STANDARD

SETTING

Financial reporting
considerations for closing out
2024 FEBRUARY 2025
CONTENTS
Introduction 2

I. Amended HKFRS Accounting Standards mandatorily effective on

1 January 2024 3

II. Topical issues 6

1. Macroeconomic uncertainties and their financial reporting implications
2. Accounting implications of recent updates on laws and regulations
3. Climate-related matters on financial reporting and connectivity

III. HKFRS Accounting Standards issued but not yet effective 21

Appendix – New and amended HKFRS Accounting Standards as well as

Agenda Decisions issued by the IFRS Interpretations Committee 31

1
Introduction

This publication highlights key financial reporting reminders and topical areas that are relevant
and beneficial for preparers in the preparation of their annual financial statements with
December 2024 year-end, in accordance with HKFRS Accounting Standards. The insights
provided may be also applicable to future reporting periods.

The first section summarizes the amended HKFRS Accounting Standards that are mandatory
effective for annual periods beginning on or after 1 January 2024. The second section covers
topical areas that are relevant for the preparation of 2024 and subsequent financial statements.
Finally, the third section provides a high-level discussion of the key areas and financial
implications of the major new and amended HKFRS Accounting Standards that will be
effective after 1 January 2025.

It is important to note that this publication is not intended to be comprehensive, nor does it
purport to address all the potential issues relevant to an entity’s financial statements. Entities
are advised to exercise judgement and refer to HKFRS Accounting Standards in the HKICPA’s
Members’ Handbook for further guidance relevant to their own facts and circumstances.

2
I. Amended HKFRS Accounting Standards mandatorily
effective on 1 January 2024
There are no new HKFRS Accounting Standards effective for annual periods beginning on or
after 1 January 2024. Instead, all changes relate to amendments to existing HKFRS
Accounting Standards, as summarized in the table below. In addition to the summary below,
entities are recommended to refer to the publication Closing Out 20231, as well as relevant
technical training activities, to gain a thorough understanding of the amendments and their
implications.

Paragraph 28 of HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

requires specific disclosures on initial application of a HKFRS Accounting Standard if there is
an effect on the current or prior periods. Entities should provide clear and sufficiently granular
disclosures tailored to their specific circumstances.

HKFRS Key aspects Prospective or retrospective application

Accounting and key reminders
Standard

Amendments to HKAS 12: Classification of Liabilities as Current or Non-current, Non-current

Liabilities with Covenants
- Clarify the requirements for classifying liabilities as current or non-current.
- Require new disclosures for non-current liabilities that are subject to covenants within 12
months after the reporting period.
HKAS 1 Classification of a liability Classification of a liability
Presentation of  Clarify that the right to defer  Retrospective application in accordance
Financial settlement3 must exist at the with HKAS 8.
Statements reporting date and have substance.
 Certain requirements are carried
 Remove the word ‘unconditional’ in forward unchanged to HKFRS 18
HKAS 1.69(d). Presentation and Disclosure in Financial
 Clarify that classification is Statements, which will replace HKAS 1
unaffected by management’s on 1 January 2027.
intention or expectations and  Entities need to carefully consider the
events after the reporting date. impact of the amendments on existing
 Specify that only loan covenants and planned loan agreements and
with which an entity must comply on convertible instruments.
or before the reporting date affect
Disclosure
the classification.
 In case where entity has difficulties in
repaying the debt after the year end,

1
Closing Out 2023, Section III (P.14-20).
2
Amendments to HKAS 1 encompass two amendments, namely the 2020 Amendments regarding ‘Classification of Liabilities as
Current or Non-current’ and the 2022 Amendments regarding ‘Non-current Liabilities with Covenants’. These two amendments
are required to be applied together on 1 January 2024. Hong Kong Interpretation 5 (Revised) Presentation of Financial Statements
– Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause has been updated to incorporate
the references to the 2020 and 2022 Amendments.
3
Refers to the right to defer settlement of a liability for at least 12 months after the end of the reporting period. See HKAS 1.69(d).

3
 HKFRS Key aspects Prospective or retrospective application
Accounting and key reminders
Standard

 Clarify the meaning of ‘settlement’ 4 disclosures regarding the going concern

in the context of classification. assessment under HKAS 1 and liquidity
 Classification of a liability as current risk under HKFRS 7 Financial
or non-current is not affected by the Instruments: Disclosures may be
settlement terms of a conversion relevant.
option which is classified as equity
instrument under HKAS 32
Financial Instruments: Presentation.

Disclosure
 Introduce new disclosures to enable
financial statement users to
understand the risk that non-current
liabilities with covenants may
become repayable within 12
months after the reporting date5.
Amendments to HKFRS 166: Lease Liability in a Sale and Leaseback
- Explain how a seller-lessee subsequently measures the lease liability arising from a sale and
leaseback where the transfer of asset satisfies the requirements in HKFRS 15 Revenue from
Contracts with Customers to be accounted for as a sale.
HKFRS 16  Require an entity to recognize a  Retrospective application to sale and
Leases lease liability at the date of sale and leaseback transactions (that include
leaseback transaction, even if all of variable lease payments) entered into
the lease payments are variable, on or after the initial application date of
and regardless of whether they HKFRS 16 (i.e. 1 January 2019 for
depend on an index or rate. December year-end financial
 Require that lease liability arising statements).
from a leaseback is subsequently  Disclose quantitative and qualitative
measured in a way that no gain or information specific to sale and
loss is recognized that relates to the leaseback transactions required by
right of use (ROU) retained. HKFRS 167.
 Add a new Illustrative Example 25
to demonstrate the application of
the amendments.

4
For the purpose of classifying a liability as current or non-current, settlement refers to a transfer to the counterparty of cash, or
other economic resources (e.g. goods or services) or the entity’s own equity instruments, that results in the extinguishment of the
liability. See HKAS 1.76A-76B for details.
5
HKAS 1.76ZA.
6
HKFRS 16.102A, C2 and C20E.
7
HKFRS 16.51, 59(d), B48 and B52.

4
 HKFRS Key aspects Prospective or retrospective application
Accounting and key reminders
Standard

Amendments to HKAS 7 and HKFRS 78: Supplier Finance Arrangements

- Add disclosure requirements to enhance the transparency of supplier finance arrangement
(SFA) and their effects on an entity’s liabilities, cash flows and exposure to liquidity risk.
HKAS 7 HKAS 7  Transition reliefs provided. Entities are
Statement of  Clarify the characteristics of SFAs. not required to disclose certain
Cash Flows and  Disclose the terms and conditions comparative information in the first year
HKFRS 7 of SFAs in place. of adoption of the amendments9.
Financial  Entities should exercise judgement in
Instruments:  Disclose at the beginning and end
of the reporting period: determining whether the nature or
Disclosures function of the liabilities related to the
- Carrying amounts and associated
line items of financial liabilities SFAs is sufficiently different from those
that are part of SFAs. of ‘trade and other payables’, and
- Carrying amounts and associated therefore it warrants a separate
line items of financial liabilities for presentation in the statement of financial
which suppliers have received position.
payments from finance providers.  Other reminders:
- Range of payment due dates for - disclose separately terms and
both financial liabilities associated conditions of multiple SFAs that have
with SFAs and comparable trade dissimilar terms and conditions10.
payables that are not part of a - disclose explanatory information
SFA. about the range of payment due
 Disclose the type and effect of non- dates or additional ranges if the
cash changes in the carrying ranges are wide11.
amounts of financial liabilities.

HKFRS 7
 Add SFA as an example of when an
entity may need to disclose
information of concentration of
liquidity risk with finance providers.

8
HKAS 7.44F-H, 62-63 and HKFRS 7.44JJ, B11F(j), IG18 and IG18A.
9
See HKAS 7.63 for details of transition reliefs when the entity first applies the Amendments to HKAS 7 and HKFRS 7.
10
HKAS 7.44H(a).
11
HKAS 7.44H(b)(iii).
5
The following table summarizes the relevant educational guidance and support activities for
the above Amendments.

Educational guidance and support

All of the above  Closing Out 2023
Amendments  E-learning CPD courses:
- Annual Accounting Update 2023
- 2024 SMP Symposium – Module one
- Annual Accounting and Sustainability Update 2024
- Year-end Financial Reporting Reminders for 2024

Amendments to HKAS 1  Educational publication issued in June 2023 provides four illustrative
examples to explain the application of the Amendments:
- Term loan with financial covenants
- Term loan with non-financial covenants/conditions
- Revolving loan facility
- Convertible bonds
 A-Plus technical article issued in April 2023
 E-learning CPD course:
- Classification of Liabilities as Current or Non-current

II. Topical issues

In this section, we set out topical issues relevant to the preparation of financial statements with
December 2024 year end. While certain issues persist from the previous years, new emerging
issues have surfaced that warrant careful consideration. This year, we discuss recent updates
on local laws and regulations, covering several topics of particular relevance to entities
reporting in Hong Kong. We highlight the financial implications of these issues to raise
awareness and understanding.

