The biggest change to Hong Kong’s income statement in decades is now less than one year away. Hong Kong Financial Reporting Standard (HKFRS) 18 Presentation and Disclosure in Financial Statements, which is equivalent to International Financial Reporting Standard (IFRS) 18, issued by the Hong Kong Institute of CPAs, replaces the ageing Hong Kong Accounting Standard (HKAS) 1 Presentation of Financial Statements and rewrites how companies present their income statements, promising a sharper, more comparable view of performance for users of financial statements.
This evolution represents far more than a routine compliance update. “Overall, HKFRS 18 represents a fundamental shift: not in what companies report, but in how they communicate their financial performance,” explains Katherine Leung, Associate Director of the Standard Setting Department at the Institute and project lead of HKFRS 18 implementation. Its impact will be felt by companies across all industries that prepare financial statements under HKFRS Accounting Standards, making the transition a market-wide issue rather than a sector-specific concern.
While the underlying accounting remains the same, HKFRS 18 will reshape how financial performance is presented, analysed and understood by the market.
And the clock is ticking. The standard takes effect for annual reporting periods beginning on or after 1 January 2027, with full retrospective application. That means companies’ first compliant 2027 financial statements must include restated 2026 comparatives.
At the heart of HKFRS 18 are three changes aimed at making financial statements more consistent, comparable and clear. Companies will have to classify income and expenses in the income statement as operating, investing, or financing. The standard also introduces two required subtotals: “operating profit or loss” and “profit or loss before financing and income taxes”.
HKFRS 18 also provides enhanced guidance on aggregation and disaggregation, requiring companies to group items based on shared characteristics and disaggregate them where necessary to avoid obscuring material information.
In addition, alternative performance measures used in public communications must be disclosed in the audited notes as management-defined performance measures (MPMs), bringing them under clearer disclosure requirements and audit scrutiny.
Assessing Hong Kong’s readiness
Hong Kong companies face a blunt question: are they ready? Joe Ng, Chair of the Institute’s Financial Reporting Standards Committee (FRSC), and a Professional Practice Partner at EY, points out that actual execution is lagging behind schedule across many sectors.
“For Hong Kong companies in general to reach a stage where they can communicate with investors, there is still quite a distance to go at this point,” Ng says. Companies first need to revisit years of historical data and reclassify transactions under the new framework.
Readiness is far from uniform. Executives may understand HKFRS 18 in theory, but many still face a big leap from awareness to system-ready execution.
Kenneth Lau, Deputy Chair of FRSC and Partner at Crowe (HK) CPA Limited, observes a clear division in how varying groups of clients are managing the transition. European-owned multinationals are leading the charge, driven by IFRS reporting demands from parent companies, he says. A handful of large Hong Kong-listed companies have also started assessing the impact of HKFRS 18 on their financial statements. Many others, however, have yet to get moving.
Beyond these early movers, however, many companies are still taking a wait-and-see approach.
“Many local clients have yet to start assessing the impact of HKFRS 18. In many cases, they appear to believe that there is still ample time before the effective date,” Lau notes. But delaying the work could create major bottlenecks when companies eventually need to reclassify historical data.
Lau also warns against a common misconception. Because HKFRS 18 uses the familiar categories of operating, investing and financing, some preparers assume the classifications follow the same principles as those in HKAS 7 Statement of Cash Flows, Lau says. “As a result, they may believe there is still ample time to address the changes.”
That assumption could prove costly, as the categories have different meanings under the two standards. For example, under HKFRS 18, anything that doesn’t fit into investing, financing, income tax or discontinued operations generally lands in the operating category, raising the risk of misclassification for companies that assume the same approach applies.
As such, companies that underestimate the changes may find themselves scrambling to rework systems later.
Where the real work begins
For many companies, the biggest challenge is getting their systems, policies and processes ready. The enhanced guidance on aggregation and disaggregation in HKFRS 18 may require companies to present information at a different level of granularity from current practice, meaning finance teams need to track and capture data that was previously grouped into broader line items. That involves upgrading systems to handle the new requirements, particularly around the presentation of operating expenses.
