Hong Kong S.A.R., China

The Companies Ordinance (Cap 622) sets out financial reporting requirements for all companies incorporated in Hong Kong S.A.R. and requires companies to apply accounting standards developed by the Hong Kong Institute of Certified Public Accountants (HKICPA). HKICPA’s standard-setting function is overseen by the Accounting and Financial Reporting Council (AFRC) of the Hong Kong Special Administrative Region (S.A.R.), under the Accounting and Financial Reporting Council Ordinance of 2021.

HKICPA develops and issues Hong Kong Financial Reporting Standards (HKFRS), which are converged with the International Financial Reporting Standards (IFRS) and that are to be applied in the preparation of annual financial statements.

Small- and Medium- sized Entities (SME) have the option of applying the HKFRS for Private Entities, which are developed and issued by HKICPA and is virtually identical to the IFRS for SMEs. Companies (except banks, licensed corporations, insurers, and other financing entities) that are incorporated in Hong Kong S.A.R. and fulfill the reporting exemption criteria of the Companies Ordinance, have the option of applying the SME Financial Reporting Framework and Financial Reporting Standard (SME-FRF & FRS), which are also developed and issued by HKICPA.

In addition to requirements set out in the Companies Ordinance, there are additional financial reporting requirements for listed companies, banks, and insurance companies. All listed companies, local or foreign, are subject to requirements as set out in the Hong Kong Stock Exchange (SEHK) Listing Rules and the Securities and Futures Ordinance (Cap 571). The Banking Ordinance (Cap 155) authorized the Hong Kong Monetary Authority to set financial reporting requirements for licensed banks, restricted banks, and deposit-taking companies. The Insurance Ordinance (Cap 41) authorized the Insurance Authority to set financial reporting requirements for insurance companies. Listed companies, banks and insurance companies follow HKFRS. Mainland Chinese companies that are listed on the SEHK have an option of following HKFRS or China Accounting Standards for Business Enterprises, which are developed by the Accounting Regulatory Department of the Ministry of Finance of the People’s Republic of China and are substantially converged with IFRS.

HKICPA also develops and issues Hong Kong Standards on Auditing (HKSA). HKSA are converged with the International Standards on Auditing and are to be applied in audits of financial statements. All companies registered in Hong Kong S.A.R. are required to have their financial statements audited. 

The accountancy profession in Hong Kong S.A.R. is regulated by the Accounting and Financial Reporting Council (AFRC) of the Hong Kong Special Administrative Region (S.A.R.), under the Accounting and Financial Reporting Council Ordinance of 2021 (AFRCO).

Professional accountants in Hong Kong S.A.R. are designated as Certified Public Accountants (CPA) and Certified Public Accountants Practicing (CPA (Practicing)) for auditors under the Professional Accountants Ordinance and the AFRCO respectively. These designations are conferred by HKICPA and the AFRC respectively and membership of HKICPA is mandatory for auditors.

To qualify as a CPA, individuals can complete the Qualification Program (QP) offered by HKICPA. The QP comprises three levels namely Associate Level, Professional Level, and Capstone. After completing the Capstone level, there is a final examination. Individuals are also required to accumulate at least three years relevant working experience set under the Practical Experience Framework. Individuals who wish to practice as auditors (CPA Practicing) are required to satisfy up to four-years of full-time approved work experience, pass relevant Practicing Certificate examinations in auditing, local law, and taxation (if not qualified through the QP), and complete relevant CPD.

The AFRC is responsible for regulating all CPAs (Practicing), practice units, and CPAs in Hong Kong S.A.R. through inspection (quality assurance) and investigation and discipline (I&D), including issuing practicing certificates and registering audit firms. The HKICPA is responsible for organizing the CPA examinations; registering CPAs; accounting, sustainability, auditing, and ethics standard-setting; and establishing CPD requirements, all under the oversight of the AFRC.

There are currently no established independent audit oversight arrangements in Hong Kong, with the conduct of auditors monitored by the Hong Kong Institute of Certified Public Accountants (HKICPA).