1. Macroeconomic uncertainties and their financial reporting implications

As an international financial centre, companies in Hong Kong engage in global business

activities, playing a vital role in facilitating global capital flows, driving regional economic
development and connecting businesses across borders. Consequently, Hong Kong’s
economy is influenced by the macroeconomic environment both regionally and globally. The
uncertainties inherent in the macroeconomic environment impact companies in diverse ways,
depending on their industries and specific circumstances. This section explores the financial
reporting implications of macroeconomic uncertainties.

One significant uncertainty relates to interest rates in Hong Kong. Due to the Hong Kong
dollar’s peg to the US dollar, local interest rates closely track those of the US Federal Reserve,
consequently impacting Hong Kong’s economy. Interest rates in Hong Kong have remained

6
relatively high in 2024, albeit with some softening12,13. The persistent high interest rates and
ongoing inflationary pressures continue to have implications for entities’ financial reporting.
We recommend that entities refer to Closing Out 2022 and Closing Out 2023, which
extensively discuss these impacts on the following areas of financial reporting:
 Impairment of non-financial assets applying HKAS 36 Impairment of Assets
 The expected credit loss (ECL) assessment under HKFRS 9 Financial Instruments
 Leases applying HKFRS 16 Leases
 Revenue recognition applying HKFRS 15 Revenue from Contracts with Customers
 Events after the reporting date applying HKAS 10 Events after the Reporting Period
 Recognition of deferred tax assets applying HKAS 12 Income Taxes
 Going concern assessment and estimation uncertainty and judgement application under
HKAS 1 Presentation of Financial Statements
 Current and non-current classification of financial liabilities, especially non-current
liabilities with loan covenants under HKAS 1.

While entities should ensure that proper recognition and measurements are reflected in their
primary financial statements, it is equally crucial to provide sufficient and clear disclosures for
high-quality financial reporting. We highlight some common risk disclosure areas in the
following table which may be relevant during times of uncertainties. Please note that it is not
an exhaustive checklist. Entities should refer to HKFRS Accounting Standards to ensure
sufficient disclosures according to their specific circumstances.

Risk exposures Examples of disclosures (not exhaustive)

(not exhaustive)
Interest rate risk  Entities exposed to interest rate risks from floating-rate financial
instruments should provide a sensitivity analysis showing how profit or
loss and equity would have been affected by reasonably possible
changes in interest rates, and a description of the methods and
assumptions used. [HKFRS 7.40(a)-(b)] To enhance transparency, they
should consider presenting the analysis for different classes of financial
instruments.
 Entities that account for fixed-rate financial instruments at fair value
through profit or loss are also exposed to interest rate risk, as changes in
market interest rates can lead to changes in the fair value of such
financial instruments. Therefore, the sensitivity analysis for market risk
under HKFRS 7.4014 may still be relevant.
 If an entity changes the methods and/or assumptions used in preparing
the sensitivity analysis, they are required to disclose the changes and
reasons for them. [HKFRS 7.40(c)]

12
Hong Kong Economy – The Government of Hong Kong Special Administrative Region webpage:
https://www.hkeconomy.gov.hk/en/pdf/assets.pdf
13
Documents for Legislative Council LC Paper No. CB(1)1570/2024(03) dated 25 November 2024 (P.7, para 13).
14
Appendix A of HKFRS 7: Market risk is defined as ‘The risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other
price risk’.
7
 Risk exposures Examples of disclosures (not exhaustive)
(not exhaustive)
Liquidity risk  The macroeconomic environment may impact entities’ strategies for
managing liquidity risk and financing arrangements. For example, entities
may make use of SFA (also known as ‘reverse factoring arrangements’),
triggering the need for new disclosures on SFA as detailed in Section I
above.
 Entities might also engage in ‘factoring arrangements’. When financial
assets, like trade receivables with recourse, do not meet the
derecognition criteria under HKFRS 915, both the financial assets and
related financial liabilities would be presented in the entity’s financial
statements. It is crucial to include relevant maturity analysis in the liquidity
risk disclosures for such financial liabilities based on the agreed terms
and conditions with the factors. This analysis is based on undiscounted
contractual cash flows that include both principal and interest payments.
[HKFRS 7.39, B11-B11F]
 In response to macroeconomic challenges, entities might undergo
restructuring exercises as part of their liquidity risk management strategy.
Disclosures of the entity’s objectives, policies and processes for
managing the risk and the method used to measure the risk tailored to
entities’ own circumstances16 should be provided.
 Higher inflation and interest rates might hamper the financial performance
and position of an entity, which in turn affects its compliance with loan
covenants. The new disclosure requirement under HKAS 1.76ZA requires
disclosure of information enabling financial statement users to understand
the risk that liabilities classified as non-current could become repayable
within 12 months after the reporting period.

Fair value volatility  Changes in macroeconomic conditions may prompt an entity to adjust its
valuation measurements by using different inputs, assumptions and
valuation techniques. For example, the fair value of investment properties,
previously determined using the market approach during an active
property market, may shift to the income approach when the property
market becomes sluggish and lacks comparable transactions.
Consequently, the fair value measurement, previously categorized as
Level 2, may shift to Level 3, requiring additional Level 3 disclosures17,
that include quantitative information about the significant unobservable
inputs used in the fair value measurement. Significant changes in
valuation measurements, such as changes in valuation techniques and
the reasons thereof, should also be disclosed.
 Entities that previously asserted in the financial statements that the
carrying amounts of certain assets and liabilities not measured at fair

15
See HKFRS 9.3.2.3 to 3.2.22 for the requirements regarding derecogntion and transfer of financial assets.
16
For detailed requirements, please refer to HKFRS 7.33(a)-(c) (for each type of risk arising from financial instruments) and
HKFRS 7.39(c) (for liquidity risk).
17
See HKFRS 13.93(d)-(h) for disclosures specific to Level 3.

8
 Risk exposures Examples of disclosures (not exhaustive)
(not exhaustive)
value approximate their fair value18 should revisit the appropriateness of
this assertion in environments with high interest rates.

Credit risk  Credit risk tends to increase in economic downturns when debtors,
whether individual or corporates, experience lower income or revenue
level, making it challenging for them to repay the debts. Higher interest
rates also increase the cost of borrowings, further challenging the debtors.
These factors increase the likelihood of defaults, leading to a rise in credit
risk and potential deterioration of credit ratings. The impacts are not
limited to the measurement of ECL under HKFRS 9, but also extend to
credit risk disclosures in HKFRS 719.
 The following are some examples of the effects:
- Updating disclosures related to credit risk management practices to
explain how entities manage and address the increased credit risk of
debtors.
- Recognizing a higher level of ECL due to increased risk of default,
necessitating disclosures that explain changes in loss allowances.
- Collateral negotiations with debtors affecting ECL measurement,
requiring relevant disclosure to explain the effect of collateral on ECL
measurement.
- Industry-specific sensitivities to macroeconomic changes may lead to
credit risk concentration within particular sectors, warranting
disclosures regarding significant credit risk concentration.
- Changes in debtors’ credit ratings impacting disclosure of credit risk
exposure by credit risk rating.

2. Accounting implications of recent updates on laws and regulations

In an evolving world, entities must stay updated on the developments of laws and regulations,
remaining vigilant about compliance to fulfil their obligations. Some laws and regulations may
impact financial reporting. Being aware of these implications can help prevent last-minute
challenges and facilitate proactive planning. This year, we highlight the latest legal updates
and their financial reporting implications relevant for entities in Hong Kong.

A. Granting tax deductions for lease reinstatement costs in Hong Kong

On 18 December 2024, the Legislative Council passed the Inland Revenue (Amendment) (Tax
Deductions for Leased Premises Reinstatement and Allowances for Buildings and Structures)
Bill 2024, which was gazetted by the HKSAR Government as the Inland Revenue (Amendment)
(Tax Deductions for Leased Premises Reinstatement and Allowances for Buildings and

18
See HKFRS 13.97 and HKFRS 7.25-26 and 29 for relevant requirements.
19
HKFRS 7.35A-38 require disclosure of an entity’s credit risk management practices, quantitative and qualitative information
about amounts arising from ECL and the entity’s credit risk exposure. HKFRS 7.34(c) and B8 set out requirements on significant
concentration of credit risk.

9
Structures) Ordinance 2024 (the Amendment Ordinance) on 27 December 2024. Since the
Bill was passed after its Third Reading on 18 December 2024, it is considered to be
substantively enacted on that date in the context of HKAS 12. Consequently, entities should
consider deferred tax implications of the Bill20, as further discussed in the examples below.

The Amendment Ordinance gives effect to two enhancement measures for deduction of
expenses under profits tax in the 2024-25 Budget21, effective from the year of assessment
2024/25. One of these enhancements introduces a tax deduction for expenses incurred for
reinstating leased premises to their original condition (reinstatement cost).

The Amendment Ordinance sets out five conditions that must be satisfied to qualify for tax
deduction for reinstatement costs:
1) The reinstatement costs have been actually incurred by the taxpayer;
2) the taxpayer is a lessee of the lease;
3) the taxpayer has a reinstatement obligation for the premises;
4) the reinstatement costs do not relate to any provisions made under HKFRS 16 Leases or
any other similar accounting standards (e.g. the depreciation and interest expenses of the
capitalized reinstatement costs recognized in the financial statements); and
5) the amount of the reinstatement cost is reasonable in the circumstances.

