Technical news

Members’ handbook

Update no. 272 relates to amendments to Preface to Hong Kong Financial Reporting Standards (HKFRS) and Preface to HKFRS for Private Entities.

The Preface to HKFRS is revised to incorporate the due process of the Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard and post-implementation review policies. The Preface to HKFRS for Private Entities is revised to remove references to the Institute’s Standards & Quality Accountability Board that was disbanded a few years ago, to update terminologies to align it with those used by the International Accounting Standards Board (IASB) and to reflect that the due process of the HKFRS for Private Entities follows that of the HKFRS.

The update also contains an editorial correction to Hong Kong Accounting Standard 24 Related Party Disclosures and the inclusion of a reminder when applying Accounting Bulletin 4 Guidance on the Determination of Realised Profits and Losses in the Context of Distributions under the Hong Kong Companies Ordinance.

Financial reporting 

Institute submissions

The Institute has submitted its comment letters on the following IASB consultation documents:

• Non-current Liabilities with Covenants – Proposed amendments to International Accounting Standard (IAS) 1.
• Supplier Finance Arrangements – Proposed amendments to IAS 7 and IFRS 7.

Workshops and webinar on HKFRS 17 Insurance Contracts

The Institute will hold a series of face-to-face workshops in May for professionals who have acquired an understanding of the basic principles of HKFRS 17 Insurance Contracts and now wish to develop a working knowledge of the standard.

• 16 May: General insurance – Deep dive application;
• 17 May: General insurance – Reinsurance, presentation and disclosures, interaction with other standards;
• 23 May: Life insurance – Deep dive application; and
• 24 May: Life insurance – Reinsurance, contract boundary, presentation and disclosures.

The Institute will also host a live webinar on 27 May, titled Practical implementation issues on core aspects of HKFRS 17, where speakers will provide a high-level understanding of practical challenges faced by entities when implementing HKFRS 17. The webinar will provide insights on identifying these challenges and ways in which these challenges should be approached.

E-learning: Year-end Financial Reporting Reminders for 2021

In this e-learning session hosted by the Institute, speakers share their insights on common application issues that warrant specific attention for 2021 financial statements. They also highlight new and amended HKFRS that are effective for 2021, and amendments to HKFRS that have been issued in 2021 but have yet to come into effect.

Publication: Financial Reporting Considerations for Closing Out 2021

The Institute has issued the publication Financial Reporting Considerations for Closing Out 2021 which highlights key accounting considerations for entities preparing their December 2021 financial statements. The publication discusses new and revised HKFRS mandatorily effective from 1 January 2021, agenda decisions issued by the IFRS Interpretations Committee in 2021 that are relevant to Hong Kong entities, COVID-19-related financial reporting considerations and climate-related reporting. The considerations highlighted in the publication are also relevant for financial years ending after December 2021.

Speech by IASB Chairman at ICGN conference

Andreas Barckow, Chair of the IASB, delivered the keynote speech at the International Corporate Governance Network’s (ICGN) Global Sustainability Standards: Convergence and the Future event on 16 March. He discussed what the IASB already has in place on accounting for sustainability-related matters in the financial statements and where the IASB may go in the future.

IASB March Update

The IASB has published a summary of discussions at its March meeting. Topics discussed include primary financial statements, financial instruments with characteristics of equity, post-implementation review of IFRS 9 – classification and measurement, and business combinations under common control.

IFRS Interpretations Committee March Update and agenda decision

The IFRS Interpretations Committee Update provides a summary of discussions at its March meeting. It has also published its agenda decision on targeting longer-term refinancing operations III Transactions (IFRS 9 Financial Instruments and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance).

Auditing and assurance

Update on impact of coronavirus outbreak on audits and auditors

The Institute’s Standard Setting Department has put together an Alert highlighting the key matters that auditors should consider that have been included in various publications issued by the Institute, international standard setters and other professional accounting bodies since the pandemic began. Auditors should consider the areas highlighted in these publications among others when conducting their 2021 financial year-end audit engagements.