Under the Professional Accountants Ordinance, HKICPA is responsible for maintaining a registry of all professional accountants and firms, regulating the practice of accountancy professionals by establishing quality assurance reviews and an investigation and discipline systems for members and member firms, setting ethical requirements for members, setting auditing and accounting standards to be applied in Hong Kong, and setting initial professional development and continuing professional development requirements.

Established in 2006 under the Financial Reporting Council Ordinance, the Financial Reporting Council (FRC) is an independent statutory body with the role of conducting independent investigations into auditing and reporting irregularities in relation to listed companies, and enquiring into possible non-compliance with accounting requirements on the part of listed companies. However, the FRC has no disciplinary authority and all findings by the FRC that concern HKICPA members and member firms are referred to the HKICPA.

HKICPA reports that the system of audit regulation in Hong Kong is undergoing changes to introduce an independent oversight of the inspection of listed company audits. In June 2015, the Financial Services and Treasury Bureau (FSTB) of the Hong Kong Government concluded a consultation on proposals to introduce an independent regulatory regime for listed entity auditors in Hong Kong and a summary of the consultation and comments to the consultation has been released to the public. Based on the conclusions of the consultation, which included overwhelming support to establish an independent regulatory regime for auditors of listed entities, the FSTB plans to prepare legislation during the 2017–2018 Hong Kong Government Legislative Session.

The Hong Kong Institute of Certified Public Accountants (HKICPA)

HKICPA was established in 1973 under the Professional Accountants Ordinance (PA Ordinance) and is a membership organization for professional accountants. Please refer to the Regulation section for responsibilities of HKICPA.

In addition to being an IFAC Member, HKICPA is a member of the Global Accounting Alliance.

Under the Accounting and Financial Reporting Council Ordinance of 2021 (AFRCO), the Accounting and Financial Reporting Council (AFRC) is responsible for all quality assurance (QA) review functions in Hong Kong S.A.R. The QA system in place is aligned with SMO 1 requirements.

The Hong Kong Institute of Certified Public Accountants (HKICPA) has authority to set relevant audit standards, and this includes the adoption of the Hong Kong Standard on Quality Management (HKSQM).

Current Status: Adopted

Under the Professional Accountants Ordinance, the Hong Kong Institute of Certified Public Accountants (HKICPA) is responsible for setting initial professional development (IPD) and continuing professional development (CPD) requirements for all professional accountants in Hong Kong S.A.R. This function is conducted under the oversight of the Accounting and Financial Reporting Council (AFRC).

Professional accountants in Hong Kong S.A.R. are defined as Certified Public Accountants (CPAs) and Certified Public Accountants Practicing (CPA (Practicing)) for auditors.

To qualify as a CPA, individuals can complete the Qualification Program (QP) offered by HKICPA. The QP comprises three levels namely Associate Level, Professional Level, and Capstone. After completing the Capstone level, there is a final examination. Individuals are also required to accumulate at least three years’ relevant working experience set under the Practical Experience Framework. Individuals who wish to practice as auditors (CPA Practicing) are required to satisfy up to four-years of full-time approved work experience, and pass relevant Practicing Certificate examinations in auditing, local law, and taxation (if not qualified through the QP). All HKICPA members must complete CPD requirements which align to IES 7.

HKICPA reports that its education requirements follow the latest IES, and in some areas are more stringent.

The HKICPA QP is benchmarked to several qualifications of other leading professional accountancy organizations. Regular reviews of the QP are conducted amongst accountancy member bodies of the Global Accounting Alliance.

Current Status: Adopted

Under the Accounting and Financial Reporting Ordinance of 2021, the Accounting and Financial Reporting Council (AFRC) is responsible for overseeing audit standard-setting activities. Under AFRC oversight, the Hong Kong Institute of Certified Public Accountants (HKICPA) continues to set audit standards. The latest Statement of Protocol on oversight arrangements was signed between the AFRC and HKICPA in August 2022.

