Wiki Investment

Hong Kong

6 Chapter Accounting

6.1 Accounting standards in Hong Kong
- Positioning of International Financial Reporting Standards
  
  Regarding listed companies that has established in Hong Kong, it is said that they must comply with the rules of the Hong Kong Company Law.
  
  Therefore, the Hong Kong Stock Exchange allows the listed companies to use IFRS, but companies that generally wish to apply IFRS are advice to confirm the legal compliance with the Hong Kong Company Law and it is required to obtain.
- Introduction of International Financial Reporting Standards
  
  Regarding with the accounting standards in the country of Hong Kong, there are no concrete provisions with the company regulations, so it follows that the following standards published by the Hong Kong Institute of Certified Public Accountants (HKICPA) are published.
  
  · Hong Kong Financial Reporting Standards (HKFRS) and Hong Kong Accounting Standards (HKAS)
  
  · SME Financial Reporting Standards (SME - FRF & FRS: Small and Medium - sized Entities Financial Reporting Framework and Financial Reporting Standard)
  
  · Private company Hong Kong Financial Reporting Standards (HKFRSs for Private Entities)
  
  ■ Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards
  
  Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards have been converged with International Accounting Standards and International Financial Reporting Standards on January 1, 2005 which shows that both have the same standards.
  
  However, there are differences regarding with some provisions as follows.
  
  HKAS 10 (Subsequent Event), HKAS 12 (Income Taxes), HKAS 27 (Consolidated and Non-consolidated Financial Statements), HKFRS 1 (First Time Application), HKAS 1 (Presentation of Financial Statements), HKAS 8 (Accounting Policies, Changes in accounting estimates and errors) ),
  
  There are differences in text between Hong Kong Financial Reporting Standards and International Financial Reporting Standards, but the substantial content is the same.
  
  ■ SME Financial Report Standards
  
  The SME financial report standard is a simple standard for small and medium-sized enterprises that made to consider the administrative burden when applying the Hong Kong International Financial Reporting Standards to all companies, and the application requirements are as follows.
  
  ❶ Requirements for a private company are as follows.
  
  · Restricted to the transfer of shares
  
  · With no more than 50 shareholders
  
  · Public offering to third parties is prohibited
  
  ❷ In order to be considered small and medium-sized enterprises, it is necessary to satisfy two or more of the following requirements.
  
  · Annual sales are less than H $ 50 million
  
  · Total assets at the end of the fiscal year under HK $ 50 million
  
  · 50 or fewer employees
  
  The cash flow statement is not required when SME accounting standard is applied. In addition, the statement concerning with the details of disclosure is simplified, such as by not having any the statement of changes in regards with the equity, but the disclosure by notes is allowed.
  
  However, when applying the SME accounting standard, the caution is required because it is not the same standard as the international financial reporting standards when consolidating with a Japanese parent company.
  
  ■ Private company Hong Kong financial reporting standards
  
  Hong Kong financial reporting standards have been prepared and published in compliance with the SME International Financial Reporting Standard in July 2009.
  
  Companies called "SMEs", "Private Companies" or "Private Companies" exist worldwide, but the definition of "SMEs" in Hong Kong SME financial reporting standards is based on international financial reporting standards etc. It is a newly established standard because it is not perfectly matched with "SMEs" at. Application requirements are as follows.
  
  · There is no public accountability to society
  
  · Publish general purpose financial statements to external users *
  
  * Examples of external users include shareholders who are not engaged in business management, existing or potential creditors, credit rating agencies, etc.
- Disclosure system in Hong Kong
  
  ■ Overview
  
  Hong Kong's security market has two: mainboard market and GEM market.
  
  The mainboard market is a stock market for large-sized best companies, while the GEM market is an abbreviation for "Growth Enterprise Market" where a stock market for emerging companies newly established in November 1999.
  
  Main board market is announcing settlement of accounts on specified newspaper in the month of June and December while the GEM market has introduced quarterly results. Most listed companies in the Hong Kong stock market are settled in December. Disclosure of information by all corporations is obliged by the "People's Republic of China law" and "the People's Republic of China Securities Act". This settlement will be announced within three months from the settlement date, and the interim settlement will be announced within two months. In addition to Hong Kong and international accounting standards, accounting standards are also applicable to US accounting standards. In addition, all parent companies with subsidiaries are obliged to prepare and disclose consolidated financial statements.
  
  ■ Disclosure Schedule
  
  [Private company schedule]
  
  In a private company, all financial statements, such as the company's financial statements, directors' reports, and auditor reports must be forwarded to the shareholders at least for 21 days prior to the ordinary general meeting of shareholders.
  
