SME-FRF and SME-FRS Hong Kong guide

SME-FRF and SME-FRS Hong Kong

The SME-FRF and SME-FRS Hong Kong framework is a reduced financial reporting regime introduced by the Hong Kong Institute of Certified Public Accountants (HKICPA) for qualifying private companies. The SME Financial Reporting Framework (SME-FRF) and the SME Financial Reporting Standard (SME-FRS) allow eligible companies to prepare financial statements with significantly reduced disclosure requirements compared to full Hong Kong Financial Reporting Standards (HKFRS). Companies using the SME-FRF and SME-FRS must still meet all statutory audit requirements and prepare audited financial statements.

SME Financial Reporting Framework Hong Kong

The SME-FRF sets out the principles and concepts for recognising, measuring and presenting elements in financial statements. It operates alongside the SME-FRS and replaces the requirement for companies to apply full HKFRS. A company that does not have public accountability and meets the size thresholds in section 359 of the Companies Ordinance (Cap. 622) may adopt this framework. Public accountability generally means that the company's securities are traded on a recognised stock exchange, or it holds assets in a fiduciary capacity for a broad group of outsiders.

Section 359 Reporting Exemption

The reporting exemption is found in section 359 of the Companies Ordinance. A private company qualifies if it meets the statutory criteria, which include limits on turnover and total assets. A qualifying company may apply the SME-FRF and SME-FRS instead of full HKFRS. The exemption reduces the volume of notes and disclosures in the financial statements, making compliance simpler and less costly. However, the exemption does not remove the requirement for a statutory audit. Audited financial statements must still be prepared and filed.

Hong Kong SME Accounting Standards

The SME-FRS is the standard that qualifying companies apply in place of full HKFRS. It covers the same core topics as HKFRS but with simplified recognition and measurement rules and fewer disclosure obligations. The HKICPA updates the SME-FRS periodically to align with changes in HKFRS where appropriate. A company that adopts the SME-FRS must disclose that fact in the notes to the accounts. The standard is designed for entities that prepare general purpose financial statements but do not have public accountability.

Reduced Disclosure Requirements Hong Kong

Reduced disclosure is the principal benefit of the SME-FRF and SME-FRS for qualifying companies. The framework removes many of the granular disclosure requirements found in HKFRS, including those relating to financial instruments, related party transactions and segment reporting. This reduction in disclosure obligations does not affect the audit requirement. The auditor must still express an opinion on whether the financial statements give a true and fair view in accordance with the SME-FRF and SME-FRS. Companies should confirm their eligibility under section 359 before adopting the framework and should consult their auditor or professional adviser on the correct application.