Technical news

Members’ handbook

Update no. 259

Amendments to Hong Kong Accounting Standard (HKAS) 1 Presentation of Financial Statements and Hong Kong Financial Reporting Standard (HKFRS) Practice Statement 2 Making Materiality Judgements (Disclosure of Accounting Policies).
Amendments to HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Definition of Accounting Estimates).

Update no. 260

Amendments to Chapter A of the Code of Ethics for Professional Accountants to conform with the corresponding revisions to the International Ethics Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (Including International Independence Standards) addressing the objectivity of an engagement quality control reviewer and other appropriate reviewers.
Issuance of Hong Kong Standard on Quality Management (HKSQM) 1, HKSQM 2 and Hong Kong Standard on Auditing (HKSA) 220 (Revised) to strengthen and modernize an audit firm’s approach to quality management through a robust, proactive and effective approach and requires an engagement partner and engagement team to be proactive in managing and achieving quality.

Update no. 261 contains amendments to Statement 1.304 Arrangements to Cover the Incapacity or Death of a Sole Practitioner (Revised May 2021).

Financial reporting

Invitation to comment

The Institute is seeking comments on the International Accounting Standards Board (IASB) Exposure Draft ED/2021/4 Lack of Exchangeability by 30 July.

Institute educational guidance on contractual service margin under HKFRS 17

The Institute has published educational guidance on the recognition of the contractual service margin (CSM) in profit or loss under HKFRS 17 Insurance Contracts. Read a summary of the guidance here. Visit the Institute’s insurance project webpage for further resources and updates.

Webinar on HKFRS 17 – General insurance

This Institute’s webinar on 9 July aims to provide participants with practical knowledge of HKFRS 17 for non-life insurers. It will begin with a refresher of the standard followed by a walkthrough on how to apply it, with illustrative examples of the following areas:

The eligibility assessment for premium allocation approach.
Contract boundary.
Grouping of insurance contracts and level of aggregation.
Reinsurance contracts.

Webinar series covering common application issues

The Institute will hold a series of live webinars in June covering application issues of the following standards. These webinars will cover real-life examples, case studies and include live Q&A sessions:

The webinar on 11 June will focus on some commonly seen arrangements in business combination transactions and how to apply HKFRS 3 Business Combinations, and other relevant standards. It will also illustrate some common application issues of applying the standard through case studies.
The webinar on 21 June will discuss common application issues of Accounting Guideline 5 Merger Accounting for Common Control Combinations and what constitutes a business combination under common control (BCUCC). The IASB discussion paper on BCUCC will also be covered.

Institute submission

The Institute has submitted its comment letter on the IASB’s Request for Information Post-implementation Review of International Financial Reporting Standards (IFRS) 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities.

Amendments to IAS 12 Income Taxes (Deferred Tax related to Assets and Liabilities arising from a Single Transaction)

The IASB has issued targeted amendments to International Accounting Standard (IAS) 12 Income Taxes to specify how companies should account for deferred tax on transactions such as leases and decommissioning obligations.

In specified circumstances, companies are exempt from recognizing deferred tax when they recognize assets or liabilities for the first time. The amendments clarify that the exemption does not apply to transactions for which companies recognize both an asset and liability, such as leases and decommissioning obligations.

The amendments to IAS 12 will be effective for annual reporting periods beginning on or after 1 January 2023, with early application permitted.

IASB request for fieldwork participants for disclosure requirements project

The IASB is testing how the proposed disclosure requirements in Exposure Draft ED/2021/3 Disclosure Requirements in IFRS Standards – A Pilot Approach would apply in practice. The board invites preparers of financial statements to participate in fieldwork to test the application of the proposed new requirements in IFRS 13 Fair Value Measurement, IAS 19 Employee Benefits, or both, as well as to summarize and report the results of the fieldwork. The Institute is also seeking comments on the exposure draft by 31 August.

IASB webcast in Putonghua on discussion paper on BCUCC

The IASB has published a webcast in Putonghua on the IASB Discussion Paper DP/2020/2 Business Combinations under Common Control, which explains the IASB’s preliminary views on how to reduce diversity in practice and improve the transparency and comparability in reporting BCUCC. Members can submit their comments on the paper to the Institute by 5 July.