  The financial statements etc. are approved by the ordinary shareholders meeting and to the circulation to shareholders and is necessary to notify the annual report (Annual Return) once a year to the company registration office within four weeks (42 days).
  
  [Schedule of listed companies]
  
  Listed companies must circulate documents to shareholders within the due date as well as unlisted companies, and report to the company registration office of the annual report. In addition, it is obligatory to submit financial statements etc. together with the annual report.
  
  It is necessary to submit an annual report (Annual Report) to the market because the annual report here corresponds to the securities report in Japan.
  
  Please be aware that there are differences in deadlines to be submitted depending on the markets that are listed respectively.
  
  In case of main board market
  
  When listed on the main board market, it is necessary to publish the annual report within 4 months from the date of the accounting period expires. We also need to publish the semiannual report within 3 months from the date the accounting period expires.
  
  There is no obligation to submit the quarterly report on the main board market.
  
  In case of GEM market
  
  When listing on the GEM market, it is necessary to release the latest annual report within 3 months from the date the accounting period expires. We must also disclose the semiannual report and the quarterly report within 45 days from the end of the accounting period at the latest.
  
  In the case of Japan, the semiannual report is handled as the second quarter report so it is disclosed within 45 days as with the GEM market.
  
  ■ Content of Disclosure Material
  
  At the end of every Hong Kong Companies, it is necessary to prepare Financial Statements in accordance with the Hong Kong company regulations and directors are required to present financial statements at the annual general shareholders meeting.
  
  The Annual General Shareholders Meeting are consists of directors' reports, audit reports, financial statements and so on.
  
  [Directors' Report]
  
  The director's report is a report prepared by the directors to show the outline of company activities in the fiscal year. Specific items to be stated are stipulated in Hong Kong Company Ordinance.
  
  The main contents are as follows.
  
  · Basic business details of the company and its subsidiaries and significant changes that occurred during the fiscal year
  
  · Matters related to dividends reserve
  
  · Total amount of donation exceeding a fixed amount
  
  · Significant change in fixed assets
  
  · Stock
  
  · When issuing bonds, reasons, types, number of shares issued, price of issue and amount of consideration etc.
  
  · Name of the director during the business year
  
  · Interests with directors and companies, parent companies, subsidiaries, sibling companies, etc.
  
  · Other important matters in understanding the state of the company
  
  Items with detailed descriptions in the financial statements and etc. can be limited to the statement stating that they refer to the statement, and there are matters concerning the election of the auditor as examples of other matters.
  
  In addition, there are cases where it is written briefly at about 2 pages in an unlisted company.
  
  [Auditor's Report]
  
  The audit report is a report prepared by an auditor who has audited the company's financial statements and notes from an independent standpoint to express an opinion on the appropriateness of financial statements and etc.
  
  The audit report consists of the following contents:
  
  · Object of audit
  
  · Director's responsibility for financial statements
  
  · Responsibility of the auditor
  
  · Audit opinion
  
  The audit report is prepared after the audit by the quality control department concerning the contents and conclusions of the audit procedure conducted by the audit team.
  
  In addition, Japanese unlisted companies are obligated to audit based on the Companies Act only when they exceed certain capital and debt amounts, but in the principle of the country of Hong Kong, it is obliged to audit all companies including unlisted companies.
  
  [Financial Statements]
  
  The presentation method in Hong Kong Financial Reporting Standards has also been fully converged to International Financial Reporting Standards and is substantially the same as the International Financial Reporting Standards.
  
  The financial statements that the company is obligated to prepare and the points be noted are as follows.
  
  Comprehensive income statement
  
  · There is no extraordinary loss item
  
  · The display operating profit and loss and discontinued operations profit / loss separately and display net income
  
  · Displayed as comprehensive income after adjusting the items such as unrealized gains and losses on land and securities, and etc. Under net income
  
  Statement of Financial Position
  
  · Items that displayed separately should be decided, but there is no need to display them in a predetermined format
  
  · Flow items and non-flow items must be displayed separately (display with fixed array is common).
  
  Cash flow statement
  
  · Approximately the same standards as in Japan, such as the approval of the method to display in three categories of operating activities, investment activities, and financing activities, and the cash flow from operating activities can applied both directly and indirectly
  
  · The exemption from creation for small companies with sales of less than H $ 20 million
  
  Statement of changes in equity
  
  · Disclose breakdowns of each item constituting shareholder's equity
  
  Note
  
  · The systematic and plentiful note is required due to it becomes considerable volume and for additional information.
  
  Directors are prepared the financial statements and notes properly to display the financial condition and to operate the results of the company. They are also the one who approve the subject’s approval at the Board of Directors and are placed in the column under the statement of financial position where they will sign.
  
