- Hong Kong has three financial reporting frameworks: full HKFRS, HKFRS for Private Entities, and SME-FRF and SME-FRS.
- Public accountability determines whether a company can use HKFRS for Private Entities. The Companies Ordinance reporting exemption determines whether it can use SME-FRS.
- The reporting exemption simplifies financial reporting but does not remove the audit requirement.
- SME-FRS uses a historical-cost approach, does not recognise deferred tax, and makes the cash flow statement optional. Certain regulated businesses are excluded from the SME-FRF.
Hong Kong accounting standards are often treated as one rulebook, but companies can report under different frameworks. The practical question is usually not which standard is “better”, but which framework applies to your company and what changes when you use it.
There are three: full HKFRS, HKFRS for Private Entities, and SME-FRF and SME-FRS. This guide explains how the frameworks differ, who can use them, what the reporting exemption changes, and how to check which framework your company is already using.
Which accounting framework does your Hong Kong company use?
A Hong Kong company generally starts with full HKFRS, unless it qualifies for and uses another available framework. Two separate gates affect the choice: public accountability affects eligibility for HKFRS for Private Entities, while the Companies Ordinance reporting exemption determines whether SME-FRS is available.
|
Full HKFRS |
HKFRS for Private Entities |
SME-FRF and SME-FRS |
|
|
Who it’s for |
Companies without a suitable simplified framework, including companies with public accountability |
Private entities without public accountability |
Companies that qualify for the reporting exemption |
|
Main gate |
Default framework |
No public accountability |
Reporting exemption |
|
True and fair view |
Required |
Required |
Not required |
|
Reporting burden |
Highest |
Reduced |
Simplest |
|
Audit still required? |
Yes |
Yes |
Yes |
HKICPA issues all three frameworks. They are separate reporting options rather than different versions of the same framework.
Full HKFRS
Full HKFRS is the default framework. It covers recognition, measurement, presentation and disclosure for general purpose financial statements and is designed to produce financial statements that give a true and fair view.
HKFRS for Private Entities
HKFRS for Private Entities is available to private entities without public accountability. Company size alone does not determine eligibility: a large private group may qualify, while a smaller company with publicly traded debt may not. Detailed eligibility rules and the 2027 revision are covered in the HKFRS for Private Entities guide.
SME-FRF and SME-FRS
SME-FRF sets the eligibility framework, while SME-FRS is the accounting standard used once a company qualifies. The reporting exemption under the Companies Ordinance is the statutory gateway to SME-FRS.
A "true and fair view" is the standard an auditor's opinion is measured against. It says the accounts present the company's position and performance faithfully, not merely that they follow a rulebook. Companies inside the reporting exemption are released from it, which is the clearest signal that their accounts are built for a narrower audience.
When can a company use SME-FRS, and what does the reporting exemption change?
A company can use SME-FRS when it qualifies for the Companies Ordinance reporting exemption and is not excluded by the legislation. The exemption is based on statutory tests rather than a general election based on preference.
A small private company generally qualifies by meeting at least two of these three conditions in a financial year:
- Total revenue of no more than HK$100 million
- Total assets of no more than HK$100 million
- No more than 100 employees
An eligible private company can use higher thresholds of HK$200 million revenue, HK$200 million assets and 100 employees, subject to the required member approval. A small guarantee company qualifies based on revenue of no more than HK$25 million. Group companies generally test the relevant aggregate figures rather than the individual company’s figures.
A stand-alone private company can also use a 100% written members’ agreement for the relevant year without applying the size test, subject to the statutory requirements.
Which companies cannot use SME-FRS?
Certain regulated or otherwise specified companies are excluded from the SME-FRF even if their size falls within the thresholds. These include:
- Companies carrying on banking business under a valid banking licence
- Corporations licensed under Part V of the Securities and Futures Ordinance to conduct regulated activities
- Companies carrying on insurance business, other than solely as an agent
- Businesses that accept loans of money at interest or at a premium as a trade or business, subject to the statutory exceptions
A holding company can also be excluded if a group member falls into one of these categories.
What does the reporting exemption actually change?
The reporting exemption reduces certain financial reporting requirements, but it does not remove the audit requirement.
A qualifying company may:
- Omit auditor remuneration disclosures
- Omit donation disclosures
- Exclude certain director interest disclosures
- Skip the business review
- Prepare its accounts under SME-FRF and SME-FRS
- Apply the simplified framework without the true and fair view requirement
The audit requirement remains. Section 447 of the Companies Ordinance continues to require an audit for companies within the reporting exemption, subject to the separate rules for dormant companies.
For the separate question of whether a company can avoid an audit, see the guide on which small companies qualify for simplified reporting.
