Highlights for Hong Kong Financial Reporting Standard for Private Entities (HKFRS for Private Entities)

On 30 April 2010, the Hong Kong Institute of Certified Public Accountants (HKICPA) issued the Hong Kong Financial Reporting Standard for Private Entities (HKFRS for Private Entities). This new standard is effective immediately upon issue and eligible entities are permitted to use to prepare financial statement for any period, even prior to the standard issue.

HKFRS for Private Entities is intended for Private Entities and Private Entities are defined as entities:

²         do not have public accountability, and

²         publish general purpose financial statements for external users.

An entity has public accountability if:

²         its debt or equity instruments are publicly traded;

²         it is a financial institution or other entity that it holds assets in a fiduciary capacity for a board group of clients as part of its primary business.

Banks, credit unions, insurance companies, securities brokers / dealers, mutual funds and investment banks are defined as entities has public accountability which not applicable to use this standard.

A subsidiary whose parent uses full HKFRS / IFRS, or that is a part of a consolidated group that uses full HKFRS / IRFS, will be entitled to apply the HKFRS for Private Entities provided that subsidiary itself does not have public accountability.

Comparison with the full HKFRs:

HKFRS for Private Entities not address the following topies:

-         earnings per share

-         segment information

-         interim financial reporting

-         insurance contract

-         classification of non-current assets (or disposal groups) as held for sale.

Following are the key feature of HKFRS for Private Entities.

Financial instruments (Section 11 & 12):

Entities must choose to apply either:

a)      the provisions of both Section 11 and Section 12 in full, or

b)      the recognition and measurement provisions of HKAS 39 Financial Instruments: Recognition and Measurement and the disclosure requirements of Section 11 and 12.

Investments in Associates and Joint Ventures (Section 14 & 15)

-         An accounting policy to measure such investments at cost less any accumulated impairment losses recognized except for those investments has published price quotation.

Investment Property (Section 16):

-         Investment property whose fair value can be measured reliable without undue cost or effort is accounted at fair value through profit or loss.

-         All other investment property is accounted for as property, plant and equipment using the cost-depreciation-impairment model under Section 17 of Property, Plant and Equipment.

Goodwill and Other Indefinite-life Intangible Assets (Section 18 & 19)

-         All intangible assets, including goodwill have a finite useful life. If an entity is unable to make a reliable estimate of the useful life of an intangible asset, the life shall be presumed to be 10 years.

-         No annual impairment test is required unless when there is an indication of impairment.

Government Grants (Section 24)

-         A grant is recognized as income only when the conditions attached to the grant are met.

Borrowing Costs (Section 25)

-         Borrowing costs is expensed in profit or loss in the period in which they are incurred.

Share-based payment (Section 26)

For share-based payment transaction with cash alternatives, the entity shall account for the transaction as a cash-settled share-based payment transaction unless either:

a)      the entity has a past practice of settling by issuing equity instruments; or

b)      the option has no commercial substance.

Employee Benefits (Section 28)

-         For defined benefit plans:

a)      If an entity is not able, without undue cost or effort, to use the projected unit credit method to measure its obligation and cost under defined benefits, the entity is permitted to make the following simplifications methods:

n         ignore estimated future salary increase;

n         ignore future service of current employees;

n         ignore possible future in-service mortality

b)      All past service cost must be recognized immediately in profit and loss

c)      Actuarial gains and losses recognized either in profit or loss or other comprehensive income.

Disclaimer:

The publication contains information in summary form and is therefore intended for general guidance only.  This publication is not intended as legal, accounting or other professional advice and should not be relied upon as such.  If legal, accounting or other professional advice or expert assistance is required, the services of a competent professional should be sought.  Neither Reanda Lau & Au Yeung nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication.

For details, please refer to HKICPA and IFRS Foundation website:
http://www.hkicpa.org.hk/en/standards-and-regulations/standards/hkfrs-pe-info-centre/