  [Difference between Japan and Hong Kong]
  
  In Japan, the statement showing the status of the assets and liabilities of the company that is referred to as the (Balance Sheet), is regarded as the statement of financial position similar to the International Financial Reporting Standard in Hong Kong Financial Reporting Standards where it is distinctive.
  
  In addition, even if it is a non-listed company, the fact that it is required to prepare the financial statements under their principle and disclosure of the cash flow statement – it is still different from handling the Japanese Corporate Law in principle when having its subsidiary.
  
  · Company name (trade name)
  
  · Head office location
  
  · Authorized capital and paid-up capital
  
  · Name of the director, nationality, passport number
  
  · Name, address, holding number of shareholders
  
  · Company secretary name, address etc.
6.2 Hong Kong certified Public Accountant
- Hong Kong certified Public Accountant
  
  ■ Hong Kong Certified Public Accountants Association
  
  A certified public accountant organization in Hong Kong was founded in January 1973 under the Certified Public Accountants Act. After that, in 2004 the name was changed to Hong Kong Institute of Certified Public Accountants and it is the only official accounting body in Hong Kong.
  
  Therefore, we are responsible regarding with the accounting matters and standardize auditing procedures and practices of accounting experts.
  
  In addition, the Hong Kong Institute of Certified Public Accountants creates policies on occupational ethics and required of certified public accountants, and also manages the quality management of individual CPAs such as operating and managing exam questions of CPAs.
  
  ■ Hong Kong Certified Public Accountant
  
  A Hong Kong certified public accountant usually refers to a regular member of the Hong Kong Institute of Certified Public Accountants. The advancement of women is progressing, and the proportion of men and women in qualified people is antagonistic.
  
  The members are as follows.
  
  Only those who have acquired Practicing Certificates can sign the audit report. In addition, Hong Kong certified public accountant will acquire with the following process.
  
  Those who acquired a degree in accounting or those who hold conversions with holders of other degrees can become student members of the Hong Kong Institute of Certified Public Accountants by registering in the qualification program of the Hong Kong Institute of Certified Public Accountants.
  
  Student members usually acquire expert knowledge through participation in self-study materials and workshops while working for accounting offices and accounting and finance departments of general corporations.
  
  After passing over the completion examination, and accumulating practical experience for 3 to 5 years, you will be able to become a Hong Kong Certified Public Accountant. After that, you can acquire more practical experience and obtain qualification to start by passing a prescribed examination.
  
  Besides that, a mutual recognition agreement has been exchanged with the Association of Chartered Certified Accountants (ACCA) association, and ACCA certification holders pass Hong Kong You can become a certified public accountant association member.
  
  ■ Hong Kong's accounting industry
  
  The title of Hong Kong Certified Public Accountant registered in Hong Kong’s Certified Public Accountants Association for more than 38,000 as of 2015. Approximately there are 34,000 people who are registered in Hong Kong's certified public accountant rather than Japanese certified public accountants and based in the Certified Public Accountants Association, the accountant's population will be more.
  
  Also, since the population of Hong Kong is about 7.3 million people and the population of Japan is about 127 million people, the proportion of certified public accountants in that proportion is obvious. The reason for that is that if an external audit in Japan is a private company, and is basically not enforced. It is also an objective figure that you can see the significance of the accounting industry in Hong Kong.
6.3 Accounting audit in Hong Kong
- Audit system
  
  Internal audit system
  
  On Hong Kong's system, there are no regulations of corporate auditors like Japan however, an audit committee has established for listed companies.
  
  The Audit Committee will monitor both the scope of the internal audit and the scope of the external audit so that all risk areas can be considered.
  
  The Audit Committee can deal with broader problems entrusted by the Board of Directors or stated in the terms of reference therefore, communication between the Audit Committee and the Board of Directors is extremely important.
  
  As a result, the Audit Committee in the listed company in Hong Kong plays an important role of management of accounting audit (external audit etc.) there is also a role in company business audits (internal audit etc.).
  
  ■ External audit system
  
  All corporations must appoint an auditor (Article 131 of the Hong Kong Company Ordinance), since corporations that operate in Hong Kong are required to audit their financial statements regardless of listing or non-listing.
  
  The financial statements submitted to the tax buyer every year must be audited. On the other hand, commercial entities that do not have corporate status (self-employed, partnership etc.) are not required to audit their financial statements. The accounting standards are followed by all commercial entities (including non-corporations) with the financial report standards.
  
  The audit of financial statements is to audit by the auditor whether the financial report prepared by the company conforms to the Hong Kong financial reporting standard. The auditor conducts audits based on the following standards provided by the Hong Kong Institute of Certified Public Accountants.
  