The higher size thresholds aren't something a company can elect into on its own. An eligible private company needs a resolution passed by members holding at least 75% of all voting rights, and no member may vote against it. Check the register before assuming the larger limits apply, because a single dissenting member closes that route.
What actually changes in the accounts under SME-FRS?
SME-FRS generally reduces the complexity of measurement and disclosure compared with the full frameworks. It uses a historical-cost approach and has specific simplifications for areas such as deferred tax and cash flow reporting.
|
Full HKFRS / HKFRS for Private Entities |
SME-FRF / SME-FRS |
|
|
Measurement |
Fair value is used in many areas |
Historical cost convention |
|
Deferred tax |
Recognised |
Not recognised; tax is accounted for on a payable basis |
|
Cash flow statement |
Required |
Optional |
|
True and fair view |
Required |
Not required |
|
Notes and disclosures |
Full, or reduced under HKFRS for Private Entities |
Lighter, including the Companies Ordinance omissions |
A company that qualifies for SME-FRS can still choose to use a heavier framework. The trade-off is potentially greater preparation and reporting work.
How do I know which accounting framework my company is using?
The easiest place to check is your latest audited financial statements. Look at the basis of preparation note, usually near the beginning of the accounts, to see which framework was used. The auditor’s report can provide another indication.
If you don’t have the accounts available, ask your accountant. In practice, the accountant and auditor normally handle the framework assessment; management mainly needs to understand which framework the company uses and what that means for reporting.
It’s also worth checking any facility agreements, shareholder agreements or group reporting requirements, as they may specify a particular reporting framework.
When does a company need to move away from SME-FRS?
A company generally becomes ineligible for the SME-FRF after failing the relevant size tests for two consecutive years. Eligibility and ineligibility are therefore assessed over more than a single year’s results.
A move may also become necessary because:
- The company fails two of the three size tests for two consecutive years
- A facility, shareholder or investment agreement requires a heavier framework
- The company joins a group that reports under a heavier framework
- The company falls within a statutory exclusion under section 359(4)
A one-year increase in revenue or assets does not automatically mean the company must move frameworks. When a change is expected, discuss it with the auditor early because comparative figures may need to be restated on the new basis.
How Sleek helps with accounting and audit under the right framework
Sleek can support companies with bookkeeping, accounting and statutory audit services based on the reporting framework that applies.
With Sleek, you can:
- Prepare your accounts: bookkeeping and statutory account preparation under the relevant framework
- Keep accounting and audit aligned: coordinate accounting and statutory audit work across the same reporting cycle
- Get help with framework questions: understand how the reporting exemption and other eligibility rules affect your accounts
- Review costs upfront: see Sleek’s Hong Kong pricing and explore the accounting and audit FAQs
You don’t need to change providers simply because you’re reviewing your accounting framework. If your existing accountant is handling the framework correctly, the main step is to make sure the accounting and audit work is aligned with your financial year end.
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FAQs about Hong Kong accounting standards
No. HKICPA’s full HKFRS Accounting Standards include Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKAS) and interpretations. HKAS is not a fourth reporting option. Individual numbered standards sit inside full HKFRS; revenue, for example, is HKFRS 15 from 1 January 2018, not HKAS 18.
They are closely aligned but separately issued. A Hong Kong company reports under HKFRS. Naming IFRS in a shareholder or facility agreement isn’t the same as naming HKFRS, so check the wording before relying on it.
No. They have mixed the reporting exemption up with an audit exemption Hong Kong does not give ordinary trading companies. Section 447 of the Companies Ordinance still requires an audit, including for companies inside the exemption. Dormant companies are the only carve-out. The exemption only lightens what you disclose.
Yes, if you qualify again under the reporting exemption. Comparatives have to be put onto the new basis, so treat it as a planned change rather than a year-end surprise. Confirm eligibility, including the two-year size tests, before you instruct the switch.
Not automatically. The Companies Registry’s position is that a listed parent’s subsidiary can still fall inside the reporting exemption if it meets the size or consent tests and is not a company specified in section 359(4). Being in a listed group is not, by itself, the lock-out.
Yes. A copy of the section 360 resolution, or of a section 359(1)(b) written agreement, must be delivered to the Registrar within 15 days after it is passed or made. Missing that filing doesn’t rewrite the size tests, but it does leave the consent trail incomplete.
Yes. Incorporation, company secretarial, accounting and audit are separate services, and you can take any combination. Many companies start with incorporation and secretarial, then move accounting across at their first year end.
Two or three months before your financial year end, and earlier if your year end is a common one. Auditors book capacity around year-end dates, so the longer you leave it, the narrower your choice of firm and timing.
