What is the reporting exemption under Hong Kong law

Reporting Exemption Hong Kong

Section 359 of the Companies Ordinance (Cap. 622) lets qualifying small and medium-sized enterprises use the SME Financial Reporting Framework (SME-FRF) and the SME Financial Reporting Standard (SME-FRS). This replaces full Hong Kong Financial Reporting Standards (HKFRS), cutting disclosure burden but keeping the statutory audit requirement.

A company qualifies by meeting the size criteria in section 359. The exemption does not remove the need for a statutory audit by a practising certified public accountant registered with the HKICPA. To claim it, the company must state in its financial statements that it has applied the SME-FRF and SME-FRS.

This is disclosure relief only. The directors' report and the audit requirement remain in full force, as does the obligation to lay financial statements before the members.

Section 359 Reporting Exemption Hong Kong

Eligibility is set out in section 359 of the Companies Ordinance (Cap. 622). A company qualifies if it is a private company and meets two of the following three conditions in the relevant financial year: total revenue not exceeding HK$100 million, total assets not exceeding HK$100 million, or total employees not exceeding 100. The company must also not belong to a group that includes a public company or an ineligible company.

SME-FRF Reporting Exemption

The SME Financial Reporting Framework (SME-FRF) is the accounting framework a reporting-exempt company applies. It is simpler than HKFRS and HKFRS for Private Entities. The accompanying SME-FRS sets out the recognition, measurement and disclosure requirements. A company using the SME-FRF must state this in the notes to its financial statements.

Hong Kong SME Reporting Exemption

The Hong Kong SME reporting exemption targets the typical small trading or service company. It avoids the detailed disclosure requirements of full HKFRS, such as segment reporting and earnings per share. The exemption is only available to companies that are not publicly accountable and meet the section 359 thresholds. A company that grows beyond those thresholds must move to HKFRS for Private Entities or full HKFRS.

Financial Reporting Exemption Hong Kong

Hong Kong's financial reporting exemption is a reduced disclosure regime, not a full exemption from preparing financial statements. The company must still prepare financial statements that give a true and fair view. The exemption applies only to the content of the financial statements; the audit requirement, the directors' report, and the filing obligations with the Companies Registry are unaffected. Directors claim the exemption when they approve the financial statements.