Recording of IASB virtual workshop on the post-implementation review of IFRS 10, IFRS 11, and IFRS 12

A recording is now available of the virtual workshop held by the staff of the IASB in conjunction with the European Accounting Association and the European Financial Reporting Advisory Group on the Request for Information Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12. The review seeks feedback on applying these three standards and on the information provided to users of financial statements.

IASB investor perspective article

Issue 23 of the IASB Investor Update is now available and provides a brief overview of the proposals of the IASB Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. The update also discusses how investors may find the new information useful in analysing the financial performance of rate-regulated companies. Members can submit their comments on the exposure draft to the Institute by 30 June.

IFRS Interpretations Committee’s fourth Compilation of Agenda Decisions

The IFRS Interpretations Committee has published its fourth biannual Compilation of Agenda Decisions, which brings together agenda decisions from October 2020 to March 2021. The committee publishes agenda decisions when, following consultation, it decides further standard-setting is not required to deal with a question raised. Agenda decisions often include information to help entities applying standards.

IFRS Interpretations Committee agenda decision

The IFRS Interpretations Committee published an agenda decision on IAS 38 Intangible Assets covering the configuration or customization costs in a cloud computing arrangement. The committee’s website contains all agenda decisions.

April IFRS Interpretations Committee update and podcast

The April IFRS Interpretations Committee Update newsletter, summarizing the decisions reached by the committee and podcast, highlighting its key activities at its April meeting are now available.

March IFRS for SMEs update

The March IFRS for SMEs Update newsletter, providing a summary of news, events, and other information about the IFRS for SMEs standard and related SME activities, is now available.

Auditing and assurance

Invitation to comment

The Institute is seeking comments on the International Auditing and Assurance Standards Board (IAASB) Survey Consultation, the IAASB’s Work Plan for 2022-2023 by 5 July.

Workshop for audit managers/seniors in-charge (pilot run)

Join the Institute’s workshop on 18, 21 and 25 June which is tailored for audit managers or seniors in-charge with more than two years of auditing experience. The workshop focuses on advanced auditing topics such as risk assessment procedures, auditing accounting estimates, going concern assessment etc. It also teaches auditing concepts and practical skills, as well as sharing of recent practice experience relevant to participants.

ICAEW audit and assurance spring update

Join the Institute of Chartered Accountants in England and Wales (ICAEW) virtual CPD 2021 programme on 14 June to gain insights into the required changes for the audit of accounting estimates and practical implementation tips in the 2020/2021 reporting environment.

The Institute’s Auditing and Assurance Standards Committee meeting minutes

Minutes of the 390th meeting held in March is now available.

The Institute’s resource centre on quality management standards

The new and revised quality management standards will become effective on 15 December 2022. Visit the Institute’s resource centre on the new and revised quality management standards for pronouncements, guides and articles relating to quality management for firms and engagements.

IAASB April board meeting

The audio recording of the IAASB April board meeting is now available.

IAASB revised detailed work plan table for 2020-2021

The IAASB has published a revised detailed work plan to account for the continued impact of the COVID-19 pandemic on both board operations and stakeholders’ capacity to implement new standards and participate in the IAASB’s due process.

IAASB Public Report

The IAASB Public Report details its progress to support the public interest between July 2019 and December 2020 and how it responded to the global pandemic by issuing guidance and engaging with a broad range of stakeholders in order to sustain trust in audit and assurance.

New IAASB video on quality management standards

The IAASB has released a new video on quality management standards addressing considerations for firms when preparing to implement the standards, such as what may be retained from current systems, the time and resources needed, the impact on the firm as a whole, and various ways to approach implementation.

Considerations relating to SPAC initial public offerings and mergers

The Centre for Audit Quality has issued an alert providing an overview of what a special purpose acquisition company (SPAC) is and some key considerations for auditors and audit committees related to the unique risks and challenges of a private company entering the public markets through a merger with a SPAC.

Artificial intelligence and automation’s impact on audit

A publication prepared by the Chartered Professional Accountants of Canada (CPA Canada) and the American Institute of CPAs explores the benefits of an artificial intelligence (AI) enabled audit and how AI evolves the audit and the role of the auditor.
A CPA Canada article discusses opportunities and examples for using automation and analytics at every stage of the auditing process.

