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Presentation and Disclosures of Financial Statements

 

  


Background


This webpage contains pronouncements, guides and articles that are relevant to the presentation and disclosures of financial statements for the following projects:

  • Primary Financial Statements;
  • HKFRS Practice Statement 2 Making Materiality Judgements;
  • Disclosure of Accounting Policies; and
  • Classification of Liabilities as Current or Non-current.

 

Primary Financial Statements

 

About the project

The International Accounting Standards Board (IASB)’s Primary Financial Statements project is part of its work on Better Communication in Financial Reporting. The IASB has developed the proposals in response to the strong demand from stakeholders, in particular users of financial statements, to undertake a project to address concerns about the comparability and transparency of companies’ performance reporting. The proposals would result in a new IFRS Standard that sets out general presentation and disclosure requirements relevant for all companies, replacing IAS 1 Presentation of Financial Statements.

 

The IASB’s main proposals are as follows:

  • new requirement to present additionally defined subtotals in the statement of profit or loss;
  • strengthening requirements for the disaggregation of information, including requirements to analyse operating expenses and identify unusual income and expenses;
  • new requirements to disclose information about management performance measures in the notes to the financial statements, including reconciliation to measures specified by IFRS Standards; and 
  • targeted improvements to the statement of cash flows.

 

The IASB published its Exposure Draft ED/2019/7 General Presentation and Disclosures (ED) in December 2019 to seek public comments. The Hong Kong Institute of Certified Public Accountants (Institute) has conducted various other forms of outreach activities to solicit views from local stakeholders and submitted its comment letter to the IASB on this ED on 28 September 2020. The submission, together with comment letters received and meeting summary for our outreach activities are available at the Institute’s website.

 

Recent and upcoming activities

The IASB discussed the feedback on this ED in its December 2020 and January 2021 meetings. The IASB began redeliberation of the related proposals in its March 2021 meeting and will continue the redeliberation at its future meetings. Details of the IASB’s development on this project can be found in the IASB’s project page.

 

HKFRS Practice Statement 2 Making Materiality Judgements

 

The Institute issued HKFRS Practice Statement 2 Making Materiality Judgements in March 2021.

 

A Practice Statement is non-mandatory guidance and it is not a Standard. It does not change or introduce any requirements in HKFRS, and companies are not required to comply with it to state compliance with HKFRS.

 

HKFRS Practice Statement 2 is equivalent to IFRS Practice Statement 2 Making Materiality Judgements, and provides the following:

  • An overview of the general characteristics of materiality.
  • A four-step process an entity may follow in making materiality judgements when preparing its financial statements (materiality process). The description of the materiality process provides an overview of the role materiality plays in the preparation of financial statements, with a focus on the factors the entity should consider when making materiality judgements.
  • Guidance on how to make materiality judgements in specific circumstances, namely, how to make materiality judgements about prior-period information, errors and covenants, and in the context of interim reporting.

 

An entity that chooses to apply the guidance in HKFRS Practice Statement 2 is permitted to apply it to financial statements prepared from 22 March 2021.

 

Recent amendments to the presentation and disclosures of financial statements

 

Disclosure of Accounting Policies

 

The amendments to Disclosure of Accounting Policies amended HKAS 1 Presentation of Financial Statements and HKFRS Practice Statement 2, and were issued in April 2021 following feedback that more guidance was needed to help companies decide what accounting policy information should be disclosed. The amendments to HKAS 1 on the Disclosure of Accounting Policies project require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendments to HKFRS Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures.

 

The amendments to HKAS 1 on the Disclosure of Accounting Policies project will be effective for annual reporting periods beginning on or after 1 January 2023, with early application permitted. The amendments to HKFRS Practice Statement 2 should only be applied when an entity applies the amendments to HKAS 1 on the Disclosure of Accounting Policies project.

 

Classification of Liabilities as Current or Non-current

 

Background

The amendments to Classification of Liabilities as Current or Non-current amended HKAS 1 (Amendments to HKAS 1 (2020)) and were issued in August 2020 to clarify how to classify debt and other liabilities as current or non-current. In particular, the Amendments to HKAS 1 (2020) clarify that an entity’s right to defer settlement as described in paragraph 69(d) of HKAS 1 must exist at the end of the reporting period, and delete the word ‘unconditional’ from the classification principle in that paragraph. The Amendments to HKAS 1 (2020) also include clarification on the classification requirements for debt a company might be settled by converting into its equity instruments.

 

As a consequence of Amendments to HKAS 1 (2020), Hong Kong Interpretation 5 Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause was revised in October 2020 (HK-Int 5 (2020) )to align with the corresponding wording with no change in conclusion.

 

HK Int-5 (2020) should only be applied when an entity applies the Amendments to HKAS 1 (2020). The Amendments to HKAS 1 (2020) are effective for annual periods beginning on or after 1 January 2023, and earlier application is permitted. 

 

IASB developments

In December 2020, the IFRS Interpretations Committee (IC) published a tentative agenda decision (TAD) Classification of Debt with Covenants as Current or Non-current in response to informal feedback and enquiries about how an entity applies Amendments to IAS 1 (2020) to particular fact patterns.

 

The IC discussed the comments it received on the TAD and confirmed its agreement with the technical analysis and conclusions on the TAD at its April 2021 meeting. Nevertheless, given the significant concerns raised by respondents to the TAD, the IC decided to refer the matter to the IASB for discussion. 

 

At the June 2021 IASB meeting, the IASB discussed and tentatively decided to propose narrow-scope amendments to IAS 1, which would modify the requirements introduced in the Amendments to IAS 1 (2020) on how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances (See IASB June 2021 Update for details).

 

At the July 2021 IASB meeting, the IASB discussed the transition requirements, early application of the proposed amendments to IAS 1, and the related due process. The IASB plans to publish an exposure draft in October 2021. Details of the IASB’s development on this project can be found in the IASB’s project page.

 

Separately, the IC will withdraw a related IFRIC agenda decision (Current/non-current classification of a callable term loan) issued in November 2010 once the Amendments to IAS 1 (2020) becomes effective.

 

Focus:



Additional references issued and support by the Institute

 

Useful references issued by other organisations

Deloitte

file/media/general/SMP-and-SME-Resource-Centre/901BTRIBe.gif EY
file/media/general/SMP-and-SME-Resource-Centre/901BTRIBe.gif KPMG
PwC

 

  

   
   

 
 

 

Frequently used resources

 
 



Technical enquiries

  Click here to submit questions on standards issued by the Institute.
   
 


Last updated: August 2021



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