As noted from conditions 1) and 4), tax deduction can only be claimed for lease reinstatement
costs actually incurred or paid. These deductions do not relate to any provisions made under
HKFRS 16 or any other similar accounting standards. In other words, any accounting
provisions that recognize reinstatement costs as part of the ROU assets or their depreciation
are not eligible for deductions. The resulting accounting implications will be that taxpayers
may need to make tax adjustments in their profit tax computations and provide for deferred
tax during the lease period. This is illustrated in the following two examples:

20
HKAS 12.47 requires that ‘Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to
the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period’ (underline added). Please see Part D, ‘Implementation of Pillar Two
Global Minimum Tax in Hong Kong’, below for a discussion of the FAQ published by the HKICPA regarding the consideration of
when a tax law is considered ‘substantively enacted’ in the context of Hong Kong.
21
On 28 February 2024, the Financial Secretary of the HKSAR Government announced in the 2024-25 Budget that the HKSAR
Government would introduce a profit tax deduction for expenses incurred for reinstating the condition of the leased premises to
their original condition (reinstatement costs), and remove the time limit for claiming industrial and commercial building allowances
commencing from the year of assessment 2024/25.

10
Example 1 – Lease entered into before the Amendment Ordinance is substantively enacted

Fact pattern I
 Entity A entered into a lease in Hong Kong, effective from 1 July 2024 for a term of five
years and was required to reinstate the premise to the original condition at the end of
the lease term.
 At the commencement date of the lease, a ROU asset corresponding to the same
amount recognized for provision for reinstatement cost of HK$100K22 was recognized.
 The reporting date of Entity A is 31 December 2024.
 The income tax rate is 16.5%.

Carrying amount Tax base [Note 3]

Temporary Deferred tax
HK$’000 HK$’000
Difference implication
(A) (B) HK$’000 HK$’000
(A) – (B)
1 July 2024 (Before the Amendment Ordinance substantively enacted)
Reinstatement 100 100 - -
provision
[Note 1]

ROU asset 100 - 100 No deferred tax

[Note 6] impact in view of
initial recognition
exception
[Note 4]

18 December 2024 (Amendment Ordinance substantively enacted)

Reinstatement 100 - 100 Deferred tax asset
provision = 100 X 16.5%
= 16.5 [Note 5]
ROU asset 90 - 90 No deferred tax
[Note 6] [Note 2] impact in view of
initial recognition
exception
[Note 4]

Note 1: The amount is recognized and measured applying HKAS 37 Provisions, Contingent Liabilities and Contingent
Asset. See HKFRS 16.25. For simplicity, the discounting impact and future changes in reinstatement provision are ignored.
We also assume that the ROU asset has no impairment issue.
Note 2: The depreciation of the ROU asset related to the reinstatement provision every year = HK$100K / 5 = $20K per
year. As the Amendment Ordinance was substantively enacted on 18 December 2024, close to Entity A’s reporting date
of 31 December 2024, the depreciation for the period from 1 July 2024 to 18 December 2024 approximates = HK$20K/2
= HK$10K. Therefore, the ROU asset at 18 December 2024 = HK$100K – HK$10K = HK$90K.
Note 3: Tax base of asset = carrying amount – future taxable amounts + future deductible amounts [HKAS 12.7]
Tax base of liability = carrying amount – future deductible amounts + future taxable amounts [HKAS 12.8]
Note 4: See HKAS 12.15(b) and 24 for the exception to initial recognition of an asset and liability.
Note 5: The recognition of a deferred tax asset is subject to the assessment of the availability of sufficient future taxable
profits, as required by HKAS 12.24.
Note 6: The corresponding lease liability is not presented in this table.

22
HKFRS 16.24 sets out the composition of the ROU asset, which includes ‘an estimate of costs to be incurred by the lessee in
dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the
condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories’.
11
Example 2 – Lease entered into after the Amendment Ordinance is substantively enacted

Fact pattern II
 With the same information as in fact pattern I, except that the lease was commenced on
31 December 2024, which is after the Amendment Ordinance is substantively enacted.

Carrying amount Tax base

Temporary Deferred tax
HK$’000 HK$’000
Difference implication
(A) HK$’000
(B) HK$’000
(A) – (B)
31 December 2024 (after the Amendment Ordinance substantively enacted)
Reinstatement 100 - 100 Deferred tax asset
provision = 100 X 16.5%
= 16.5
[Notes 8, 9]

ROU asset 100 - 100 Deferred tax liability

[Note 10] [Note 7] = 100 X 16.5%
= 16.5
[Note 8]

Note 7: Assume the depreciation of ROU asset is negligible as the lease was entered on 31 December 2024.
Note 8: The exception to initial recognition of an asset and liability under HKAS 12.15(b) and 24 does not apply in this
case, as the transaction results in equal taxable and deductible temporary differences, which is HK$100K in this example.
Refer to Closing Out 2023 (Section II, P.11-12) which summarized key aspects of Amendments to HKAS 12 Income
Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction, which became effective from 1
January 2023. According to these Amendments, the initial recognition exception no longer applies to transactions that
give rise to equal taxable and deductible temporary differences on initial recognition. Please refer to HKAS 12.22A for the
requirement.
Note 9: Refer to Note 5 in Example 1 regarding the requirement for the recognition of a deferred tax asset under HKAS
12.24.
Note 10: The corresponding lease liability is not presented in this table.

The key differences between Example 1 and Example 2 are that in Example 1, there is no
deferred tax impact on the initial recognition of reinstatement provision and ROU asset but
there will be an immediate profit or loss impact when deferred tax asset is recognized on the
date the Amendment Ordinance is substantively enacted. In Example 2, deferred tax asset
and deferred tax liability are recognized respectively upon the initial recognition of
reinstatement provision and ROU asset.

In both examples, a deferred tax asset is recognized to the extent that it is probable that future
taxable profits will be available against which it can be utilized 23 . After initial recognition,
entities should assess any implications for deferred tax that might arise from other changes,
such as depreciation of ROU assets and changes in estimate of reinstatement provision.

23
HKAS 12.24.

12
B. Update on Hong Kong Land Leases – Extensions by the HKSAR Government

In July 1997, the HKSAR Government promulgated the land policy stating that leases not
containing a right of renewal (excluding short term tenancies and special purpose
leases)(hereafter referred to ‘Non-renewable Leases’) may be extended at the sole discretion
of the HKSAR Government for a term of 50 years upon expiry without an additional premium,
but an annual government rent of 3% rateable value is required.

To streamline the procedures for extending Non-renewable Leases, the Extension of

Government Leases Ordinance (Cap.648)24(Ordinance) came into effect on 5 July 2024. The
first ‘Extension Notice’ was published in the Gazatte, covering the lease expiry period from 5
July 2024 to 31 December 2030 (both days inclusive). The Ordinance establishes a new
statutory mechanism for lease extension. The Lands Department will publish Extension
Notices in the Government Gazette regularly 6 years before the expiry of applicable leases
(Regular Renewal Schedule), as illustrated in Diagram 1 below. Under the Ordinance, the
HKSAR Government will normally extend applicable leases unless in a remote scenario where
there are public interest considerations against the extension of any particular lease (meaning
that the lease specified in a ‘Non-extension List’)25.

Diagram 1 – Schedule of publication date of Extension Notice and the land lease covered
Publication date of Extension Notice in the Gazette Specified lease expiry period being covered
5 July 2024 5 July 2024 to 31 December 2030
End-December 202426 1 January to 31 December 2031
End-December 2025 1 January to 31 December 2032
(and so on)

Under the Ordinance, land leases are extended for a term of 50 years without additional
premium, but an annual government rent of 3% rateable value is required. Interests and rights
under the original lease will be carried forward to the extended lease term. Owners are not
obligated to conduct any procedures, or execute lease extension documents with the HKSAR
Government or rearrange mortgages.

For accounting purposes, the implications of extension of Hong Kong land leases are analyzed
separately for leases renewed via the Extension Notice and those yet to be renewed.

24
Please refer to a leaflet published by the Lands Department which provides a summary of the Ordinance.
25
The Ordinance is applicable to general purpose leases expiring on or after 5 July 2024 without a right of renewal. These are
leases for general commercial, residential or industrial uses. The Lands Department will publish a set of ‘Extension Notice’ and
‘Non-extension List’ in the Gazette at the end of each year. Applicable leases extended in accordance with the Ordinance will not
be individually listed on the ‘Extension Notice’. The ‘Extension Notice’ will specify that all applicable leases that are due to expire
in the specified lease expiry period will be extended in accordance with the Ordinance. Only leases which are not extended will
be specified individually on the ‘Non-extension list’ published on the same day.
26
The HKSAR Government issued its Second Extension Notice on 27 December 2024.

13
(i) Leases renewed via the Extension Notice

According to Appendix A of HKFRS 16, a ‘lease modification’ is defined as a change in

the scope of a lease, or the consideration for a lease, that was not part of the original
terms and conditions of the lease – e.g. adding or terminating the right to use one or
more underlying assets, or extending or shortening the contractual lease term.

