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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;
  • Classification of Liabilities as Current or Non-current; and
  • Non-current Liabilities with Covenants.

 

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) conducted various 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 summaries for our outreach activities are available at the Institute’s website.

 

Recent and upcoming activities

The IASB discussed the feedback on this ED at its December 2020 and January 2021 meetings. The IASB began redeliberation of the related proposals at its March 2021 meeting and will continue the redeliberation at its future meetings. The IASB has made tentative decisions on certain key aspects of the proposals. 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

 

In April 2021, the Institute issued Disclosure of Accounting Policies, which amended HKAS 1 Presentation of Financial Statements and HKFRS Practice Statement 2, to provide more guidance for companies to 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 & Non-current Liabilities with Covenants

 

In August 2020, the Institute issued Classification of Liabilities as Current or Non-currentwhich amended HKAS 1 (2020 Amendments). The amendments provide further guidance on how to classify debt and other liabilities as current or non-current. In particular, the 2020 Amendments specify 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 2020 Amendments also include clarification on the classification requirements for debt a company might be settled by converting into its equity instruments.

 

In December 2022, the Institute issued Non-current Liabilities with Covenants (2022 Amendments) to deal with the classification of long-term loan arrangements with covenants as current or non-current, and defer the effective date of the 2020 Amendments to align with the effective date of the 2022 Amendments. Both the 2020 and 2022 Amendments are to be applied as a package and are effective for annual reporting periods beginning on or after 1 January 2024, with early adoption permitted.

 

As a consequence of the publications of the 2020 Amendments and the 2022 Amendments, Hong Kong Interpretation 5 Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause (HK-Int 5 (Revised) has been updated to incorporate the references to these amendments, but its conclusions are not impacted by these amendments.

 

HK Int-5 (Revised) should only be applied together with both the 2020 and 2022 Amendments which are effective for annual reporting periods beginning on or after 1 January 2024, and earlier application is permitted.

 

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 2020 Amendments become effective.

 

 

 

Focus:



Additional references issued and support by the Institute

 

Aplus articles

 

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: December 2022



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