SME FRS and Other Updates - Nelson · PDF file1 © 2014 Nelson Consulting Limited 1 SME‐FRS and Other Updates 20 November 2014 Ms CHUA Suk Lin Ivy Mr LAM Chi Yuen Nelson © 2014

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2014 Nelson Consulting Limited 1
SMEFRSandOtherUpdates20November2014
MsCHUASukLinIvyMrLAMChiYuenNelson
Effectivefor2015Dec.YearEnd
AmendmentstoHKAS19(2011) EmployeeBenefits DefinedBenefitPlans:EmployeeContributions
AnnualImprovements20102012Cycle AnnualImprovements20112013Cycle SMEFRFandSMEFRS(Revised2014)(pursuanttotheNewCompaniesOrdinance(Cap.622)effectivefrom3Mar.2014)
1Jul. 2014
1Jul. 2014(orother) 1Jul. 2014(orother) 3Mar. 2014(earlyapplicationnotallowed)
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning on/after
UpdatedtoHKICPAUpdateNo.160of16October2014

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Effectiveafter2016Dec.YearEnd
Amendments to HKFRS 11: Accounting for Acquisitions of Interests in Joint Operations
Amendments to HKAS 16 and HKAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
Amendments to HKAS 16 and HKAS 41: Agriculture: Bearer Plants
Amendments to HKAS 27 Equity Method in Separate Financial Statements
Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Annual Improvements to HKFRSs 2012-2014 Cycle HKFRS 14 Regulatory Deferral Accounts HKFRS 15 Revenue from Contracts with Customers HKFRS 9 (2014) Financial Instruments
1 Jan.2016
1 Jan.2016
1 Jan.2016
1 Jan.2016
1 Jan.2016
1 Jan.2016 (or other) 1 Jan.2016 1 Jan.2017 1 Jan.2018
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning on/after
UpdatedtoHKICPAUpdateNo.160of16October2014
HKFRS15RevenuefromContractswithCustomers
SMEFRFandFRSandRelevantRequirementsinCo.Ordinance
TodaysAgenda
HKFRS9FinancialInstruments

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SMEFRFandFRSandCo.Ord.(Cap.622)
Scope HKIncorporatedEntity
ThenewHKCompaniesOrdinance(Cap.622) (newCO) becomeseffectiveon3March2014, containsanoptionalreportingexemption forcertainprivatecompaniesand
companieslimitedbyguaranteewhichsatisfytheconditionssetoutinsection359ofthenewCO.
TheSmallandMediumsizedEntityFinancialReportingFrameworkandFinancialReportingStandardwhichareeffectiveforannualperiodsbeginningonorafter3March2014 (theSMEFRFandFRS(2014)) aretheaccountingstandardsissuedbytheHKICPA
thataretobefollowedinaccordancewithsection380(4)bythoseHKincorporatedcompanieswhichareentitledto,anddecideto,takeadvantageofthisreportingexemptioninthenewCO (SMEFRFpara.1)

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Scope NonHKIncorporated
Inaccordancewithpara.23oftheSMEFRF(2014),anentitywhichisnotacompanyincorporatedundereitherthenewCOorthepredecessorCO(Cap.32),subjecttoanyspecificrequirementsimposedbythelawoftheentitysplaceofincorporationandsubjecttoitsconstitution, qualifiesforreportingundertheSMEFRF whentheentitymeetsthesame
requirementsthataHKincorporatedentity isrequiredtomeetundersection359ofthenewCO(SMEFRFpara.2)
Scope EffectiveDate Consistentwithsection358ofthenewCO,
thisrevisedSMEFRFbecomeseffective foraQualifyingEntitysfinancialstatementsthatcoveraperiodbeginningonorafter3March2014,thecommencementdateofthenewCO
EarlierapplicationofthisrevisedSMEFRFisnotpermitted(SMEFRFpara.53)

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Key Changes from Old SME-FRF and FRS1. A summary of the criteria for "qualifying entities" with
cross-references to the new CO included
2. New specific disclosure requirements to cover the first year that a company transitions from a different GAAP to SME-FRS
3. New guidance on the concept of realized profits and losses
4. New sections to cover business combinations, consolidated financial statements, joint arrangementsand associates
5. New guidance on presenting a cash flow statement(optional)
SME-FRF (2014) Para. 22-43
SME-FRS (2014) Section 18-21
SME-FRS (2014) Section 22
SME-FRF (2014) Para. 46-52
SME-FRF (2014) Para. 44-45
Adapted from HKICPAs Summary of Main Changes
Key Changes from Old SME-FRF and FRS6. Additional disclosure requirements in the Income Taxes
section for disclosure of applicable tax rates and unused tax losses
7. New guidance on determining the "reporting currency (same as functional currency)
8. The definition of "related party" aligned with the definition in full HKFRS
9. The definitions of "active market" & "fair value" updated to be consistent with HKFRS 13
10.New guidance on determining whether an entity is acting as an agent or principal
11.Additional guidance on the non-exempted disclosure requirements in the new COand certain other provisions
SME-FRS (2014) Section 14.9
SME-FRS (2014) Section 15
SME-FRS (2014) Definitions
SME-FRS (2014) Definitions
SME-FRS (2014) Appendix 1
SME-FRS (2014) Appendix 1
Adapted from HKICPAs Summary of Main Changes

