounting Standards in that they help define accounting practice in the particular area or sector to which they refer.

Expectation: They should normally be followed, and members should be prepared to explain departures if called upon to do so.

Scope and Application of Accounting Bulletins (Paragraph 36)

Nature

Accounting Bulletins are informative publications issued by the FRSC on subjects of topical interest and are intended to assist members of the HKICPA or to stimulate debate on important accounting issues.

Authority

Do not require approval of Council

Do not have the same authority as HKFRS Accounting Standards or Accounting Guidelines

Due Process of the SME-FRF & SME-FRS (Paragraphs 37-39)

Background

The SME-FRF & SME-FRS is a local standard developed by Council in 2005.

Applicability

These are the accounting standards to be followed in accordance with section 380(4)(b) of the Companies Ordinance by Hong Kong incorporated companies which are:

Entitled to, AND

Decide to take advantage of the reporting exemption as set out in section 359 of the CO

Due Process Steps for SME-FRF & SME-FRS

The due process is based on the due process for HKFRS Accounting Standards and may involve:

Step	Description
(a)	Identify and review pertinent issues associated with any topic under SME-FRS; consider application of SME-FRF
(b)	Study accepted industry practices
(c)	Consult relevant advisory group(s) of FRSC, FRSC, and other relevant HKICPA committee(s)
(d)	Publish for public comment a consultation document; issue invitation to comment
(e)	Consider all comments received within the comment period
(f)	Approve amendments to SME-FRF & SME-FRS by the FRSC

Post-Implementation Review

A post-implementation review of the SME-FRF & SME-FRS takes place every five years, unless significant issues arise earlier, to provide a stable platform for small and medium-sized entities and allow sufficient time for preparers and practitioners to gain experience.

Note: A review does not formally commit the FRSC to undertake a project to revise the SME-FRF & SME-FRS.

Post-Implementation Review (PIR) Policies (Paragraphs 40-43)

For Internationally Converged Accounting Standards

The HKICPA participates in the IASB's PIRs on projects identified as high-priority by the FRSC. It is not necessary for the HKICPA to perform additional PIRs out-of-sync with the IASB's work plan given the latter's robust PIR due process.

For SME-FRF & SME-FRS

PIR performed every five years (see paragraph 39).

For HK Interpretations and Accounting Guidelines

The HKICPA updates the FRSC annually on any related IASB developments and on the recommendation from the Investment Circular Reporting Panel (under the Auditing and Assurance Standards Committee) on whether any amendments are required.

For Accounting Bulletins

PIRs are not applicable because Accounting Bulletins are informative publications on subjects of topical interest and do not have the same authority as the other pronouncements.

Appendix 1: Information Paper - Setting HKFRS Accounting Standards

Introduction

HKFRS Accounting Standards fully converged with IFRS Accounting Standards effective 1 January 2005

Convergence decision made by Council in 2001 after broad discussion

More than 140 countries have converged with IFRS Accounting Standards as of early 2022

Council also developed SME-FRF & SME-FRS for smaller companies

Council's Future Role

Council views its future standard-setting role as:

Being a trusted and effective conduit between Hong Kong reporting community and IASB

Working with stakeholders to identify issues and transmit them to IASB

Seeking ways to improve understanding and application of HKFRS Accounting Standards

Part I: Structure and Processes

Standard-Setting Structure:

Council is the statutory financial reporting standard setter under section 18A of the Professional Accountants Ordinance

FRSC develops financial reporting standards

FRSC's terms of reference available at Institute's website

FRSC meets regularly and publishes meeting summaries

Membership of FRSC:

Council follows Institute-wide self-nomination process

Seeks balance between preparers, auditors, users, and broader reporting community

Membership broadened to include representatives of stakeholders affected by financial statements

Due Process Details:

Local comment periods on IASB and IFRS IC consultation documents are shorter than IASB periods

Exposure drafts usually issued as Invitations to Comment within days of IASB issuance

Standards generally considered within two FRSC meetings after IASB issuance

Convergence policy requires same effective date as equivalent IFRS Accounting Standard

Part II: Supporting Implementation

Key Activities:

Maintain convergence through product and process

Ensure Hong Kong issues are addressed by IASB

Participate in international processes at multiple levels

Product Convergence:

"All or nothing" concept

Only changes possible while maintaining convergence: mandating additional disclosures or removing options

Changes to recognition or measurement usually result in failure of convergence

Reasons for Convergence:

Responding to global business environment

Reducing entities' costs of capital

Reducing financial analysis costs

Reducing financial reporting costs for multi-jurisdiction companies

Improving quality of global financial reporting

Reducing cost of setting standards

Process Convergence:

Aligning timing of issuing exposure drafts, consultative documents, standards, and interpretations

Benefits: stakeholders can comment while proposals under consideration; ensures product convergence

Encouraging Stakeholder Participation:

Council plans to:

Assist stakeholders in following international debates

Provide summaries of key points of exposure drafts

Present seminars analyzing proposals

Hold meetings or roundtables

Establish advisory groups

Discuss proposals with key industry groups

Influencing International Activities:

Key stages for participation:

Setting the agenda (every 5 years)

Development and publication of discussion paper

Development and publication of exposure draft

Development and publication of standard

Procedures after standard is issued (including post-implementation review)

Ways Hong Kong Can Participate:

Send FRSC chairman to international meetings

Nominate individuals to IASB bodies

Provide comments on consultative documents

Bring issues to IASB or IFRS IC attention

Support development of regional bodies

Conduct in-depth monitoring of IASB and IFRS IC work programmes

Invite IASB members to Hong Kong

Appendix 2: Statement of Best Practice - Working Relationships between the IASB and other Accounting Standard-Setters

Background

This Statement records understanding between IASB and other accounting standard-setters, particularly relevant to standard-setters in jurisdictions that have adopted or converged with IFRSs.

Ultimate Aims:

Develop a single set of high quality, understandable, and enforceable global accounting standards

Promote use and rigorous application of those standards

Take account of special needs of SMEs and emerging economies

Bring about convergence of national accounting standards and IFRSs

Communication

Constituent Feedback:

Standard-setters should encourage constituents to comment on IASB consultative documents

Use forums for gathering views

Assist IASB in identifying constituents for round-table discussions

Make own submissions to IASB rather than merely synthesizing constituent views

Communication Among Standard-Setters:

Communicate with one another on issues of common interest

Formulate joint proposals for IASB or IFRIC consideration

Timing:

IASB should allow sufficient time for standard-setters to prepare material, expose documents, receive comments, and formulate views

Standard-setters may need to streamline processes

Project Role

Research Projects:

IASB identifies topics requiring research

Selects lead researcher

Project team comprises standard-setters with range of experience

Discussion Paper published under IASB logo

Active Projects:

IASB welcomes staff assistance from other standard-setters

Staff work under direction of IASB directors as independent team members

Working Groups:

Established for some projects

Source of expert advice

Standard-setters can assist in nominations

Application of Standards

Key Principles:

Standard-setters should aim to achieve full adoption of IFRSs

Should not change requirements contained in IFRSs

If changes are made (e.g., adding disclosures, removing options), this should be made clear

Ultimate objective should be to enable unreserved statement of compliance with IFRSs

Interpretation

Standard-setters should be familiar with IFRS implementation in their jurisdictions

If interpretation needed, request IFRIC to address the issue

Standard-setters facing common issues should work together

If issuing own interpretations, avoid incompatibility with IFRSs

Working with Regulators

Standard-setters can help identify and promote removal of regulatory barriers

Keep domestic regulators informed of IASB initiatives

Encourage regulators to embrace international convergence efforts

Education

Make IASC Foundation aware of educational needs

Provide material helpful in creating educational materials

May develop own educational material for local needs

Key Takeaways Summary Table

Topic	Key Points
Legal Basis	Section 18A, Professional Accountants Ordinance (Cap. 50)
Standard-Setting Bodies	Council (approval), FRSC (development)
Convergence Policy	Adopted 2001; full convergence effective 1 January 2005
Council's Objectives	Develop high quality standards; promote use; support compliance; maintain convergence
Scope	All profit-oriented entities; general purpose financial statements
Complete Financial Statements	Statement of financial position, comprehensive income, changes in equity, cash flows, notes
Compliance Statement	Explicit and unreserved statement required (HKAS 1)
Departure from Standards	Only in extremely rare circumstances; extensive disclosure required
Companies Ordinance	Section 380(4)(b) requires compliance with HKICPA-issued standards
Due Process	Involves HKICPA members, practitioners, listed companies, regulators, academics
Effective Date	Specified in each standard; no general exemption policy
IFRS Relationship	Convergence policy; may add disclosures or deviate in exceptional cases
Accounting Guidelines	Persuasive, not mandatory
Accounting Bulletins	Informative, no Council approval required
SME-FRF & SME-FRS	For companies taking reporting exemption under CO section 359
PIR Policy	Participate in IASB PIRs; SME-FRF & SME-FRS every 5 years