For those leases that do not contain a right of renewal, the extension of land leases
under the Ordinance, which increases the scope of the lease and is not a part of the
original terms and conditions of respective leases, constitutes a lease modification.
Consequently, lessees account for such extensions applying the relevant requirements
in HKFRS 1627 from the effective date of the modification – the date when both parties
agree to a lease modification28 – the publication date of the Extension Notice.

It is important to note that from the effective date of modification, entities should
depreciate the net carrying amount of ROU asset (i.e. cost minus accumulated
depreciation) over the revised lease term. For example, if the Extension Notice issued
on 5 July 2024 extends the lease term from 31 December 2030 to 31 December 2080
for 50 years, lessee should depreciate the ROU asset over the revised lease term, from
5 July 2024 to 31 December 2080.

(ii) Leases not yet renewed

As the HKSAR Government’s intention to renew leases and management’s expectation

of renewal are not sufficient grounds for a lessee to include such extensions in the
determination of the lease term, leases not yet renewed will continue to be accounted
for based on their existing terms and no significant impact is expected.

However, entities should anticipate the timing of lease renewals based on the Regular
Renewal Schedule and be prepared to account for them in the appropriate financial year.
For example, the Extension Notice will be published near the end of December each
year as per the Regular Renewal Schedule. Therefore, entities with December year-end
financial statements, should account for their leases covered by the Extension Notice in
the financial statements for the same year as the publication of the Extension Notice.
However, in cases where the financial year does not end in December (e.g. September
year-end), land leases might be renewed after the reporting period but before the
financial statements are authorized for issue. Information as required by paragraph 21
of HKAS 10 Events after the Reporting Period should be disclosed if material.

27
HKFRS 16.44-46 set out the accounting requirements of lease modification. Different accounting treatments will be applied
depending on the nature of the modifications, e.g. whether the modification is considered as a separate lease, and whether th e
modification increases or decreases the scope of the lease.
28
HKFRS 16.Appendix A.
14
C. Accounting for Long Service Payment subsidies

In June 2022, the HKSAR Government gazetted the Employment and Retirement Schemes
Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022 to abolish the Mandatory
Provident Fund (MPF)-Long Service Payment (LSP) and Severance Payment (SP) offsetting
mechanism. The Abolition will be effective from 1 May 2025 (the Transition Date). The
HKICPA issued a financial reporting alert in February 2023, followed by detailed educational
guidance in July 2023 to explain the accounting implications of the Abolition.

On 22 November 2024, the Finance Committee of the Legislative Council approved the
creation of a commitment for implementing the subsidy scheme for the Abolition (LSP Subsidy).
Under the scheme, the HKSAR Government will subsidize a portion of the post-transition LSP
payable by employers for 25 years. The subsidy covers up to a specified amount per employee
per year, with the employers’ sharing ratio and capped amounts progressively increasing over
time. The following diagram illustrates the employer’s share of post-transition LSP:

Diagram 2 – An employer’s share of the post-transition LSP

Of the accumulated amount of post-transition portion of LSP payable by
an employer during the same year [Note 1]

the lower of:

(a) the amount of post-transition LSP for
that employee multiplied by a specified
sharing ratio (e.g. 50% in the first year
For the first $500,000 after the Abolition takes effect); and
(b) a specified capped amount (e.g.
$3,000 in the first year after the
Abolition takes effect)
[Note 2]

the amount of post-transition LSP for that

Beyond the first $500,000 employee multiplied by a specified ratio
[Note 3]

Note 1: The $500,000 threshold refers to whether the accumulated amount of post-transition portion of LSP payable by an
employer during the same year exceeds $500,000.
Note 2: The specified employer’s sharing ratio and the capped amount, as referred to in (a) and (b) in this box apply to each
employee.
Note 3: The specified employer’s sharing ratio and the capped amount increase progressively over the 25-year subsidy
period. Please refer to the table enclosed in Legislative Council Finance Committee paper FCR(2024-25)37 discussed on 22
November 2024.

In view of these developments, as an extension of the July 2023 educational publication, the
HKICPA published another educational publication in January 2025 to provide guidance on
the accounting implications of the LSP subsidy. The publication highlights that, as a generally
acceptable method, the LSP subsidy is considered as a government grant under HKAS 20
Accounting for Government Grants and Disclosure of Government Assistance, and is
recognized when there is reasonable assurance that the employer will comply with the

15
conditions attaching to the government grant and the grant will be received29. Typically, this
assurance is met when the employer has paid or is about to pay the LSP to the employee and
is eligible to claim the LSP subsidies from the HKSAR Government. The subsidy as a
compensation for LSP expenses incurred by the employer is recognized in profit or loss in the
period it becomes receivable30. There may be exceptions where the reasonable assurance
threshold might be met earlier. Each case should be assessed individually based on its facts
and circumstances. The Financial Reporting Standards Committee (FRSC) of the HKICPA
acknowledges that there may be other acceptable accounting alternatives to account for the
LSP subsidy. Entities should ensure that the method adopted is justifiable and complies with
HKFRS Accounting Standards, and they should disclose the accounting policy information if
material.

D. Implementation of Pillar Two Global Minimum Tax in Hong Kong

On 27 December 2024 31 , the HKSAR Government published in the Gazette the Inland
Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill 2024 (Bill) for
implementing the Global Minimum Tax (GMT) and Hong Kong Minimum Top-up Tax (HKMTT)
rules in Hong Kong. Upon enactment, the GMT and HKMTT will be implemented for fiscal
years beginning on or after 1 January 2025. The Bill went through its First Reading, and the
Second Reading debate in the Legislative Council commenced on 8 January 2025.

Amendments to HKAS 12 Income Taxes – International Tax Reform – Pillar Two Model Rules
introduce new disclosure requirements on Pillar Two income taxes. When applying the
Amendments, entities should consider whether (1) the legislation is enacted or substantively
enacted but not yet in effect at the reporting date; or (2) the legislation is in effect32.

In the context of Hong Kong, the need for disclosure under (1) depends on when the legislation
is considered as ‘substantively enacted’. A FAQ published by the HKICPA states that for the
purpose of accounting for income taxes, the FRSC considers that a bill to be substantively
enacted after passing the Third Reading33. This is because the legislative procedures after the
Third Reading appear to be a formality, and there is usually reasonable certainty that a bill will
be passed in law after the Third Reading. Accordingly, since the Bill underwent its First
Reading in January 2025, the disclosures for (1) required by the Amendments to HKAS 12
are not relevant for entities with December 2024 year end. The disclosures for (2) required by
the Amendments to HKAS 12 are also not relevant as the legislation is not in effect during the
reporting period. However, to assist financial statements users in better understanding the

29
HKAS 20.7.
30
HKAS 20.20.
31
As mentioned in Closing Out 2023 (Section II, P.13), the HKSAR Government released a consultation paper on 21 December
2023, regarding the implementation of the global minimum tax and the domestic minimum top-up tax in Hong Kong, with
consultation period of 3 months, ending on 20 March 2024. This Bill incorporated feedback received during the consultation.
32
See Closing Out 2023 (Section II, P.12-13) for a summary.
33
Extracted from FAQ: According to the Basic Law of HKSAR, after a bill has been gazetted, it has to pass through three readings
in the Legislative Council (LegCo) before it is enacted. A bill is subject to debate and vote in the Second and Third Readings. If
a bill is rejected during either of those Readings, no further proceedings shall be taken on it. A bill passed by LegCo after the
Third Reading shall take effect only after it is signed and promulgated by the Chief Executive.
16
development and related impact of the Pillar Two legislation in Hong Kong on entities, entities
are encouraged to provide relevant disclosures in accordance with HKAS 1.17(c).

Furthermore, depending on the progress of the legislative process in Hong Kong, if the
legislation is enacted or substantively enacted after the reporting period but before the
financial statements are authorized for issue, the disclosure requirements under HKAS 10.21
will apply. An estimation of the relevant financial effect should be disclosed.

In respect of (2), a Hong-Kong based multinational company or a group with subsidiaries often
operates in different jurisdictions, which may have varying statuses regarding the
implementation of their Pillar Two legislation at the reporting date. Some jurisdictions might
have Pillar Two legislation in effect during the reporting period, leading the affected entities to
recognize related income taxes in the statement of profit or loss. In such cases, current tax
expenses related to Pillar Two income taxes should be separately disclosed in the financial
statements.

The following diagram highlights the accounting implications of Pillar Two legislations.

