HKFRS for Private Entities - Nelson CPA Limited

1 1 HKFRS for Private Entities16 March 2011 Small vs. Large 2010-11 Nelson Consulting Limited1 Nelson LamNelson Lam MBA MSc BBA ACA ACIS CFA CPA(Aust.) CPA(US) CTA FCCA FCPA FTIHK MSCAI ntroductionToday s AgendaHighlight of critical requirements of HKFRS for Private Entities andcompared them with HKFRSsTransition to HKFRS for Private Entities 2010-11 Nelson Consulting Limited2 Highlight of Differences between HKFRS for Private Entities and SME-FRS2 IntroductionToday s Agenda 2010-11 Nelson Consulting Limited3 Introduction In July 2009, the IASB issued the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). () HKICPA considers that IFRS for SMEs should be adopted in Hong Kong as a reporting option for eligible Private Entities .

2 2010-11 Nelson Consulting Limited4 Then, in April 2010, HKFRS for Private Entitiesis issued with certain amendmentsto suit Hong Kong s circumstances3 Introduction Compared with IFRS for SMEs, HKFRS for Private Entities has the following differences:aReplacing the term SMEs in IFRS for SMEs the term SMEs in IFRS for SMEs by Private Entities ;b. Replacing the recognition and measurement principles in section 29 Income Tax of the IFRS for SMEs with the extant version of HKAS 12 Income Taxes; andc. The measurement of deferred tax liabilities associated with an investment propertymeasured 2010-11 Nelson Consulting Limited5associated with an investment propertymeasured at fair value is capped at the amount of tax that would be payable on its sale to an unrelated market participant at fair value at the end of the reporting period.

3 ( )Introduction HKFRS for Private Entities is a financial reporting option ( ) That impliesThat implies All HK incorporated Entities can still choose to use full HKFRSs An entity qualified under both SME-FRS and HKFRS for Private Entities can still choose SME-FRS HKFRS for Private Entities contains Preface 35 individual sectionsEffecti e UponEffecti e Upon 2010-11 Nelson Consulting Limited6 35 individual sections A set of glossary A derivation table A basis of conclusions A set of illustrative financial statements and presentation and disclosure checklistEffective Upon Effective Upon IssueIssue4 Today s AgendaHighlight of critical requirements of HKFRS for Private Entities andcompared them with HKFRSs 2010-11 Nelson Consulting Limited7 Summary of HKFRS for PE1 Private Entities2 Concepts and Pervasive Principles3 Fii l

4 St tt Pt ti No HKAS 1 HKAS 135 sections in HKFRS for PEEquivalent HKFRS3 Financial Statement Presentation4 Statement of Financial Position5 Statement of Comprehensive Income & Income Statement6 Statement of Changes in Equity and Statement of Income and Retained Earnings7 Statement of Cash Flows8 Notes to the Financial Statements9 Consolidated and Separate Financial Statements10 Accounting Policies Estimates and Errors HKAS 1 HKAS 1 HKAS 1 HKAS 1 HKAS 7 HKAS 1 HKAS 27 HKAS 8 2010-11 Nelson Consulting Limited810 Accounting Policies, Estimates and Errors11 Basic Financial Instruments12 Other Financial Instruments Issues13 Inventories14 Investments in Associates15 Investments in Joint Ventures16 Investment Property17 Property, Plant and Equipment HKAS 8 ) HKAS 32 & 39 )

5 HKFRS 7 & 9 HKAS 2 HKAS 28 HKAS 31 HKAS 40 HKAS 165 Summary of HKFRS for PE18 Intangible Assets Other Than Goodwill19 Business Combinations and Goodwill20L HKAS 38 HKFRS 3 HKAS 1735 sections in HKFRS for PEEquivalent HKFRS20 Leases21 Provisions and Contingencies22 Liabilities and Equity23 Revenue24 Government Grants25 Borrowing Costs26 Share-Based Payment27 Impairment of Assets28 Employee Benefits HKAS 17 HKAS 37 HKAS 32 & etc HKAS 18 HKAS 20 HKAS 23 HKFRS 2 HKAS 36 HKAS 19 2010-11 Nelson Consulting Limited928 Employee Benefits29 Income Tax30 Foreign Currency Translation31 Hyperinflation32 Events after the End of the Reporting Period33 Related Party Disclosures34 Specialised Activities35 Transition to the HKFRS for Private Entities HKAS 19 HKAS 12 HKAS 21 HKAS 29 HKAS 10 HKAS 24 Various HKFRS 1 Section 1: Private Entities Private Entities are Entities that:a.

