Frequently Asked Questions
Management accounts preparation
1. What accounting standards are adopted in Hong Kong?
Ans: The accounting standards being adopted are collectively called Hong Kong Financial Reporting Standards (HKFRS). It includes HKFRS, HKFRS for Private Entities, SME-FRF & SME-FRS, Hong Kong Accounting Standards (HKAS) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants. HKFRS is virtually identical to IFRS Standards.
2. Are there prescribed accounting software or chart of accounts?
Ans: Hong Kong companies are free to adopt their own accounting software and chart of accounts.
BDO is a global partner of the cloud accounting software, Xero. It offers accounting services using this software as well as other accounting software which a client may designate.
3. Is it necessary to use Chinese in bookkeeping and financial statements preparation?
Ans: Both English and Chinese are acceptable languages that can be used for accounts preparation.
4. Are there mandatory accounts presentation currency that a Hong Kong company must follow or use?
Ans: No, but in accounting for transactions denominated in a foreign currency, a company is required to observe and follow requirements under HKAS21 ‘The Effects of Changes in Foreign Exchange Rates’.
5. Is a company allowed to adopt a fiscal year other than calendar year?
Ans: It is not necessary to use calendar year as fiscal year. A company is free to determine its own fiscal year period based on its business cycle or that align with the fiscal year of its group companies. Once determined, such fiscal year should be applied consistently from time to time unless there are valid reasons for a change.
6. Is it a must for small companies to prepare accounts and how frequent these are required?
Ans: Under requirements of the Companies Ordinance, all Hong Kong companies, regardless of their size, must maintain proper accounting books and records, and prepare accounts that disclose with reasonable accuracy the financial position of the business in question at intervals of not more than six months.
In order to comply with such requirement and to allow sufficient time for processing the accounts, it is advisable to have management accounts prepared on a quarterly basis, if not monthly.
Even a company is temporarily exempted by the Inland Revenue Department for filing of annual Profits Tax Return due to loss position or other reasons, it is still obliged to comply with requirements under the Companies Ordinance.
Statutory audit
7. Is an annual audit compulsory? Any exemptions?
Ans: This is required for all Hong Kong companies limited by shares or by guarantee, including those companies that have not commenced business, are inactive, small in size or loss making.Exemption for audit only applies to those limited companies that have been granted ‘formal dormant status’ by the Companies Registry.
8. What is the deadline for completion of an annual audit?
Ans: Within nine months from fiscal year-end date, or before profits tax return filing deadline, if earlier.
Profits tax
9. What period does a year of assessment covers?
Ans: The tax year or year of assessment in Hong Kong runs from 1 April to 31 March of the following year. The year of assessment 2020/21 covers the period from 1 April 2020 to 31 March 2021.
10. What is a basis period?
Ans: Basis period for any year of assessment is the period which tax for that year will be computed. This refers to an accounting period/year that ends with an accounting date which falls within a year of assessment. For example, if a company’s accounting year runs from 1 January to 31 December, its profits for the calendar year 2020 will be assessed for the year of assessment 2020/21.
11. What are the profits tax filing deadlines?
Ans: Unless extended, annual profits tax return is generally due for filing within one month from the return issue date. Upon written request, the Inland Revenue Department normally accepts to extend the profits tax filing deadline as follows:
For companies with accounting date ends between:
a) 1 December to 31 December – until mid-August of the following year
b) 1 January to 31 March – until mid-November of the following year
c) 1 April to 30 November – end of April of the following year
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