  • Quality control standard (Hong Kong Standards on Quality Control)
  
  • Framework for guarantee operations (Hong Kong Framework for Assurance Engagements)
  
  • Auditing standard (Hong Kong Standards on Auditing)
  
  • Review service standard (Hong Kong Standards on Review Engagements)
  
  Based on these standards, the Hong Kong Institute of Certified Public Accountants provides audit implementation manual (Audit Practice Manual) which summarizes the specific audit procedures, and actual audits that are conducted.
  
  [Difference between Japan and Hong Kong]
  
  The actual audits do not differ between Japan and Hong Kong however, in Japan, listed companies are obligated to audit and report on internal control related to financial reporting from the fiscal year starting on or after April 2008.
  
  On the other hand, Hong Kong companies are not required to perform audits on internal controls regardless of whether they are listed or unlisted, and internal controls are evaluated as part of their regular financial statement audits.
  
  If the audit opinion expressed negatively in the audit report, it may trigger the tax investigation.
  
  Therefore, even if it is an unlisted company, it is necessary to pay attention to audit opinion.
  
  [Content of audit]
  
  The content of audit report in the country such as Hong Kong is supposed to report four (4) patterns as well as Japan's audit standards and international auditing standards.
  
  [The Role of the Hong Kong Auditor]
  
  The Corporate Law stated that the auditor express an opinion on the truthfulness and fairness of the financial statements. The auditor will conduct audits in accordance with auditing standards and standards approved by the Hong Kong Institute of Certified Public Accountants. These provide basic auditors with basic principles and practices whether the financial statements are properly prepared in the audit report, has a truly fair appearance, the company maintains the accounting books, the company's financial statements and the consistent of basic accounting books.
  
  You must conduct an audit in compliance with the standards concerning with the result.
  
  In addition, the authority of the auditor was strengthened by the new corporate ordinance (Article 412 to 413, Article 425 of the New Company Ordinance).
  
  Specifically, it is as follows.
  
  · The auditor can request to disclose an information and explanation from a widely related person (corporate / its subsidiary [administrator of accounting records including domestic and overseas] and those who are accountable.
  
  · Those who cannot provide the information requested by the auditor are regarded as a breach of the new company regulations and are subject to a fine of 25,000 HKD or less. Also, if there is no improvement in the situation over the long term, a fine of H700 HKD / day or less is imposed.
  
  · In the absence of malicious intent or gross negligence, the auditor shall not be liable for any liability against the corporation arising from the description of the suspension of duties to the audited corporation or the explanation of the circumstances leading to the retirement .
6.4 References
- References
  
  [1] AGC SINGAPORE
  
  [2] NAC International Accounting Group
  
  [3] ACCOUNTING Financial & Tax
  
  [4] JANUS Corporate Solutions
  
  [5] Nippon Keidanren Corporate Accounting Section · Business Accounting Standards Committee · Japan Institute of Certified Public Accountants "Indo · Singapore Mission Report" March 2010
  
  [6] Accounting and Corporate Regulatory Authority (ACRA)
  
  [7] First Spring International (see "Singapore's Accounting System")
  
  [8] Deloitte Touche Tohmatsu IFRS Center of Excellence "IFRS circumstances in the world I want to keep in (4th) - Singapore" Business Accounting April 2011 issue
  
  [10] Financial Services Agency "Press Release on Suspension of Full Convergence Completion with Singapore Standards and IFRS"
  
  [11] Deloitte Touche Tohmatsu "Fiscal 2010 General Research Study" Research Report on Information Disclosure System, etc. on Revised Accounting Standards "Report March 31, 2011
  
  [12] Yutaka Ryuke "Founding Industry Act in Singapore (1967) and Accounting Audit System" March 31, 1970
  
  [13] Guide Me Hong Kong "Introduction To Accounting Standards In Hong Kong"
  
  [14] JETRO Hong Kong Office "Institution Information on Advancement in Hong Kong" March 2012
  
  [15] Deloitte Touche Tohmatsu IFRS Center of Excellence "IFRS circumstances of the world I want to keep in (1st) - Hong Kong" Business Accounting January 2011 issue
  
  [16] Aarata Audit Corporate Accounting Working Group "The Third Asian Countries Applying IFRS and Trends in Convergence" Weekly Management Finance No. 2847
  
  [17] Complete Guide to Hong Kong and Macao Advancement edited by NAC International Accounting Group Canary Bookstore, 2010

Hong Kong

6 Chapter Accounting

1 Chapter Basic Knowledge

2 Chapter Economic Environment

3 Chapter Establishment

4 Chapter M&A

5 Chapter Corporate Laws

6 Chapter Accounting

7 Chapter Tax

8 Chapter Labor