Recording of virtual workshop on HKSA 315 (Revised 2019) 

A recording is now available of the Institute’s virtual workshop on Hong Kong Standard on Auditing (HKSA) 315 (Revised 2019) Identifying and Assessing the Risks of Material Misstatement – Key requirements and implications on auditing that provides an overview of the key changes and a deep dive on the requirements of the revised standard, and its implications on auditing which helps auditors to plan ahead of audits with year ends on or after December 2022.

The Institute’s Auditing and Assurance Standards Committee meeting minutes

Minutes of the 397th meeting are now available.

IAASB March board meeting

The meeting summary of the International Auditing and Assurance Standards Board (IAASB) quarterly board meeting is now available.

IAASB digital technology market scan
The third market scan from the IAASB’s Disruptive Technology team, titled Artificial Intelligence – A Primer is now available. It provides a high-level primer on artificial intelligence as it is one of the most significant and potentially disruptive technologies in audit and assurance. Previous digital technology market scans released by the IAASB’s Disruptive Technology team covered topics on data standardization and API access.

Auditing accounting estimate implementation tool

The International Federation of Accountants (IFAC) released the Auditing Accounting Estimates: ISA 540 (Revised) Implementation Tool to help auditors implement the IAASB’s International Standard on Auditing 540 (Revised) Auditing Accounting Estimates and Related Disclosures by providing an overview of steps practitioners could take and related considerations.

ICAEW audit and assurance resources

The Institute of Chartered Accountants in England and Wales (ICAEW) has the following resources that may be of interest to members:

• War in Ukraine: the auditing implications – this publication gives an overview of the key areas auditors may need to consider where one or more components of group audits are located in Ukraine, Russia or Belarus.
• Root cause analysis: finding the way and Resourcing root cause analysis – these articles explain the increasing importance of root cause analysis (RCA) for audit firms to help identify the root cause(s) of the identified deficiencies for remediation under the new quality management standards and explore the respective benefits of keeping the RCA in-house and resourcing it externally.
• Audit and Beyond March 2022 – this publication explores areas around fraud, audit quality, ISA 315 (Revised) etc. to offer tips for tackling these areas in practice.
• Resources and an online event series to help audit firms prepare for new quality management standards.
• Resource hub on articles, helpsheets and other practical resources and tools to support the implementation of ISA 540 (Revised).

Institute members can also subscribe to ICAEW’s International Standards for free to access a wide range of resources on auditing and ethics.

Ethics

Invitation to comment

The Institute is seeking comments on the International Ethics Standards Board for Accountants’ (IESBA) Exposure Draft Proposed Technology-related Revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the International Code) by 20 May.

Revised non-assurance services and fee-related provisions of the Code of Ethics for Professional Accountants

Register for the Institute’s e-learning session which covers specific provisions of the revised non-assurance services (NAS) and fee-related independence standards of the Code. The revisions significantly strengthen the guardrails around auditor independence in two important areas that have the potential to create incentives influencing auditor behaviour – NAS provided to audit clients and fees. They will come into effect in December 2022.

The Institute’s Ethics Committee meeting minutes

Minutes of the 249th meeting are now available.

Exploring the IESBA Code, A Focus on Technology – Artificial Intelligence

This news instalment of Exploring the Code by the IFAC and IESBA highlights the application of the International Code, in particular, the relevance of its fundamental principles and conceptual framework to addressing ethics issues that might arise when artificial intelligence (AI) is used or implemented by professional accountants. Specifically, the instalment sets out an AI scenario to assist accountants in identifying, evaluating and addressing threats to compliance with the International Code’s fundamental principles.

IESBA March board meeting

The audio recording of the IESBA March board meeting is now available.

Sustainability

Invitations to comment

The Institute is seeking comments on the following International Sustainability Standards Board (ISSB) Exposure Drafts by 13 June:

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.
• IFRS S2 Climate-related Disclosures.