Diagram 3 – Accounting implications of Pillar Two legislations in different scenarios

Reporting for financial statements applying

Amendments to HKAS 12 – International Tax Reform – Pillar Two Model Rules
I [Note 1] II III
Scenario
Pillar Two legislation Pillar Two legislation enacted Pillar Two legislation
enacted or substantively or substantively enacted but enacted or substantively
enacted after the end of the not yet in effect at the end of enacted and in effect at
reporting period but before the reporting period the end of the reporting
financial statements are period
authorized for issue
Accounting No top-up tax payable No top up tax payable Top-up tax payable
implications → only mandatory → only mandatory disclosures + mandatory disclosures
disclosures apply apply
Relevant  Not covered by HKAS Disclose the fact that the exception to recognizing and
HKAS 12 or 12, but required under disclosing information of deferred tax assets and liabilities
other HKAS 10 to disclose the related to Pillar Two income taxes has been applied. [Note 2]
requirements nature of the event and  Disclose known or  Disclose separately its
an estimate of its reasonably estimable current tax expense
financial effect, or a exposure to Pillar Two (income) related to
statement that such an income taxes arising from Pillar Two income taxes
estimate cannot be relevant jurisdiction at the [Note 5]
made [Note 3] reporting date, both
qualitative and
quantitative information
[Note 4]

Note 1: This may be in the case for Hong Kong, if the Bill is enacted or substantively enacted after the end of the reporting period
but before the financial statements are authorized for issue.
Note 2: HKAS 12.88A.
Note 3: The extent of information required by HKAS 10 should be similar to HKAS 12.88C-88D to enable financial statement
users to understand the entity’s exposure to Pillar Two income taxes arising from that jurisdiction.
Note 4: HKAS 12.88C-88D.
Note 5: HKAS 12.88B

17
The scenarios described above can arise within an entity’s consolidated financial statements,
where the entity and its group companies operate in various jurisdictions with different status
of development of Pillar Two Model Rules. It is crucial to provide appropriate disclosures in
light of the circumstances. As the Amendments to HKAS 12 became effective in 2023, entities
should ensure the disclosures are updated for their 2024 financial statements.

3. Climate-related matters on financial reporting and connectivity

We started discussing the implication of climate-related reporting in Closing Out 2021, with
updates provided in Closing Out 2022 and Closing Out 2023. This year, we highlight the
following recent major developments.

A. Hong Kong Sustainability Disclosure Standards and Connectivity

There have been significant developments in the sustainability reporting landscape in Hong
Kong in 2024. The publication of the Roadmap on Sustainability Disclosure in Hong
Kong (Roadmap)34 by the Financial Services and the Treasury Bureau on 10 December 2024,
sets out Hong Kong’s approach to require publicly accountable entities 35 (PAEs) to adopt the
International Sustainability Standards Board (ISSB) Standards. The Roadmap lays down a
clear pathway for large PAEs to fully adopt the ISSB Standards no later than 2028 with the
following key milestones:

Details of respective milestones and their status

Milestone 1  Being a significant step in Hong Kong’s sustainability reporting journey, on
– Development of 12 December 2024, the HKICPA published HKFRS S1 General
Hong Kong Requirements for Disclosure of Sustainability-related Financial Information
Sustainability and HKFRS S2 Climate-related Disclosures (collectively referred to as
Disclosure HKFRS Sustainability Disclosure Standards or HKFRS SDS). HKFRS SDS
Standards are fully aligned with the ISSB Standards.
Milestone 2  All Main Board issuers are required to disclose against the New Climate
– Compliance Requirements modelling on IFRS S2 Climate-related Disclosures on a
with the Hong “comply or explain” basis from 1 January 2025 (except for the mandatory
Kong Exchanges disclosure requirement on Scope 1 and 2 greenhouse emissions applying to
and Clearing all issuers from 1 January 2025).
Limited (HKEX)’s  Issuers that are Hang Seng Composite LargeCap Index constituents are
New Climate further required to disclose against the New Climate Requirements from 1
Requirements January 2026.

34
Roadmap P.5.
35
As set out in the Inaugural Jurisdictional Guide published by the IFRS Foundation in May 2024, PAEs are (a) entities whose
securities are traded in a public market or entities in the process of issuing securities for trading in a public market; and (b) entities
that hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses (for example, banks,
credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks) and have a significant weight
in the jurisdiction, regardless of their ownership structure or listed status.

18
 Details of respective milestones and their status
 HKEX will consult the market in 2027 on mandating sustainability reporting
against HKFRS SDS for listed PAEs under a proportionate approach, with
an expected effective date of 1 January 2028.
Milestone 3 Subject to stakeholders’ comments and feedback, relevant financial regulators
– Compliance by will require financial institutions carrying a significant weight (being non-listed
non-listed PAEs PAEs) to apply HKFRS SDS no later than 2028.

The Roadmap indicates that Main Board issuers will be first impacted by the New Climate
Requirements specified in the Listing Rules, with the mandate eventually extending to include
both listed and non-listed PAEs applying HKFRS SDS by 2028. While the publication of
HKFRS SDS has no immediate impact on PAEs and its adoption remains voluntary currently,
PAEs should actively familiarize themselves with HKFRS SDS to ensure smooth
implementation by 2028.

To support the implementation of HKFRS SDS, the HKICPA offers resources including:
 E-learning: Charting Sustainability Reporting in Hong Kong – Public briefing on HKFRS
S1 and S2
 Resource Centre for Sustainability Standards36
 Sustainability Information Centre37
 Frequently-asked questions

In light of the above recent developments, achieving connectivity between sustainability

reporting and financial reporting has become increasingly crucial for entities reporting in Hong
Kong, especially listed entities. Ensuring consistency and complementarity between financial
statements disclosures and sustainability reporting disclosures is key to achieving this
connectivity. An effective and robust connectivity can empower stakeholders to obtain a
holistic and comprehensive view of an entity’s financial performance, financial position and
cash flows. In terms of climate-related risks, stakeholders can gain a deeper insight into an
entity’s exposure to these risks, management’s strategies to manage and address them in
their operations and the resulting financial implications.

The International Accounting Standards Board (IASB) and ISSB recognize the importance of
connectivity between their respective requirements in enabling the provision of high-quality
financial information to capital markets. A new dedicated webpage ‘Connecting IFRS
Accounting and IFRS Sustainability’ has been launched, containing all related resources and
updates. Entities are recommended to refer to the resources in the webpage, particularly the
webcast series ‘Connectivity between the financial statements and sustainability-related
financial disclosures’, which include illustrative scenarios, to gain insights on achieving
connectivity.

36
It is a centralized hub for technical publications and reference materials relevant to sustainability reporting, assurance and
ethics. It also provides guidance materials covering topics such as the applicability of HKFRS SDS (i.e. which entities must apply
the standards and by when) and their interaction with the New Climate requirements under the amended Listing Rules.
37
It is a collection of thought leadership articles and learning resources to help stakeholders keep abreast of local and international
developments.
19
B. Other developments of IFRS Accounting Standards related to climate

In 2024, the IASB engaged in several financial reporting projects, notably covering climate risk
and connectivity, as highlighted below. Entities should vigilantly and robustly assess the
potential impacts of these projects on their financial statements. For example, entities should
assess whether they have any climate-related commitments that should be recognized as a
provision under IAS 37 Provisions, Contingent Liabilities and Contingent Assets by
considering the project in (i) below. Regarding (iv), although the current impact on entities
operating in Hong Kong is limited, there could be potential implications for their investments
in entities operating in other jurisdictions engaging in the sale and purchase of nature-
dependent electricity.

(i) In April 2024, the IFRS Interpretation Committee (IFRS IC) published an agenda
decision – Climate-related Commitments (IAS 37) on whether a company’s commitment
to reduce or offset its greenhouse gas emissions creates a constructive obligation and,
if so, whether that constructive obligation meets the criteria in IAS 37 for recognizing a
provision.

(ii) In July 2024, the IASB published the Exposure Draft Climate-related and Other
Uncertainties in the Financial Statements. The Exposure Draft proposes eight examples
illustrating how an entity applies the requirements in IFRS Accounting Standards to
report the effects of climate-related and other uncertainties in its financial statements.
These examples aim to improve the reporting of the effects of climate-related and other
uncertainties in the financial statements and to strengthen connections between financial
statement disclosures and sustainability disclosures. The consultation closed on 28
November 2024. The IASB will start deliberating the feedback in February 2025, which
will be a joint meeting with ISSB38.

(iii) On 12 November 2024, the IASB published the Exposure Draft Provision – Targeted
Improvements. The proposed amendments clarify how entities assess when to record
provisions and how to measure them, which in turn assist entities in applying the
requirements of IAS 37 to climate-related obligations, such as decommissioning or
environmental rehabilitation obligations as well as emission credits. The Exposure Draft
also amends the Guidance on implementing IAS 37 by adding examples to illustrate fact
patterns that have been the subjects of IFRS IC agenda decision, namely July 2022
Agenda Decision – Negative Low Emission Vehicle Credits (IAS 37) 39 and the
abovementioned IFRS IC April 2024 Agenda Decision on Climate-related Commitments
(IAS 37).

(iv) Given the rising use of power purchase agreements to acquire nature-dependent
electricity and the need for better representation of these contracts in financial

38
Please refer to IASB’s project page for the development of this project.
39
See relevant discussion in Closing Out 2023 –Section I, P.7.

20
 statements, the IASB published its targeted amendments to IFRS 9 Financial
Instruments and IFRS 7 Financial Instruments: Disclosures on 18 December 2024, after
considering the stakeholders’ feedback on the Exposure Draft Contracts for Renewable
Electricity. These amendments are required to be applied for reporting periods on or
after 1 January 2026, with early adoption permitted.