Hong Kong Standards on Auditing have been continuously updated to converge with the ISA issued by the IAASB since 2005. The Hong Kong Standards on Auditing are issued by the Auditing and Assurance Standards Committee of HKICPA.

Current Status: Adopted

Under the Accounting and Financial Reporting Ordinance of 2021, the Accounting and Financial Reporting Council (AFRC) is responsible for overseeing the setting of ethical standards and related requirements. Under AFRC oversight, the Hong Kong Institute of Certified Public Accountants (HKICPA) continues to set ethical requirements. The latest Statement of Protocol on oversight arrangements was signed between the AFRC and HKICPA in August 2022.

HKICPA has developed its own Code of Ethics and Chapter A of its Code is identical to the 2022 International Code of Ethics. Additional Chapters C to F are included in the HKICPA Code as guidance for members to reflect local circumstances and provide guidance on other topics such as insolvency, liquidation, and anti-money laundering.

Current Status: Adopted

Under the Public Finance Ordinance (CAP 2), public sector entities in Hong Kong S.A.R. apply national standards on a cash and accrual-basis.

Central government accounts are prepared on a cash basis. Annual consolidated “whole of government” accounts that include all government-controlled entities are prepared on an accrual basis. Public sector entities that are listed on the Hong Kong Stock Exchange prepare financial statements in accordance with Hong Kong Financial Reporting Standards.

Accrual-basis IPSAS have not been adopted and the HKICPA has not been made aware of any plans by the local government to adopt the standards.

Current Status: Partially Adopted

Under the Accounting and Financial Reporting Council Ordinance of 2021, the Accounting and Financial Reporting Council (AFRC) is responsible for investigation and disciplinary procedures for all professional accountants in Hong Kong S.A.R. The I&D system in Hong Kong S.A.R. is aligned with SMO 6 requirements.

Current Status: Adopted

Under the Accounting and Financial Reporting Ordinance of 2021, the Accounting and Financial Reporting Council (AFRC) is responsible for overseeing the setting of financial reporting standards. Under AFRC oversight, the Hong Kong Institute of Certified Public Accountants (HKICPA) continues to set financial reporting standards. The latest Statement of Protocol on oversight arrangements was signed between the AFRC and HKICPA in August 2022.

HKICPA develops and issues Hong Kong Financial Reporting Standards (HKFRS), which are converged with the International Financial Reporting Standards (IFRS) and are to be applied in the preparation of annual financial statements by most companies. Listed companies, banks, and insurance companies (i.e., public interest entities) must follow HKFRS.

Small- and Medium- sized Entities (SME) have the option of applying the HKFRS for Private Entities, which are issued by the HKICPA and is virtually identical to the IFRS for SMEs. Companies (except public interest entities) that are incorporated in Hong Kong S.A.R. and fulfill the reporting exemption criteria of the Companies Ordinance, have the option of applying the SME Financial Reporting Framework and Financial Reporting Standard (SME-FRF & FRS), which are also developed and issued by HKICPA.

Companies that are incorporated outside Hong Kong S.A.R. and foreign companies which are listed in Hong Kong S.A.R. are permitted to use HKFRS, IFRS, US GAAP or CASBE if they meet specified criteria.

Current Status: Adopted

Relevant Organizations

• HYPERLINK "https://www.afrc.org.hk/" Accounting and Financial Reporting Council (AFRC)
• Hong Kong Institute of Certified Public Accountants (HKICPA)

Relevant Legislation

• Companies Ordinance (Cap 622)
• Accounting and Financial Reporting Council Ordinance, (Cap 588)
• Professional Accountants Ordinance, (Cap 50)
• Securities and Futures Ordinance, (Cap 571)

Relevant Publications

• HKICPA, SMO Action Plan, 2023.
• IFRS Foundation, “IFRS Application Around the World?Jurisdictional Profile: Hong Kong”, Nov 2018