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1.CriteriaforQualifyingEntities
FollowsthenewCOwithsomefurtherexplanationsonReportingExemptionforeasyreference
Meetingthesizetests inthefirstyearthatthenewCOapplies Inaccordancewithsubsection(2)ofeachofsections361to366ofthenewCO(as
applicable),theentitywillqualifyforthereportingexemptionforthefirstfinancialyearbeginningonorafter3March2014ifitmeetstherelevantsizetests:(a)inthatfirstfinancialyear;and/or(b)intheimmediatelyprecedingfinancialyear.
Iftheentityqualifiesinthefirstfinancialyearinaccordancewiththeabove,itwillcontinuetoqualifyuntilitisdisqualifiedinaccordancewithsubsection(4)(assetoutinpara.32ofSMEFRS).(SMEFRFpara.30)
Meetingthesizetestsinallsubsequentfinancialyears Inaccordancewithsubsection(3)ofeachofss.361to366ofthenewCO(as
applicable),anentitywhichwaspreviouslydisqualified onthegroundsofitssize willneedtomeetthesizetestsfortwoconsecutivereportingperiods,
beforeitwillqualifyforthereportingexemptioninthethirdreportingperiod,regardlessofitssizeinthatperiod (SMEFRFpara.31)
Inaccordancewithsubsection(4)ofeachofss.361to363,orsubsection(5)ofeachofss.364to366,ofthenewCO(asapplicable),whereanentityhaspreviouslyqualified forthereportingexemptionintermsofitssize, theentitywillcontinuetoqualifyforthereporting
exemption evenwhenitnolongermeetstherelevantsizetests,unlesstheentityhasfailedthesizetestsfortwoconsecutivereportingperiods
itwillthenfailtoqualifyforthereportingexemptioninthethirdreportingperiod,regardlessofitssizeinthatperiod. (SMEFRFpara.32)

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Anexceptiontothistwoyeargraceperiod forlosingentitlementiswhereanewcompanyentersthegroup. Inthiscase,inaccordancewithsubsection(4)ofeachofsections364to366of
thenewCO(asapplicable), thegroupwillnolongerbeeligibleforthereportingexemption inthe
yearinwhichthenewcompanyentersthegroup,ifthenewsubsidiaryissuchthatthegroupfailsthesizetestsinthatyear.(SMEFRFpara.33)
Sizetestsforgroup ofsmallguaranteecompanies,smallprivatecompanies,andeligibleprivatecompanies eachcompanyinthegroupmustmeetthesizetests;and theaggregateamountsforthegroupintotalmustmeet
thesizetests(SMEFRFpara.35,37ad39)
ShareholderApproval Inaccordancewithsection360ofthe
newCO,theshareholderapprovalrequirementsforthelargereligiblecategoryofprivatecompaniesorgroups areasfollows:a) togainexemptionasalargereligibleprivatecompanyatleast75%
ofallthemembersmustpassaresolutionatageneralmeeting thatthecompanyistofallwithinthereportingexemptionforthefinancialyear,withnoneobjecting;and
b) togainexemptionforagroupoflargereligibleprivatecompaniesallthecompaniesinthegroupindividually,aswellastheparentofthegroup,musthaveobtainedthenecessaryshareholderapproval exceptforthosesubsidiarieswithinthegroupthatfallwithinthesmall
privatecompanycategory

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ShareholderApproval The75%voteiscalculatedasa
percentageoftheentireshareholdingofacompany,notsimplyasapercentageoftheshareholderswhoattendthegeneralmeeting.
Theresolutionisdefeated ifanymemberobjects either atthemeeting or atanytimebygivingnoticeinwriting tothecompany,providedthatthewrittennoticeisgivenatleast6monthsbeforetheendofthefinancialyeartowhichtheobjectionrelates. (SMEFRFpara.42)
Fors.359(1)(b)(i.e.newversionofs.141D)exemption,inordertoqualifyit, Thecompanyobtain100%approvalfromtheirshareholderseachyear Thisapprovalmustbeinwritingandcanonlybegivenforoneyearatatime(SMEFRFpara.43)
2.TransitionfromDifferentGAAP
ThetransitionfromadifferentGAAP(forexamplethetransitionfromHKFRS)totheSMEFRFandSMEFRSisaccountedforasfollows:a) AllitemsrecognisedpreviouslyunderadifferentGAAP(forexample,deferredtax
liability)whichdonotmeettherecognitioncriteriaundertheSMEFRFandSMEFRSaretobederecognised anddealtwithasachangeofaccountingpolicy undersection2oftheSMEFRS.
b) AllitemsnotrecognisedpreviouslyunderadifferentGAAPwhichmeettherecognitioncriteria undertheSMEFRFandSMEFRS3aretoberecognised inaccordancewiththerelevantsectionoftheSMEFRS anddealtwithasachangeofaccountingpolicy undersection2oftheSMEFRS.
c) AllitemsrecognisedpreviouslyunderadifferentGAAP,whichmeettherecognitioncriteriaundertheSMEFRFandSMEFRS,butwhichwerepre

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SME FRS and Other Updates - Nelson · PDF file1 © 2014 Nelson Consulting Limited 1 SME‐FRS and Other Updates 20 November 2014 Ms CHUA Suk Lin Ivy Mr LAM Chi Yuen Nelson © 2014