Policy Statement & Submission


Exposure Draft of "Proposed Small and Medium-Sized Entity Financial Reporting Framework (SME-FRF) and Financial Reporting Standard (SME-FRS)"

28 April 2005
Our Ref: SME/CC/86

Mr Paul M P Chan
GAAP for Small Businesses Working Group
Hong Kong Institute of Certified Public Accountants
4/F Tower Two, Lippo Centre
89 Queensway, Hong Kong

Dear Paul

Thank you for taking time from your busy schedule to discuss with us the HKICPA Exposure Draft of SME Financial Reporting Framework and Financial Reporting Standard.

We appreciate the HKICPA's initiative to develop a separate financial reporting standard for SME to relieve their burden on compliance on the international accounting standard which was more relevant for listed companies with cross border financing.

We feel that the definition of SME should be as simple as possible. On the number of employees, the figure for Mandatory Provident Fund or year-end payroll could be adopted as seasonal fluctuation in Hong Kong is small because of the services nature of businesses. On turnover, there could be different interpretations for the figure, for example gross/net/less rebate, net selling price, etc. Clarity and simplicity should be in mind when setting out the definition.

At present, disclosure of information on related parties transaction was not required under Companies Ordinance 141D as long as shareholders unanimous approval is obtained and the company is not a listed company nor of public interest. However, under the new small GAAP, disclosure of such information would be required. Although the new requirement could help improve governance and meet the changing need of society, it would mean extra cost to SME.

We understand that a review of Companies Ordinance 141D might be high on the government agenda. Despite that, this requirement of the small GAAP might attract criticism as there was no timetable yet for the review of Companies Ordinance. Although the small GAAP would converge with international practice, Companies Ordinance 141D provided more leeway for presentation of accounts in terms of related parties transaction. It would be embarrassing for HKICPA if the anticipated review of Companies Ordinance did not have support from the Legislative Council. The initiative was well-intended and it would be better received if it were implemented after the review of 141D.

We would like to stress that any convergence with international standard should be on a need basis and the Hong Kong and Mainland China factor had to be taken into consideration. We are glad that the new standard would be a one-stop requirement for SME. It would also help to strengthen Hong Kong as an international finance centre.

I hope you will find the above comments useful.

Thank you.

Yours sincerely,
Emil Yu
Small and Medium Enterprises Committee


Over the years, we have helped businesses overcome adversity and thrive locally, in Mainland China and internationally.

If you want to take advantage of our network,insights and services, contact us today.