III. HKFRS Accounting Standards issued but not yet

effective
The final part of this publication provides an overview of HKFRS Accounting Standards that
have been issued but are not yet effective. In accordance with HKAS 840, entities need to
disclose in their December 2024 financial statements the possible impact of initial application
of the new or amended HKFRS Accounting Standards. Accordingly, entities should familiarize
themselves with the requirements of the new or amended HKFRS Accounting Standards, and
assess their impacts based on their own circumstances. We highlight below three
amendments or Standards that we consider particularly relevant to entities reporting in Hong
Kong.

1. Amendments to HKFRS 9 Financial Instruments and HKFRS 7 Financial

Instruments: Disclosures – Amendments to the Classification and Measurement
of Financial Instruments

In May 2024, the IASB issued Amendments to the Classification and Measurement of
Financial Instruments, which amended IFRS 9 and IFRS 7, to address the matters identified
during the post-implementation review of the classification and measurement of IFRS 9 and
clarify stakeholders’ concerns and emerging issues. The HKICPA issued the equivalent
Amendments to HKFRS 9 and HKFRS 7 in August 2024. A summary of the key amendments
and their implications is set out below.

Effective date: Annual reporting periods beginning or after 1 January 2026. Earlier application of either
all the amendments at the same time or only the amendments related to classification of financial assets
plus related disclosures permitted.
Initial application: Amendments to be applied retrospectively. Restatement of prior periods not required,
and only permitted without the use of hindsight. Disclosure of information of financial assets that change
the measurement category due to the Amendments required.

A. Initial recognition or derecognition of financial assets and liabilities

Highlights of the Amendments Implications and relevant considerations (not

exhaustive)
A1. Date of initial recognition or derecognition of financial assets and liabilities – general principles41
 Clarify the existing requirements of  Unless using an electronic payment system that
HKFRS 9 that financial assets or financial meets the specified criteria in HKFRS 9.B3.3.8

40
HKAS 8.30-31.
41
HKFRS 9.B3.1.2A

21
 Highlights of the Amendments Implications and relevant considerations (not
exhaustive)
liabilities are recognized when the entity (refer to A2 below), entities cannot derecognize a
becomes a party to the contractual financial asset or financial liability until the amount
provisions of the instrument. has cleared in the receiving entity’s bank
 Clarify that financial assets are account42. These requirements apply to payments
derecognized when the entity’s rights to made via cheque, debit card or credit card and
the contractual cash flows (CCFs) expire other electronic transfers that do not satisfy the
or are transferred. conditions in HKFRS 9.B3.3.8.

 Clarify that a financial liability is  Consequently, entities whose financial reporting

derecognized on the ‘settlement date’, i.e. processes do not align with the clarifications
the date on which the financial liability is provided in the Amendments might be affected. As
extinguished because the related such, entities should revisit their processes and
obligation specified in the contract is assess whether the accounting policy for
derecognition of financial assets and financial
discharged, cancelled, expires or the
liability otherwise qualifies for liabilities conform to the Amendments.
derecognition (see A2 below).  See an example below to understand the impact of
the Amendments.
A2. Derecognition of a financial liability through electronic transfer43
 Introduce an accounting policy option that  No significant impact is expected on entities
an entity is permitted to deem a financial operating in Hong Kong and Mainland China where
liability (or part of it) to be settled in cash the electronic payment systems generally are
using an electronic payment system as operated on a real-time basis.
discharged before the settlement date if  The Amendments apply to specific scenarios of
certain conditions are met and payments made using an electronic payment
derecognize the financial liability before system for financial liabilities. To assess whether
the settlement date. the specified conditions will be met, additional work
 Require that the above accounting policy is needed to analyze the contractual and legal
option is applied to all settlements made requirements for each electronic payment system
through the same electronic payment in each jurisdiction. This work could be complex,
system if elected. particularly in case of cross-border payments.
 The accounting policy option can be  Entities’ financial reporting processes might be
applied for electronic payments on a affected, e.g. some entities that, prior to the
system-by-system basis. Amendments, derecognized financial liabilities only
upon cash receipts.

Example – derecognition of a financial liability through a cheque payment

In Hong Kong, it is common for companies to derecognize their financial liabilities upon the
issuance of cheques to their creditors. At each month-end, they perform bank reconciliation
procedures to reconcile any differences in the closing balance between the bank ledger and
bank statements (e.g. cheques not yet cleared by the bank). The Amendments could change
this current practice by clarifying that entities can derecognize their financial liabilities only

42
HKFRS 9.BC 3.55 and BC3.60.
.
43
HKFRS 9.B3.1.2A, B3.3.8 – B3.3.10.
22
when cheques are cleared by the bank, instead of when they are issued, as illustrated in
diagram below.

Diagram 4 – Derecognition of trade payable settled by cheque

Under the Amendments, the debtor should derecognize trade payable on Day Y when the
creditor receives the cash, as opposed to Day 0 when the debtor issues the cheque. Similarly,
a creditor derecognizes a trade receivable upon receiving cash from the debtor after the
cheque has been cleared by the bank. In preparation for adopting the Amendments, we
consider it crucial that entities review their derecognition practices for financial assets and
financial liabilities to ensure compliance with the Amendments.

B. Classification of financial assets

Highlights of the Amendments Implications and relevant considerations (not

exhaustive)
B1. Classification of financial assets – contractual terms that are consistent with a basic lending
arrangement44
 Provides guidance on how an entity assesses  The Amendments provide additional
whether CCFs of a financial asset, with application guidance for all financial assets
contingent features, are consistent with a basic whose CCFs could change as a result of
lending arrangement, specifically: contingent events46. Therefore, entities
- whether the CCFs that could arise before and should reassess whether their financial
after the change in CCFs would meet the assets with contingent features are
SPPI45 test. impacted by the Amendments.
- whether the nature of contingent event relates  Judgement may be needed in assessing
directly to, and the CCFs change in the same whether financial assets containing
direction as, changes in basic lending risks and contingent features satisfy the SPPI under
costs. the Amendments, e.g. what is considered
- whether SPPI test may still be met when the as ‘significantly different’ in applying the
nature of contingent event does not relate new requirements of HKFRS 9.B.4.1.10A.

44
HKFRS 9.B4.1.8A, B4.1.10, B4.1.10A and B4.1.13-14
45
SPPI refers to ‘solely payments of principal and interest on the principal amount outstanding’.
46
Given the principle-based approach of IFRS 9 (HKFRS 9 equivalent), the Amendments are not specific to environmental, social
and governance (ESG)-linked instruments. See HKFRS 9.BC4.254-4.256 for the IASB’s relevant consideration.

23
 Highlights of the Amendments Implications and relevant considerations (not
exhaustive)
directly to changes in basic lending risks and  There could be a change in the
costs. measurement category of existing financial
assets as a result of applying the
 Add examples of financial assets that have, or do
Amendments. If so, entities should provide
not have, CCFs that are SPPI.
the relevant disclosures according to the
transition provisions47.
B2. Classification of financial assets – financial assets with non-recourse features48
 Enhance the description of the term ‘non-  Entities should reassess the impact of the
recourse’, specifying that a financial asset has Amendments on the classification of their
non-recourse features if an entity’s ultimate right financial assets, such as:
to receive cash flows is contractually limited to - financial assets initially considered in-
the cash flows generated by specified assets. substance non-recourse without
That means, the entity is primarily exposed to the contractual terms, given that the
specified assets’ performance risk, not the Amendments50 clarify that non-recourse
debtor’s credit risk. feature must be contractual;
- financial assets which are collateralized
 Clarify the difference between a non-recourse
loans but accounted for as non-recourse,
loan and a collateralized loan49.
and vice versa.
 Clarify how to perform the ‘look-through’
 Be mindful of the disclosure requirements
assessment to the underlying assets for financial
and transitional provision if there is a
asset with non-recourse feature to assess if such
change in measurement category as
a financial asset still meets SPPI.
mentioned above.

B3. Classification of financial assets – contractually linked instruments (CLI)51

 Clarify the characteristics of CLI, which have a  Entities should reassess the impact of the
waterfall payment structure that creates Amendments on the classification of their
concentration of credit risk and results in a financial assets currently treated as CLI. For
disproportionate allocation of cash shortfalls from example, those multiple debt instruments of
the underlying pool between tranches. different seniority issued for credit protection
of creditor cannot be accounted for as CLI
 Clarify that CLI with non-recourse features are to
under the Amendments.
be assessed only in accordance with CLI
requirements under HKFRS 9.  Be mindful of the disclosure requirements
and transitional provision if there is a
 Clarify that CLI are not created when multiple
change in measurement category as
debt instruments of differing seniority are issued
mentioned above.
to facilitate lending with enhanced credit
protection to a creditor (or a group of creditors).
 Clarify that the reference to instruments in the
underlying pool can include financial instruments
not within the scope of HKFRS 9 but with CCFs
equivalent to SPPI, such as lease receivables.

