Hong Kong Financial Reporting Standards Illustrative Annual Financial Statements Financial year ended 31 December 2014
Audit IAS Plus
Hong Kong Financial
Reporting Standards
Illustrative Annual Financial Statements
Financial year ended 31 December 2014
Welcome to our 2014 edition of Hong Kong Financial Reporting Standards Illustrative Annual Financial Statements. The amendments to HKFRSs and Interpretation that are mandatorily effective for 2014 are as follows:
Amendments to HKFRS 10, HKFRS 12 and HKAS 27 Investment Entities; Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities; Amendments to HKAS 36 Recoverable Amount Disclosures for Non-Financial Assets; Amendments to HKAS 39 Novation of Derivatives and Continuation of Hedge Accounting; and HK (IFRIC) Int 21 Levies.
In addition, the Hong Kong Institute of Certified Public Accountants (HKICPA) has issued a number of new and revised standards which are not yet mandatorily effective for 2014 (but for which early application is allowed), of which the most significant are the new standards on financial instruments (HKFRS 9) and revenue from contracts with customers (HKFRS 15). The application of these new and revised standards may have a significant impact on many entities financial statements. Besides, the new Hong Kong Companies Ordinance (Cap. 622) (New CO) was issued in 2014. The New CO is primarily applicable to companies incorporated in Hong Kong, and all the provisions of the New CO are immediately effective from 3 March 2014, except mainly for most of the provisions regarding the preparation of accounts and directors' reports as well as audits (i.e. most of Part 9 and the entire Schedule 4 of the New CO), which will become effective for annual periods beginning on or after 3 March 2014. Accordingly, for a December year-end entity, most of Part 9 and the entire Schedule 4 of the New CO will become effective for its financial year ended 31 December 2015; whereas for a March or June year-end entity, these provisions will become effective for its financial year ending 31 March 2015 or 30 June 2015 respectively. Specifically, this publication includes the following sections: Section 1 Accounting, Companies Ordinance and regulatory updates in Hong Kong; and
Section 2 A set of illustrative annual financial statements for the year ended 31 December 2014
issued by a Hong Kong listed company, Hong Kong GAAP Limited. This set of illustrative financial statements shows the impact of the presentation and disclosure requirements of the new and revised standards that are mandatorily effective on 1 January 2014. Also, the illustrative financial statements have been prepared on the basis that Hong Kong GAAP Limited has not applied any of the new or revised standards in advance of their effective dates) and that the financial statements are still prepared under the requirements of the Hong Kong Companies Ordinance (Cap. 32).
Section 3 An appendix that illustrates the accounting impact arising from provisions in the New CO relating to the abolition of the par-value regime for share capital of entities incorporated in Hong Kong which becomes immediately effective on 3 March 2014.
Suggested disclosures are cross-referenced to the underlying requirements in the texts of the relevant standards and interpretations. We hope that this publication will help you navigate through the increasingly complex and changing financial reporting requirements in Hong Kong. In addition, please continue to keep up to date with the new international developments that will shape Hong Kong financial reporting in the future via our IAS Plus website (www.iasplus.com).