The Exposure Drafts have been developed in response to requests from G20 leaders, the International Organization of Securities Commissions and others for enhanced information from companies on sustainability-related risks and opportunities. When the ISSB issues the final requirements, they will form a comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors in assessing enterprise value.

IFRS Foundation and GRI to align capital market and multi-stakeholder standards to create an interconnected approach for sustainability disclosures

On 24 March, the IFRS Foundation and Global Reporting Initiative (GRI) announced a collaboration agreement under which their respective standard-setting boards, ISSB and the Global Sustainability Standards Board, will seek to coordinate their work programmes and standard-setting activities.

ISSB communicates plans to build on SASB’s industry-based Standards and leverage SASB’s industry-based approach to standards development

On 31 March, the ISSB Chair and Vice-Chair communicated plans for building upon the Sustainability Accounting Standards Board (SASB) Standards and for embedding SASB’s industry-based standards development approach into the ISSB’s standards development process. As the IFRS Foundation Trustees committed to when launching the ISSB, it will build on the work of existing investor-focused reporting initiatives to become the global standard-setter for sustainability disclosures for the financial markets.

Corporate finance

Institute submission on HSIC’s consultation regarding a new “comprehensive” China Index

The Institute issued a submission in response to the Consultation Paper issued by Hang Seng Indexes Company Limited (HSIC), which sought views from the market about creating a new “comprehensive” China Index that includes constituents from the Hang Seng China Enterprises Index and A-shares companies.

In general, we are supportive of the concept of a new “comprehensive” China Index and have provided some observations on specific questions for HSIC’s consideration.

Insolvency

Implications of the Temporary Unemployment Relief Scheme for (Provisional) Trustees under the Bankruptcy Ordinance (Cap. 6)

The Official Receiver’s Office has issued a letter on 23 March, advising on factors that should be considered in determining whether or not it would be appropriate to lay claim to the one-off subsidy of HK$10,000 received by an undischarged bankrupt from the government’s Temporary Unemployment Relief Scheme, as after-acquired property. The letter reminds office-holders that they should not apply across-the-board decisions to all cases and are encouraged to exercise their professional judgement and use flexibility and discretion when assessing the bankrupt’s domestic needs and considering whether to lay claim to after-acquired property during the pandemic.

INSOL London 2022

The next INSOL Conference will be a physical event held in London from 26 to 28 June. An early bird rate is available to those registering before 25 March.

Details of the conference are available here.

Taxation

Update on tax filing due dates from IRD

Given the impact of the fifth wave of the pandemic, and the resulting challenges faced by members and practitioners, the Institute has been communicating with the Inland Revenue Department (IRD) and requested extensions of upcoming profits tax, salaries tax and other filing due dates, as well as asking for clear and early guidance on flexibility around other tax deadlines.

We are pleased to see that the IRD has responded favourably to some of the main requests made by the Institute and other stakeholders, and has announced arrangements for certain longer extended tax due dates, in particular, under the Block Extension Scheme for taxpayers who are represented. A quick summary of the arrangements was provided in a message to members. Further details are contained in the Circular Letter to Tax Representatives – Block Extension Scheme for Lodgement of 2021/22 Tax Returns. 

Electronic filing of Profits Tax Returns

With effect from 1 April 2022, Profits Tax Returns can be furnished by service providers. Corporations and partnerships satisfying the conditions specified by the Commissioner of Inland Revenue can file their Profits Tax Returns for any year of assessment from 2016/17 to 2021/22, and attach supplementary forms to Profits Tax Return S1, S2, S3 and S4, electronically under eTAX, either directly by themselves or through service providers. Please visit the IRD’s website for details.