For insurers, these challenges are compounded by the interplay between HKFRS 18 and the existing HKFRS 17 Insurance Contracts. Peter Telders, member of FRSC and Director of Accounting Policy & Finance Controls Governance at AIA Group, explains that under the existing standards, insurers are already required to allocate expenses into specific buckets, such as distinguishing the costs of writing new contracts from servicing existing ones.
The new standard’s demand for a granular description of expenses by nature now forces AIA to map these figures into a complex, two-dimensional table.
“It was clearly an example where there were data gaps, where system changes were required to make sure that going forward we could process that in an automated way,” says Telders.
“It was clearly an example where there were data gaps, where system changes were required to make sure that going forward we could process that in an automated way.”
Without those upgrades, companies could be forced to rely on manual spreadsheet work during year-end reporting, an approach that is both time-consuming and prone to errors.
The impact of HKFRS 18 also varies by industry. The standard includes additional classification requirements for companies with specified main business activity (SMBA), specifically companies that provide financing to customers (e.g. banks) or that invest in assets as a main business activity.
For insurers, the new requirements on SMBA are widely seen as a better reflection of how the business actually operates. For AIA, that means investment income linked to insurance contracts can sit alongside insurance-related income and expenses in the operating category.
“It is very helpful and appropriate that not only income and expense from the insurance contracts, but also income and expense from the investments that are backing those contracts, are both presented in the same operating category,” Telders says.
The result is a clearer picture of core business performance.
For more complex financial groups, however, the analysis is less straightforward. Determining what qualifies as a company’s SMBA often involves significant judgement and coordination across the organization.
Hong Kong Exchanges and Clearing Limited (HKEX), for example, had to carefully assess how the requirements apply to its interconnected trading and clearing operations.
“Given HKEX’s integrated business model across trading and clearing activities, including investment of participants’ collateral, this requires careful consideration and alignment across different parts of the organization,” says Kenny Hui, Head of Financial Reporting at HKEX, highlighting the unique complications that arise when conducting such assessments within a complex operational structure.
“For example, the Group’s net investment income is derived from the investment of both participants’ collateral and the Group’s own cash. Determining whether such income should be presented within the operating or investing category under HKFRS 18 requires careful judgement, taking into account the nature and specific characteristics of the income.” Hui explains.
Where cash and investments serve multiple purposes, deciding where income belongs under HKFRS 18 requires close coordination between finance teams, business units and auditors.
When performance measures meet scrutiny
Restructuring corporate income statements will change how analysts and investors view past financial trends. By introducing standardized subtotals and reducing company-specific definitions of operating profit, the new requirements could reshape familiar performance metrics.
HKEX expects some of these changes in presentation might potentially affect how its financial results are presented and analysed.
“This has prompted us to evaluate the use of alternative MPMs to ensure that the results remain relevant and consistent to users of the financial statements,” Hui says.
Seen as one of HKFRS 18’s biggest changes, MPMs are subtotals of income and expenses, other than those specified by HKFRS Accounting Standards, that management uses to publicly communicate a company’s financial performance.
Companies have long used customized measures such as adjusted operating profit and normalized earnings in investor presentations and earnings releases. Because these measures sat outside audited financial statements, there was often wide variation in how they were calculated.
HKFRS 18 changes that. If a performance measure meets the definition of an MPM, companies must now disclose it in a single note in the audited financial statements, including how it is calculated, why it is useful, and how it reconciles to the most directly comparable total or subtotal required by HKFRS Accounting Standards.
“These new requirements bring greater transparency and discipline to these widely used measures – retaining their usefulness to investors while ensuring they are clearly explained, comparable and subject to appropriate governance,” Leung of the Institute emphasizes.
The changes also raise the stakes for auditors. “In effect, MPMs now form part of the audited financial statements,” Lau says.