47
HKFRS 9.7.2.
48
HKFRS 9.B4.1.16, B4.1.16A and B4.1.17.
49
HKFRS 9.BC4.280.
50
HKFRS 9.B4.1.16A and BC4.286.
51
HKFRS 9.B4.1.20, B4.1.20A, B4.1.21 and B4.1.23.

24
C. Disclosures

Highlights of the Amendments Implications and relevant considerations (not

exhaustive)
C1. Disclosures – investments in equity instruments designated at fair value through other
comprehensive income (FVTOCI)52
 Require additional disclosures for FVTOCI  The grouping of investments into classes should
investments: be performed based on the requirements of
- the change in fair value in OCI during the HKFRS 7.6.
period, showing separately, the amounts
 The applicability of the new disclosure regarding
relating to investments derecognized in
the transfer of cumulative gains or losses within
the period, and those held at the end of
equity depends on the entities’ existing
the reporting period for each class of
accounting policy on whether to transfer these
investment.
cumulative gains or losses.
- the aggregate fair value of investments
for each class of investment (as opposed
to fair value of each such investment
before the Amendments) at the end of the
reporting period, and
- any transfer of cumulative gains and
losses within equity for investments
derecognized in the period.

C2. Disclosures – contractual terms that could change the timing or amount of contractual cash flows on
the occurrence (or non-occurrence) of a contingent event53
 Add new disclosures for financial assets  New disclosures are applicable to both financial
and liabilities that contain contingent assets and financial liabilities whose cash flows
features (including those that are ESG- would change due to a contingent event, and not
linked) to: only financial assets whose classification
- each class of financial asset measured at requirements have been amended.
amortized cost or FVTOCI and
 The new disclosures are not required for financial
- each class of financial liability at
instruments measured at fair value through profit
amortized cost.
or loss, as the changes in fair value are
 The new disclosures include: considered to provide sufficient information to
- a qualitative description of the nature of enable users to assess the future cash flows of
the contingent event; those instruments.
- quantitative information about the  The grouping of investments into classes should
possible changes to CCFs that could be performed based on the requirements of
result from those contractual terms; and HKFRS 7.6.
- the gross carrying amount of financial
assets and the amortized cost of financial  Judgement may be needed in the following:
liabilities subject to those contractual - determination of the nature and extent of
terms. qualitative and quantitative disclosures required
by the Amendments, considering the complexity
 Add the same disclosure requirements to of the instruments and materiality.
HKFRS 19 Subsidiaries without Public - appropriate level of aggregation or
Accountability: Disclosures disaggregation of information for disclosures.

52
HKFRS 7.11A and 11B.
53
HKFRS 7.20B, 20C and 20D.

25
2. HKFRS 18 Presentation and Disclosure in Financial Statements

In July 2024, the HKICPA issued HKFRS 18 together with the consequential amendments to
other HKFRS Accounting Standards54, following the issuance of IFRS 18 Presentation and
Disclosure in Financial Statements and consequential amendments to other IFRS Accounting
Standards in April 2024. HKFRS 18, which replaces HKAS 1 Presentation of Financial
Statements, is effective for annual periods beginning on or after 1 January 2027, with early
application permitted. Requirements in HKAS 1 that are unchanged have been ‘brought
forward’ into HKFRS 18 and other HKFRS Accounting Standards.

Although HKFRS 18 will not affect how companies measure financial performance, it will affect
how companies present and disclose financial performance. As shown in the table below,
HKFRS 18 introduces three sets of new requirements to improve entities’ reporting of financial
performance and give investors a better basis for analyzing and comparing entities. These
requirements affect all entities in all industries as to how they present and disclose financial
performance in financial statements.

Areas Highlights of key requirements

1. Statement of profit or  More structured statement of profit or loss by requiring:

loss55 i) Classification of all income and expenses into one of the five
categories – operating, investing, financing, income taxes and
discontinued operation. The first three are new categories.
ii) Presentation of two new defined subtotals and totals
– ‘operating profit’ and ‘profit or loss before financing and
income taxes’.
 For the purpose of (i), an entity assesses whether it has a ‘main
business activity’ of investing in assets or providing financing to
customers, which would require specific classification.
 Require entities to classify foreign exchange differences in the same
category of the statement of profit or loss as the income and
expenses from the items that gave rise to the foreign exchange
differences. However, if classifying such a way would involve undue
cost or efforts, entities are permitted to classify foreign exchange
differences in the operating category.
 Include specific requirements for classifying fair value gains and
losses on derivatives and hedging instruments, and for classifying
income and expenses from hybrid contracts.
2. Management-defined  Define MPM as a subtotal of income and expenses that an entity
performance measures uses in public communications outside financial statements, to
(MPMs)56 communicate management’s view of an aspect of the financial
performance of the entity as a whole to users. However, subtotals of

54
This includes narrow-scope amendments to HKAS 7, HKAS 33 Earnings per Share and HKAS 8. HKAS 8 is re-titled ‘Basis of
Preparation of Financial Statements’ to better reflect its amended content.
55
HKFRS 18.46-85, B29-B85.
56
HKFRS 18.117-125, B113-B142.

26
 Areas Highlights of key requirements

income and expenses listed by HKFRS 18 or specifically required by

HKFRS Accounting Standards are not MPMs.
 Require disclosure of all of an entity’s MPMs in a single note,
including a reconciliation between the measure and the most directly
comparable subtotal specified by HKFRS 18 or total or subtotal
specially required by other HKFRS Accounting Standards, and a
description of how the measure communicates management’s view
and the calculation of the measure.
 Provide a statement that the measure reflects management’s view
of an aspect of financial performance of the company as a whole
and is not necessarily comparable to measures sharing similar
labels or descriptions provided by other companies.
3. Aggregation and  Provide guidance for entities on grouping transactions and other
disaggregation57 events into the line items in the primary financial statements and
information disclosed in the notes. Entities are required to:
i) Aggregate items that have similar characteristics and
disaggregate items that have different characteristics;
ii) Group items in a way that does not obscure material information
or reduce the understandability of the information presented;
iii) Use meaningful labels or descriptions for aggregated items, and
use the label ‘other’ only when entities are unable to find a more
informative label; and
iv) Place items in the primary financial statements and the notes to
fulfil their complementary roles.
 Require entities to present the operating category expenses based
on their nature or their function. Entities that present expenses
classified by function are required to disclose in the notes the five
specified operating expenses by nature, namely the amount of
depreciation, amortization, employee benefits, impairment losses
and write-downs of inventories included in each line item in the
operating category of statement of profit or loss58.

The implementation of HKFRS 18 will have a broad impact on various entities and industries.
The HKICPA released two A-Plus technical articles in January and July 2024. Entities are
encouraged to read them to gain insights into the implications of HKFRS 18. Moreover, the
HKICPA has developed a dedicated webpage focusing on HKFRS 18, which includes the
project summaries and effects analysis, providing another helpful resources to assist in the
implementation of this new major Standard.

Restatement of comparative period and compliance with the disclosure requirements under
HKFRS 18.C3 on transition are required. Entities with interim reporting obligations should be

57
HKFRS 18.41-43, B16-B26.
58
HKFRS 18.78-85 and B80-B85.
27
aware of the amendments to HKAS 34 Interim Financial Reporting and related transition
provisions in HKFRS 18.C4-C5.

To ensure smooth transition, we advise entities to start preparing for the implementation of
HKFRS 18 as soon as possible. The following are some key reminders for the transition:
(i) Entities should carefully assess whether they are engaged in specified main business
activities, as the classification of income and expenses in their statements of profit or
loss depends on their main business activities. The main business of a subsidiary is not
necessarily the main business of a consolidated group.

(ii) Entities’ current reporting practices, internal processes, accounting systems and internal
controls may be impacted by the following:
- changes in the structure of their statements of profit or loss,
- assessment of specified main business at each reporting entity level, and
- requirements for aggregation and disaggregation, including the need for (1) more
descriptive labels for items currently aggregated and labelled as ‘other’ in the
financial statements, and (2) capturing relevant information to fulfil the disclosures
on the five specified operating expenses by nature.

(iii) Management and those charged with governance should proactively communicate the
expected implications of HKFRS 18 to stakeholders. Non-GAAP measures that meet the
definition of MPMs shall be included in financial statements and subject to audit. The
disclosure requirements for MPMs might heighten communication endeavors and
engagements with investors, prompting entities to reassess their external
communication strategies to ensure effective public communication on non-GAAP
measures while complying with HKFRS 18 requirements.

3. HKFRS 19 Subsidiaries without Public Accountability: Disclosures

In July 2024, the HKICPA issued HKFRS 19, the equivalent of IFRS 19 Subsidiaries without
Public Accountability: Disclosures issued by the IASB in May 2024. HKFRS 19 is a disclosure-
only and optional standard which allows eligible subsidiaries to apply HKFRS Accounting
Standards with reduced disclosures. The objective of HKFRS 19 is to reduce the costs of
preparing financial statements for eligible subsidiaries, while maintaining the usefulness of
those financial statements for their users.

28
An eligible subsidiary may elect to apply HKFRS 19 in its consolidated, separate or individual
financial statements for annual periods beginning on or after 1 January 2027. Early application
is permitted. A subsidiary59 is eligible for applying HKFRS 19 if meeting these two conditions60:
(i) It does not have public accountability (See Diagram 5); and
(ii) Its ultimate or intermediate parent produces consolidated financial statements available
for public use that comply with HKFRS Accounting Standards.

