SME-FRF & SME-FRS (Revised)
Effective for a Qualifying Entity's financial statements which cover a period beginning on or after 3 March 2014 – Early application is not permitted

 

Click here to download the SME-FRF & SME-FRS (Revised), including the illustrative financial statements.

 

Qualifying criteria for the companies incorporated under the Hong Kong Companies Ordinance

 

A company incorporated under the Hong Kong Companies Ordinance qualifies for reporting under the SME-FRF & SME-FRS if it satisfies the 'reporting exemption' criteria as set out in section 359 of the new Companies Ordinance. Such criteria are highlighted in Paragraphs 22-43 of SME-FRF (Revised) and the qualifying categories are summarised as follows:

 

 

Eligible categoriesSize testApproval from shareholdersSection reference
1.A private company which has no subsidiary and is not a subsidiary of another company

(i.e. this is the type of private company which would have qualified for the reporting exemption under section 141D of the predecessor Companies Ordinance)
No size test is required

100% written approval from shareholders is required for each year

 

(Note: if the private company also qualifies under category 2 below, approval from shareholders would not be required)

SME-FRF
Para 43
2.Small private company

The small private company must not exceed any two of the following:


(a) Total annual revenue of HK$100 million

(b) Total assets of HK$100 million at the end of the reporting period

(c) 100 employees

Approval from shareholders is not required under the new Companies Ordinance

SME-FRF

Paras 36-37

3.

A group of small private companies

(a) Each company in the group must qualify as a small private company; and

(b) The aggregate amounts for the group must not exceed 2 out of 3 of the size tests for small private companies

 

Approval from shareholders is not required under the new Companies OrdinanceSME-FRF
Paras 36-37
4.Small company limited by guaranteeThe total annual revenue of the small company limited by guarantee must not exceed HK$25 million. Approval from members is not required under the new Companies Ordinance

SME-FRF

Paras 34-35
5.A group of small companies each limited by guarantee

(a) Each company in the group must qualify as a small company limited by guarantee; and

(b) The aggregate annual revenue of the group must not exceed HK$25 million

Approval from members is not required under the new Companies Ordinance

SME-FRF

Paras 34-35
6.Larger "eligible" private company

The private company must not exceed any two of the following:


(a) Total annual revenue of HK$200 million

(b) Total assets of HK$200 million at the end of the reporting period

(c) 100 employees

At least 75% of all the members must pass a resolution at a general meeting that the company is to fall within the reporting exemption for the financial year, with none objecting either at the meeting or otherwise in writing*

SME-FRF
Paras 38-39, 42
7.A group of "eligible" companies

(a) Each company in the group must meet either the size test of small private company or larger "eligible" private company; and

(b) The aggregate amounts for the group in total must not exceed 2 out of 3 of the size tests for larger "eligible" private companies

All the companies in the group individually, as well as the parent of the group, must have obtained the necessary shareholder approval* (except for those subsidiaries within the group that fall within the "small private company" category)

SME-FRF

Paras 38-39, 42

 

 

* For the larger "eligible" category of private companies or groups (Category 6 and 7 above), the 75% vote is calculated as a percentage of the entire shareholding of a company, not simply as a percentage of the shareholders who attend the general meeting. The resolution is defeated if any member objects either at the meeting or at any time by giving notice in writing to the company, provided that written notice is given at least 6 months before the end of the financial year to which the objection relates.

The new Companies Ordinance sets out specific requirements relating to the determining which years are relevant for passing the size tests. In general, a company will have to pass the size tests for two consecutive years in order to become eligible in the 3rd year. Similarly a company would generally have to fail the tests for two consecutive years in order to become ineligible in the 3rd year. However, there are specific transitional rules in this regard which apply in the first year that this part of the new Companies Ordinance comes into operation and also in any year in which a group acquires a new subsidiary. It is therefore important to take care to refer to the relevant sections of the new Companies Ordinance when determining whether a company is eligible.

The following types of company are not eligible for the reporting exemption under the new Companies Ordinance and so are not permitted to prepare their financial statements in accordance with SME-FRF & SME-FRS:

 

  • companies that are authorized under the Banking Ordinance to carry out banking business;
  • companies that accept, by way of trade or business (other than banking business) loans of money at interest or repayable at a premium, other than on terms involving the issue of debentures or other securities;
  • companies that are licensed under Part V of the Securities and Futures Ordinance to carry on a regulated business; or
  • companies that carry on any insurance business, other than solely as an agent.

Groups which contain such companies are also not eligible for the reporting exemption and so cannot prepare consolidated financial statements under the SME-FRF and SME-FRS.

 

 

Qualifying criteria for the companies NOT incorporated under the Hong Kong Companies Ordinance

 

Subject to any specific requirements imposed by the law of the company's place of incorporation and subject to its constitution, these companies qualify for reporting under the SME-FRF & SME-FRS (Revised) when they meet the same requirements that a Hong Kong incorporated company is required to meet under section 359 of the new Companies Ordinance.

 

Reference material

 

 

 

 

Last updated: 18 September 2014