Small and Medium-sized Entity Financial Reporting ...

1 Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard SME-FRF & SME-FRS Revised December 2021 September 2022 The SME-FRF & SME-FRS has been updated to reflect the amendments of the Companies (Amendment) (No. 2) Ordinance 2018. Please refer to paragraph 54 of the SME-FRF for the effective date of the amendments. Earlier application is not permitted. Small AND Medium-sized Entity Financial Reporting FRAMEWORK AND Financial Reporting STANDARD Copyright i SME-FRF & SME-FRS (September 2022) Contents from paragraph Small AND Medium-sized Entity Financial Reporting FRAMEWORK Scope 1 Users 4 Objective 5 Underlying Assumptions 6 Qualitative Characteristics 7 Elements 10 Recognition 15 Measurement 17 The new CO Reporting exemption 19 Qualifying Entities 22 Types of companies 24 Size Tests 28 Shareholder Approval 41 Transitioning from a different GAAP to SME-FRF and SME-FRS 44 Realized Profits and Realized Losses 46 Effective Date 53 Small AND Medium-sized Entity Financial Reporting STANDARD Definitions Section 1 Presentation of Financial Statements

2 Section 2 Accounting Policies, Changes in Accounting Estimates and Errors Section 3 Property, Plant and Equipment Section 4 Intangible Assets (other than goodwill) Section 5 Leases Section 6 Investments Section 7 Inventories Section 8 Construction Contracts Section 9 Impairment of Assets Section 10 Provisions, Contingent Liabilities and Contingent Assets Section 11 Revenue Section 12 Government Grants and Other Government Assistance Section 13 Borrowing Costs Section 14 Income Taxes Section 15 The Effects of Changes in Foreign Exchange Rates Section 16 Related Party Disclosures Small AND Medium-sized Entity Financial Reporting FRAMEWORK AND Financial Reporting STANDARD Copyright ii SME-FRF & SME-FRS (September 2022)

3 Section 17 Events After the End of the Reporting Period Section 18 Business Combinations and Goodwill Section 19 Consolidated and Company-level Financial Statements Section 20 Investments in Associates Section 21 Interests in Joint Ventures and Other Forms of Joint Arrangements Section 22 Cash Flow Statement (optional) Appendix 1 Examples of Application: Part A Recognition of provisions Part B Revenue recognition Part C Impairment allocation Part D New CO non-exempted disclosure requirements Appendix 2 Illustrative Company-Level Financial Statements Prepared in Accordance with the SME-FRS Appendix 3 Illustrative Consolidated Financial Statements Prepared in Accordance with the SME-FRS Small AND Medium-sized Entity Financial Reporting FRAMEWORK AND Financial Reporting STANDARD Copyright iii SME-FRF & SME-FRS (September 2022) The Small and Medium-sized Entity Financial Reporting Framework (SME-FRF)

4 And Financial Reporting Standard (SME-FRS) are standards of accounting practices issued by the Council of the hong kong Institute of Certified Public Accountants pursuant to section 18A of the Professional Accountants Ordinance and the Company (Accounting Standards (Prescribed Body)) Regulation issued under sections 357 and 380 of the new Companies Ordinance (Cap. 622) ( new CO ). The new CO came into effect on 3 March 2014. This version of the SME-FRF and SME-FRS takes into account all relevant subsequent amendments to the new CO, up to and including the Companies (Amendment) (No. 2) Ordinance 2018 which comes into effect on 1 February 2019 ("the 2018 Amendment Ordinance").

5 SME-FRF and SME-FRS should be read in the context of the Preface to hong kong Financial Reporting Standards. SME-FRS should also be read in the context of the SME-FRF. Where the SME-FRF and SME-FRS make reference to requirements in the new CO, this is for information purposes only and should not be relied upon to be a complete account of all the requirements of the new CO which may be relevant to a particular Entity s circumstances. Nothing in the SME-FRF or SME-FRS should be taken as interpreting or amending the requirements set out in the new CO and if there is a conflict between the SME-FRF or SME-FRS and the new CO, then the new CO will prevail.

6 COPYRIGHT Copyright 2022 hong kong Institute of Certified Public Accountants This Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard contains hong kong Institute of Certified Public Accountants copyright material. Reproduction in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes should be addressed to hong kong Institute of Certified Public Accountants, 37/F.

7 , Wu Chung House, 213 Queen's Road East, Wanchai, hong kong . Small AND Medium-sized Entity Financial Reporting FRAMEWORK AND Financial Reporting STANDARD Copyright 1 SME-FRF & SME-FRS (September 2022) Small AND Medium-sized Entity Financial Reporting FRAMEWORK Scope 1. The new Companies Ordinance (Cap. 622) ( new CO ), which came into effect on 3 March 2014, contains an optional Reporting exemption for certain private companies and companies limited by guarantee which satisfy the conditions set out in section 359 of the new CO. On 7 December 2018, the Government of the hong kong Special Administrative Region published the Companies (Amendment) (No.)

8 2) Ordinance 2018 ( the 2018 Amendment Ordinance ) to amend some of the provisions in the new CO so as to improve the clarity and operation of the new CO and further facilitate business in hong These amendments include amendments relating to the eligibility criteria set out in section 359 of the new CO. The Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard which are effective for annual periods beginning on or after 1 February 2019 (the revised SME-FRF and FRS ) are the accounting standards issued by the HKICPA that are to be followed in accordance with section 380(4) by those hong kong incorporated companies which are entitled to, and decide to1a, take advantage of this Reporting exemption in the new CO, as amended by the 2018 Amendment Ordinance.

9 2. In accordance with paragraph 23 of the SME-FRF, an Entity which is not a company incorporated under either the new CO or any former CO, subject to any specific requirements imposed by the law of the Entity s place of incorporation and subject to its constitution, qualifies for Reporting under the SME-FRF when the Entity meets the same requirements that a hong kong incorporated Entity is required to meet under section 359 of the new CO. 3. The revised SME-FRF sets out the following: (a) the conceptual basis for the preparation of Financial statements in accordance with the SME-FRS (paragraphs 4-18) (b) an overview of the Reporting exemption introduced in the new CO (paragraphs 19 to 21) (c) the qualifying criteria (paragraphs 22-43) for the Reporting exemption; (d) guidance on transitioning from a different GAAP to SME-FRF and FRS (paragraphs 44-45).

10 And (e) guidance on the extent to which profits or losses recognised under the SME-FRF and FRS may be regarded as realized profits or losses for the purposes of making a distribution in accordance with section 297 of the new CO (paragraphs 46 to 52). 1 Source: press release issued by the Government of the hong kong Special Administrative Region on 7 December 2018. 1a The Reporting exemption is optional for those companies which are eligible. If a non-dormant private company or company limited by guarantee is not eligible, or decides not to take advantage of the Reporting exemption, then it should prepare Financial statements which comply with all the relevant requirements of the new CO, including subsections (1)-(6) of section 380.