The directors of every Hong Kong company must lay before the members of the company in general meeting a copy of the company’s reporting documents (i.e. the financial statements, the auditor’s report and the directors’ report) in each financial year.
The directors must prepare the financial statements in compliance with sections 380 and 383 of the Companies Ordinance (Chapter 622, Laws of Hong Kong) (“CO”).
If a company is a holding company and is not a wholly-owned subsidiary of another company at the end of the financial year, instead of individual financial statements being prepared for each of its subsidiaries, the directors of the holding company must prepare consolidated statements that comply with sections 380, 381 and 383 of the CO.
Consolidated statements will not be required where the holding company is itself a partially-owned subsidiary of another company, and at least six months prior to the end of the financial year, the directors notify the members in writing of its intention not to prepare consolidated financial statements for that financial year.
General content requirements
The general content requirements for annual financial statements are set out in sections 380, 381, 383 and Schedule 4, Part 1 of the CO. The annual financial statements for a financial year must include, inter alia:
- a true and fair view of the financial position of the company and its subsidiaries (if any) as at the end of the financial year and a true and fair view of the financial performance of the company and its subsidiaries (if any) for the financial year;
- the aggregate amount of any outstanding authorised loans made under section 280 and 281 of the CO (in relation to employee share schemes and loans to employees);
- information regarding the directors’ emoluments, retirement benefits, loans in favour of directors or entities connected with such directors; and material directors’ interests in the company’s transactions;
- a statement that they have been prepared in accordance with the applicable accounting standards, and if not, the reasons for any material departure from those standards; and
- in the case of a subsidiary, the name of its ultimate parent company and that parent company’s name, particulars of its directors and place of incorporation of principal place of business.
The financial statements of a company must be prepared in accordance with the applicable accounting standards. The Companies (Accounting Standards (Prescribed Body)) Regulation states that the Hong Kong Institute of Certified Public Accountants shall be the body that issues or specifies the relevant accounting standards to be applied, which include:
- the Hong Kong Financial Reporting Standards;
- the Hong Kong Financial Reporting Standard for Private Entities; and
- the Small and Medium-sized Entities Financial Reporting Standard.
Specific Content Requirements
Pursuant to s.358(3), CO, a company’s financial statements for a financial year beginning on or after the 3 March 2014 should comply with ss.380-383, 436 and 449.
S.380, CO contains the general requirements for financial statements, while specific accounting disclosures are set out in Parts 1 and 2 of Schedule 4, CO, which include the following:
- There must be a disclosure of the aggregate amount of any outstanding loans made to eligible employees under the authority of ss.280 and 281 during the financial year.
- If consolidated reports are made for a group of companies, such consolidated financial statements must contain, in the notes to the statements, the holding company’s statement of financial position and a note disclosing the movement in the holding company’s reserves. The holding company’s statement of financial position is not required to contain any notes, but will need to be prepared in the format in which that statement would have been prepared if the holding company had not prepared consolidated financial statements.
- Where at the end of the financial year, the company is a subsidiary of another undertaking, the notes to the company’s financial statements for that financial year must disclose the name of the ultimate parent undertaking, together with its country of incorporation (if it is a body corporate) or its principal place of business (if it is not a body corporate).
- The financial statements must include a statement of whether they have been made in accordance with the applicable accounting standards within the meaning of s.380, CO.
Unless a company falls within the reporting exemptions in sections 359 and 388(3), CO in a financial year, the company’s financial statements must also state, under a separate heading, the remuneration of the auditor.
Companies falling within the reporting exemptions
A company falling within the reporting exemptions detailed in sections 359 to 366 and Schedule 3 of the CO is subject to simplified financial reporting, in that:
- it is not required to disclose the remuneration of its auditors in financial statements;
- there is no requirement for its financial statements to give a “true and fair view”;
- there is no requirement for the auditor to express a “true and fair view” opinion on the financial statements; and
- its subsidiaries may be excluded from consolidated financial statements in accordance with applicable accounting standards.
Approval and signing of the statement of financial position
- Where a statement of financial position forms part of a company’s financial statements, such statement of financial position must be approved by the company’s directors, and must be signed by two directors on behalf of all the directors, or where there is only one director, by the sole director.
- The name(s) of the director(s) signing must also be stated.