“Auditors should review whether all transition adjustments and related disclosures have been prepared properly and accurately by their clients.”
Auditors must now verify the calculations, test reconciliations and assess whether the measures are being presented fairly and consistently, and companies must watch for performance metrics that may inadvertently fall within the scope of the MPM requirements. A performance metric mentioned in a press release or earnings presentation could meet the definition of an MPM and therefore be subject to the new disclosure rules. To manage this risk, Hui says, “we have been maintaining close and ongoing dialogue with the investor relations team to ensure alignment and awareness of the latest developments.”
Beyond MPMs, the heightened reliance on judgement under the new standard will also test auditors. Lau notes that for instance, when a company identifies its SMBA, auditors must ensure the decision is backed by solid, objective evidence.
Lau explains that such evidence includes management’s use of subtotals similar to gross profit to explain operating performance externally, or to assess and monitor operating performance internally. Auditors must also carefully evaluate decisions on aggregating and disaggregating financial data “to ensure that material information is not obscured.”
This disaggregation will expose internal allocations of expenses that were previously invisible, such as splits of staff costs between research and development, and administration. Because these divisions can be highly subjective, Ng points out that companies must “take appropriate action to improve their internal controls” to guarantee high-quality market disclosures.
To confirm that restated figures comply with the new rules, Lau advises focusing immediately on the 2026 comparative figures. “Auditors should review whether all transition adjustments and related disclosures have been prepared properly and accurately by their clients,” he urges.
Help is available
Recognizing the scale of the transition, the Institute has rolled out a range of resources to help preparers tackle complex areas of implementation.
“Our flagship ‘HKFRS 18 Navigator’ is a series of nine targeted newsletters complemented by four webcasts, covering key topics such as the new income statement structure, MPMs, SMBA, grouping of information and relevant Agenda Decisions issued by the IFRS Interpretations Committee (IFRIC),” Leung says.
The Institute has also launched training programmes, e-learning courses, webinars and a dedicated HKFRS 18 Resource Centre as a one-stop hub for implementation guidance.
But experts say companies also need to look beyond Hong Kong. Because HKFRS 18 is identical to IFRS 18, interpretations emerging from other markets could influence local practice and audits. Ng urges finance teams to keep a close eye on developments from the International Accounting Standards Board, IFRIC and other relevant international bodies.
Hui echoes this international focus, confirming that HKEX’s compliance strategy relies heavily on monitoring global developments.
“HKEX will continue to closely monitor relevant developments, including IFRIC Agenda Decisions, HKICPA publications, and guidance issued by accounting firms to ensure full compliance with the standard and alignment with market practice,” Hui says. This proactive stance helps organizations avoid costly rework if international interpretations shift during the implementation phase.
Opportunities beyond compliance
The message from preparers, auditors and standard setters is clear: start now. With 2026 serving as the comparative year, companies that have not begun assessing the impact of HKFRS 18 risk falling behind. And implementation is not just an accounting exercise – it requires input from management, boards, audit committees and investor-facing teams.
“You must begin managing this right now to plan how you will communicate with your audit committee and investors,” Ng says.
Hui similarly underscores this urgency for publicly traded entities across Hong Kong’s markets. “We encourage other listed companies to commence their assessments early, stay abreast of evolving interpretations, and engage proactively with stakeholders where material impacts are identified,” he says.
Early engagement gives companies time to explain shifting margins and performance trends before investors see them in the financial statements.
Rather than treating HKFRS 18 as a compliance burden, Telders urges, companies can use the transition to improve the clarity and usefulness of their financial reporting.
“Take the opportunity to look at financial statements as a whole,” he says. “Try to rethink how you are presenting your numbers and make use of HKFRS 18 to rework the entire set of financial statements.”
HKFRS 18 Navigator is a series of bite-sized newsletters aimed at helping stakeholders understand the new standard, from the major changes introduced, to how the standard applies to financial statements. Each edition focuses on a critical area to streamline the preparation for HKFRS 18 transition.