New profits tax return forms

As you may be aware, the bulk issue of 2021/22 profits tax returns (BIR51) took place on 1 April. We note from the sample BIR51 that the Part 13 Declaration has been revised and service providers may sign on the tax return starting from this year. We have sought clarification from the IRD regarding the circumstances under which a service provider should sign the tax return and the relevant information is summarized below for your reference:

1. If a taxpayer has engaged a service provider to furnish the profits tax return on its behalf, the taxpayer itself does not need to sign the Declaration, but instead the service provider needs to sign it; and
2. A tax representative who only prepares the tax return and tax computation for a taxpayer is not required to sign the Declaration, if the tax representative is not also the service provider engaged to carry out the taxpayer’s obligation under section 51(1) of the Inland Revenue Ordinance (IRO).

Please note that the term “service provider” is defined under section 51AAD(8) of the IRO to mean a person engaged to carry out a taxpayer’s obligation under section 51(1). The service provider may or may not be the taxpayer’s authorized tax representative. Members who are engaged as service providers in relation to a BIR51 should read the wording of the Declaration carefully and also be aware of the Notes and Instructions – Form BIR51, especially section G, Part 13 (Declaration) and section E (Offences and Penalties), in the light of the new penalties relating to service providers in the IRO.

Announcements by the IRD

Members may wish to be aware of the following matters:

• Country-by-Country Reporting – notification deadline.
• IRD issues profits tax, property tax and employer’s returns for 2021-22.
• Preliminary edition of the IRD Taxonomy Package.
• Tax Representatives’ Corner.
• IRD to resume public services gradually.
• Suspension of Service for Filing of Tax Return – Individuals through eTAX.
• Pay promptly as second instalment is falling due.
• List of Qualifying Debt Instruments (as at 31 December 2021).
• Stamp Duty statistics.

Legislation and other initiatives

Announcements by the government

Members may wish to be aware of the following matters:

• Transcript of remarks of press conference on anti-epidemic measures.
• Survey results of 2021 Annual Earnings and Hours Survey released.
• Government adjusts vaccination requirements of Vaccine Pass.
• Chain volume measures of Gross Domestic Product by economic activity for the fourth quarter of 2021 and the whole year of 2021.
• Unemployment and underemployment statistics for December 2021 – February 2022.
• Adjustment of the Base Rate.
• Hong Kong’s latest foreign currency reserve assets figures released.
• About 6.3 million eligible people to receive consumption vouchers on 7 April.
• Resumption of airmail services to Australia, Canada and India.
• Hong Kong maintains third place in Global Financial Centres Index.
• Cross-Agency Steering Group releases assessment of carbon market opportunities for Hong Kong and next steps.
• Tentative issuance schedule for HKSAR Government Bonds under Institutional Bond Issuance Programme.
• Hong Kong Property Review 2022 preliminary findings released.

AML notices

FATF publication on high-risk and other monitored jurisdictions

The Financial Action Task Force (FATF) published a statement on 4 March regarding high risk jurisdictions subject to a call for action, calling on its members and all jurisdictions to continue to apply specific measures and actions on Iran and the Democratic People’s Republic of Korea.

The FATF also issued a notice on jurisdictions under increased monitoring, referring to other jurisdictions that have been identified to have strategic anti-money laundering/counter-terrorist strategic deficiencies and that are working with the FATF to address these deficiencies. Following recent reviews, Zimbabwe is no longer subject to increased monitoring and updated statements are provided for some of the remaining 22 jurisdictions on the list. In addition, United Arab Emirates has been newly included on the list.

Sanctions

The updated list of terrorists and terrorist associates designated by the United Nations Security Council, published pursuant to the United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575) was gazetted on 4 April.

The list of individuals, groups, undertakings and entities published under section 25 of the United Nations Sanctions (ISIL and Al-Qaida) Regulation (Cap. 537CB), was updated on 2 April.

For the current lists of terrorists, terrorist associates and relevant persons/entities under United Nations sanctions, members should refer regularly to the Institute’s AML webpage. Other useful documents and guidance can also be found on the same page.

Please refer to the full versions of Technical News on the Institute’s website: www.hkicpa.org.hk