Diagram 5 – What is public accountability61?

The following are some key points for application of HKFRS 19:
(i) As HKFRS 19 is part of HKFRS Accounting Standards, an eligible subsidiary that applies
HKFRS 19 and complies with HKFRS Accounting Standards is required to state as part
of its explicit and unreserved statement of compliance with HKFRS Accounting
Standards that HKFRS 19 has been adopted62.

(ii) An entity that has elected to apply HKFRS 19 may later revoke that election 63. An entity
is permitted to elect to apply HKFRS 19 more than once. For example, an entity that
applied HKFRS 19 in a prior period but not in the immediately preceding period may
elect to apply HKFRS 19 in the current period.

(iii) Entities, which prepare their financial statements for the immediately preceding period
under Small and Medium-sized Entity Financial Reporting Framework and Financial
Reporting Standard or HKFRS for Private Entities Accounting Standard and elect to
apply HKFRS 19 and other HKFRS Accounting Standards in the current period, are
considered a first-time adopter of HKFRS Accounting Standards and thus the disclosure
requirements in HKFRS 19 relating to HKFRS 1 First-time Adoption of Hong Kong
Financial Reporting Standards will apply. This is because those reporting frameworks
are not HKFRS Accounting Standards64.

59
Appendix A of HKFRS 10 Consolidated Financial Statements defines ‘subsidiary’ as ‘an entity that is controlled by another
entity’.
60
HKFRS 19.7.
61
HKFRS 19.11-12.
62
HKFRS 19.20.
63
HKFRS 19.13 and BC 96-98.
64
HKFRS 19.BC 107.
29
(iv) Unless otherwise specified, an eligible subsidiary applying HKFRS 19 applies the
requirements of recognition, measurement and presentation in other HKFRS Accounting
Standards to a transaction, event or condition and applies the disclosure requirements
under the subheading of that HKFRS Accounting Standard in HKFRS 19. For example,
an entity applies the recognition, measurement and presentation requirements under
HKAS 2 Inventories to account for its inventories and applies HKFRS 19.164 under the
subheading HKAS 2 Inventories in HKFRS 19 for disclosure.

(v) Eligible subsidiaries voluntarily applying HKFRS 8 Operating Segments and HKAS 33
Earnings per Share should continue to refer to these HKFRS Accounting Standards for
all relevant disclosure requirements.

(vi) If an entity applying HKFRS 19 also applies HKFRS 17 Insurance Contracts, it is required
to apply all the disclosure requirements in HKFRS 17, as there are no reductions in the
disclosure requirements for HKFRS 17 at this stage.

(vii) Entities previously applying HKFRS Accounting Standards and have decided to apply
HKFRS 19 should identify the disclosure requirements that no longer apply and
information that no longer needs to be gathered. Financial reporting systems and
processes may need to be adjusted to accommodate the reduced disclosure
requirements.

We recommend that entities utilize the following resources to understand and implement
HKFRS 19:
(i) Our A-Plus technical article published in October 2024: This article not only explains the
application of HKFRS 19, but also discusses the expected benefits and costs of adopting
HKFRS 19. It serves as a starting point for entities to assess whether they should apply
HKFRS 19, taking into account their own circumstances.

(ii) The IFRS 19 disclosure tracker: This tracker lists the disclosure requirements in IFRS 19
and maps them to their equivalents in other IFRS Accounting Standards. It is intended to
be a ‘living document’ that will be updated with changes to disclosure requirements in other
IFRS Accounting Standards and the corresponding changes to IFRS 19 itself.

30
Appendix – New and amended HKFRS Accounting
Standards as well as Agenda Decisions issued by the IFRS
IC

The following amended standards and interpretation became effective as of 1 January 2024:

Standards and Interpretation Description

Amendments to HKAS 1 Presentation of The amendments to HKAS 1 clarify how to classify debt
Financial Statements – Classification of and other liabilities as current or non-current and deal
Liabilities as Current or Non-current with the classification of non-current liabilities with
covenants.
Amendments to HKAS 1 Presentation of
Financial Statements – Non-current
Liabilities with Covenants

Amendments to HKFRS 16 Leases – The amendments to HKFRS 16 add subsequent

Lease Liability in a Sale and Leaseback measurement requirements for the lease liability arising
from a sale and leaseback transaction, where the
transfer of the asset satisfies the requirements in
HKFRS 15 Revenue from Contracts with Customers to
be accounted for as a sale.

Amendments to Hong Kong HK Interpretation 5 has been updated to incorporate

Interpretation 5 (Revised) Presentation the references to the above amendments to HKAS 1.
of Financial Statements – Classification
by the Borrower of a Term Loan that
Contains a Repayment on Demand
Clause

Amendments to HKAS 7 Statement of The amendments introduce new disclosure

Cash Flows and HKFRS 7 Financial requirements to enhance the transparency of supplier
Instruments: Disclosures – Supplier finance arrangements and their effects on an entity’s
Finance Arrangements liabilities, cash flows and exposure to liquidity risk.

The following new and amended standards and interpretation have been issued but are not
yet effective as of 1 January 2024. They are available for early adoption.

Effective from annual New and amended HKFRS Accounting Standards and
periods beginning on or Interpretation
after (in chronological
order):

1 January 2025 Amendments to HKAS 21 The Effects of Changes in Foreign

Exchange Rates – Lack of Exchangeability

31
 Effective from annual New and amended HKFRS Accounting Standards and
periods beginning on or Interpretation
after (in chronological
order):

1 January 2026 Amendments to HKFRS 9 Financial Instruments and HKFRS 7

Financial Instruments: Disclosures – Amendments to the Classification
and Measurement of Financial Instruments

1 January 2026 Annual Improvements to HKFRS Accounting Standards — Volume 11:

 Amendments to HKFRS 1 First-time Adoption of Hong Kong
Financial Reporting Standards
 Amendments to HKFRS 7 Financial Instruments: Disclosures and
Guidance on Implementing HKFRS 7
 Amendments to HKFRS 9 Financial Instruments
 Amendments to HKFRS 10 Consolidated Financial Statements
 Amendments to HKAS 7 Statement of Cash Flows

1 January 2027 HKFRS 18 Presentation and Disclosure in Financial Statements

1 January 2027 Amendments to Hong Kong Interpretation 5 Presentation of Financial

Statements – Classification by the Borrower of a Term Loan that
Contains a Repayment on Demand Clause

1 January 2027 HKFRS 19 Subsidiaries without Public Accountability: Disclosures

A date to be determined Amendments to HKFRS 10 Consolidated Financial Statements and

by the IASB HKAS 28 Investments in Associates and Joint Ventures – Sale or
Contribution of Assets between an Investor and its Associate or Joint
Venture

The following agenda decisions were published by the IFRS IC in 2024:

Publication month Agenda Decisions

January 2024  Merger between a Parent and Its Subsidiary in Separate Financial
Statements – IAS 27 Separate Financial Statements

April 2024  Payments Contingent on Continued Employment during Handover

Periods – IFRS 3 Business Combinations
 Climate-related Commitments – IAS 37 Provisions, Contingent
Liabilities and Contingent Assets

July 2024  Disclosure of Revenues and Expenses for Reportable Segments –

IFRS 8 Operating Segments

32
About the Standard Setting Department
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only body authorized
by law to set and promulgate standards relating to financial reporting, auditing, ethics and
sustainability disclosures for professional accountants in Hong Kong. The due process
documents of the Standard Setting Department (SSD) explain the processes and procedures
for developing local standards and adopting international standards.

To find out more about how SSD contributes to international standard-setting, please visit:
https://www.hkicpa.org.hk/en/Standards-setting/Standards/How-we-set-standards-and-
contribute-to-international-standards

To access SSD’s latest publications and webcasts, please visit:

https://www.hkicpa.org.hk/en/Standards-setting/Standards/Whats-News/2025

Connect with us on social media:

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@hkicpa.official

This publication is developed by the SSD of the HKICPA and is for general reference only.
The HKICPA, its staff, Council and its committees do not accept any responsibility or liability
in respect of the publication or any consequence that may arise from any person acting or
refraining from acting as a result of any materials in the publication. Members of the HKICPA
and other users of this publication should also read the full HKFRS Accounting Standards, as
found in the HKICPA Members’ Handbook for further reference and seek professional advice
where necessary when applying the references contained in this publication. The SSD
welcomes your comments on this publication. They can be sent to
commentletters@hkicpa.org.hk.

33
Hong Kong Institute of Certified Public Accountants
37th Floor, Wu Chung House
213 Queen’s Road East, Wanchai, Hong Kong
Tel: (852) 2287 7228
Fax: (852) 2865 6603
Email: hkicpa@hkicpa.org.hk
Website: www.hkicpa.org.hk

Author

Carrie Lau
Associate Director,
Standard Setting,
HKICPA
2425_20250320

The author thanks members of the Financial Reporting Standards Committee of the HKICPA for their
input in reviewing this publication.