Contents Page Section 1 Whats new for the 2014 annual financial statements and beyond? Section 1A Accounting update in Hong Kong 1
Section 1B New Companies Ordinance in Hong Kong 13
Section 1C Regulatory update in Hong Kong 17 Section 2 HKFRS illustrative annual financial statements for the year ended 31 December 2014 23 Section 3 (Appendix) Example of application of the new Hong Kong Companies Ordinance 213 - abolition of the par-value regime
Abbreviations AG = Accounting Guideline issued by the HKICPA Alt = Alternative App = Appendix to the Listing Rules EPS = Earnings per Share GEM = Growth Enterprise Market of the SEHK GR = Rules Governing the Listing of Securities on the GEM (the GEM Rules) GR App = Appendix to the GEM Rules HKAS(s) = Hong Kong Accounting Standard(s) issued by the HKICPA HKFRS(s) = Hong Kong Financial Reporting Standard(s) issued by the HKICPA HIBOR = Hong Kong Inter-Bank Offer Rate HKICPA = Hong Kong Institute of Certified Public Accountants HK-Int = HK Interpretation HK (IFRIC)-Int = HK (IFRIC) Interpretation HKSA(s) = Hong Kong Standard(s) on Auditing issued by the HKICPA HK (SIC)-Int = HK (SIC) Interpretation IAS(s) = International Accounting Standard(s) IASB = International Accounting Standards Board IFRS(s) = International Financial Reporting Standard(s) IFRIC = IFRS Interpretations Committee Preface = Preface to Hong Kong Standards on Quality Control, Auditing, Assurance and
Related Services LR = Rules Governing the Listing of Securities on the SEHK (the Listing Rules) MD&A = Management Discussion and Analysis PN = Practice Note to the Listing Rules s = Section Reference, Hong Kong Companies Ordinance (Cap. 32) Sch 10 = Companies Ordinance (Cap. 32), Tenth Schedule SEHK = The Stock Exchange of Hong Kong Limited SFO = Securities and Futures Ordinance
Section 1
1
Section 1 Whats new for the 2014 annual financial statements and beyond? 1A. Accounting update in Hong Kong This section provides you with a high level summary of the new and revised HKFRSs that are effective for 2014 and beyond. Specifically, this section covers the following: An overview of the amendments to HKFRSs and a new Interpretation that are mandatorily effective for
the year ending 31 December 2014; and An overview of new and revised HKFRSs that are not yet mandatorily effective (but allow early
application) for the year ending 31 December 2014. For this purpose, the discussion below reflects HKFRSs issued on or before 30 November 2014. When entities prepare financial statements for the year ending 31 December 2014, they should also consider and disclose the potential impact of the application of any new and revised HKFRSs issued by the HKICPA after 30 November 2014 but before the financial statements are authorised for issue.
Amendments to HKFRSs and a new Interpretation that are mandatorily effective for the year ending 31 December 2014
Amendments to HKFRSs Effective for annual periods beginning on or after
Application
Amendments to HKFRS 10, HKFRS 12 and HKAS 27 Investment Entities
1 January 2014 Retrospective application, with specific transitional provisions.
Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities
1 January 2014 Retrospective application.
Amendments to HKAS 36 Recoverable Amount Disclosures for Non-Financial Assets
1 January 2014 Retrospective application.
Amendments to HKAS 39 Novation of Derivatives and Continuation of Hedge Accounting
1 January 2014 Retrospective application.
New Interpretation Effective for annual periods beginning on or after
Application
HK (IFRIC) Int 21 Levies 1 January 2014 Retrospective application. Amendments to HKFRS 10, HKFRS 12 and HKAS 27 Investment Entities The amendments allow a limited scope exception to consolidation for investment entities. Under the amendments, if an entity meets the definition of an investment entity, it is required to measure its interests in subsidiaries at fair value through profit or loss (rather than to consolidate the subsidiaries). For subsidiaries that provide services that relate to the investment entitys investment activities, the exception does not apply (i.e. still need to be consolidated). To qualify as an investment entity, certain criteria have to be met. Specifically, an entity is an investment entity when it: obtains funds from one or more investors for the purpose of providing them with investment
management services; commits to its investor(s) that its business purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and measures and evaluates performance of substantially all of its investments on a fair value basis.
Consequential amendments to HKFRS 12 and HKAS 27 have been made to introduce new disclosure requirements for investment entities.
Section 1
2
Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities The amendments to HKAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of currently has a legally enforceable right of set-off and simultaneous realisation and settlement. The amendments require retrospective application. Amendments to HKAS 36 Recoverable Amount Disclosures for Non-Financial Assets The amendments to HKAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, k