6 Do not have public accountability, andbpublishgeneral purpose financialPublic general purpose financial statementsfor external users. (PE )External UsersAn entity has public accountabilityif:a. its debt or equity instruments are traded in a public marketor it is in the process of issuingsuch instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter 2010-11 Nelson Consulting Limited10market, including local and regional markets), orb. it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment 1: Private EntitiesPublic Accountability HKFRS for PE Does not have size test Does not require shareholders approvalExternal Users Does not require shareholders approval Does not restrict HK incorporated Entities to those selected Section 141D of the Companies Ordinance In consequence, the following Entities meeting the definition of Private entity may still elect to use HKFRS for PE:1.

7 A HK incorporate entity cannot obtain the 2010-11 Nelson Consulting Limited11pyshareholders approval to adopt section 141D2. A HK incorporated parent3. A listed entity s subsidiary4. An entity Limited by guaranteeSection 2: Concepts & Pervasive Principles Objective of financial statements of Private Entities Qualitative characteristics of information in financial statementsUnderstandability Understandability Relevance Materiality Reliability Substance over form Prudence CompletenessSimilar to Similar to full HKFRS full HKFRS 2010-11 Nelson Consulting Limited12 Completeness Comparability Timeliness Balance between benefit and cost7 Section 2: Concepts & Pervasive Principles Financial position statement of financial position(balance sheet) assets, liabilities and equity Performance statement of comprehensive income(and income Performance statement of comprehensive income(and income statement) income and expenses Recognition of assets, liabilities, income and expenses probable and reliable measure criteria Measurement of assets, liabilities, income and expenses Only 2 common measurement bases are listed, 2010-11 Nelson Consulting Limited13y historical cost and fair valueSection 2.)

8 Concepts & Pervasive Principles Pervasive recognition and measurement principles Based on pervasive principles that are derived from the HKFRS Framework and from full HKFRSs(PE 2 35)Framework and from full HKFRSs (PE ) Accrual basis Recognition in financial statements Measurement at initial recognition Subsequent measurement Offsetting An entity shall not offset assets and liabilities, or income and 2010-11 Nelson Consulting Limited14yexpenses, unless required or permitted by HKFRS for PE (PE )8 Section 3: Financial Statement Presentation True and fair view Make an explicit and unreserved statement of compliance to HKFRS for PE in the notesPE in the notes Comply all the requirements of HKFRS for PE(PE ) Going concern Frequency of reporting Consistency of presentation Comparative information Materiality and aggregation 2010-11 Nelson Consulting Limited15ygggSection 3.

9 Financial Statement Presentation Complete set of financial statement of financial positionas at the reporting datebAsingle statement of comprehensive single statement of comprehensive income(or a separate income statement and a separate statement of comprehensive income) for the reporting statement of changes in equityfor the reporting statement of cash flowsfor the reporting , comprising a summary of significant accounting policies and other explanatory information(PE ) 2010-11 Nelson Consulting Limited16 HKAS 1 requires but HKFRS for PE does not require a statement of financial position as at the beginning of the earliest comparative period( 3rd year s balance sheet)a. when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or b.

10 When it reclassifies items in its financial 3: Financial Statement Presentation If the only changes to equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period ,p y,pperrors, and changes in accounting policy ( no items on other comprehensive income), the entity may present a single statement of income and retained earningsin place of the statement of comprehensive income and statement of changes in equity.(PE ) An entity may use titlesfor the financial statements other ththd i HKFRS fPElth tNo such No such alternative in alternative in full HKFRS full HKFRS 2010-11 Nelson Consulting Limited17than those used in HKFRS for PEas long as they are not misleading.