AUASB audit and assurance resources

The following from the Australian Auditing and Assurance Standards Board (AUASB) may be of interest to members:

AUASB Bulletin The Consideration of Cyber Security Risks in an Audit of a Financial Report to assist auditors considering the impact of cyber security on the audit of a financial report.
AUASB Staff Guide Prescribing Assurance and Related Services to assist assurance prescribers in drafting assurance requirements which are clear and effective. The guide addresses a number of matters including determining the appropriate scope of an engagement, the different levels of assurance and the options available to perform engagements.

Ethics

Institute submission

The Institute submitted comments on the IESBA Exposure Draft Proposed Revisions to the Definitions of Listed Entity and Public Interest Entity in the Code.

IESBA’s technology initiative update

IESBA released an update on its progress made on technology initiative, next steps and timing. It also recognized the increased burdens stakeholders have shouldered as a result of the pandemic.

IESBA revises auditor independence ethics rules

The IESBA has released revisions to the non-assurance services and fee-related provisions of the International Code of Ethics for Professional Accountants (Including International Independence Standards). The revised provisions significantly strengthen the guardrails around auditor independence in two important areas that have the potential to create incentives influencing auditor behaviour – non-assurance services provided to audit clients and fees.

Ethical challenges as the pandemic wanes

A working group formed by the IESBA and some national ethics standard setters has published an article looking at the key ethical issues that lie ahead for accountants as the COVID-19 pandemic moves into the next phase.

Sustainability

Proposed amendments to the IFRS Foundation constitution

The IFRS Foundation has published proposed amendments to its constitution to accommodate the potential creation of a new International Sustainability Standards Board within the governance structure of the IFRS Foundation. In addition, the IFRS Foundation Trustees have published a comprehensive feedback statement that summarizes responses received to their consultation on sustainability reporting. The Institute invites comments on the proposals by 2 July.

Corporate finance

Institute submission on SFC consultation on bookbuilding and “sponsor coupling”

The Institute issued a submission in response to the consultation paper issued by the Securities and Futures Commission (SFC) on conduct requirements for equity and debt capital market transactions in Hong Kong.

The Corporate Finance Advisory Panel (CFAP), in principle, supports the underlying aims of the proposals, which appear to be designed to address certain conduct issues identified among intermediaries and to bring more order and improve transparency in relation to the process of pricing initial public offerings and other equity and debt issues. However, CFAP members have concerns about the practicality of several of the proposals that would require key decisions to be made considerably earlier in the process than at present.

Insolvency

HKMA responds to insolvency practitioners’ concerns on opening of bank accounts

After discussions between the Hong Kong Monetary Authority (HKMA), the Official Receiver’s Office and the Institute’s Restructuring and Insolvency Faculty Executive Committee, the HKMA has compiled a list of designated contact points of retail banks for insolvency practitioners to enquire about account-opening related matters with specific banks.

The HKMA has also provided the dedicated email account accountopening@hkma.gov.hk and hotline 2878-1133 to facilitate bank customers to provide feedback regarding opening and maintenance of bank accounts.

Taxation

Institute submission on Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021

The Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021 addresses matters relating to:

The tax treatment for amalgamation of companies under the court-free procedures as provided for under the Companies Ordinance (Cap. 622);
The tax treatment for transfer or succession of specified assets under certain circumstances;
The furnishing of tax returns (in particular, providing a framework for the future extension of electronic filing (e-filing) of tax returns); and
The deduction of foreign tax under specified circumstances.

On the issue of more extensive e-filing, while generally supporting the objective, the Institute’s submission also expresses concern about some of the specifics of the bill. In particular, the bill provides for taxpayer to engage a “service provider” (SP) to furnish a return on their behalf, under certain circumstances, and introduces penalty provisions applicable to SPs, including for failing to furnish a return, or furnishing a return on behalf of a taxpayer but not in accordance with the instructions given by the taxpayer (and the return is materially incorrect). The Institute’s submission suggests, inter alia, that the roles, responsibilities and potential penalties on the different parties who may be involved in furnishing a return should not be prescribed in law until more detailed plans for the e-filing system design has been worked out.

Announcements by the Inland Revenue Department

Members may wish to be aware of the following matters:

New real time interactive service – Chatbot “Iris”.
List of Qualifying Debt Instruments (as at 31 March 2021).
File your Tax Return on time.
Employer’s Return of Remuneration and Pensions.
IRD issues over 2.6 million tax returns for individuals.
Interest on Tax Reserve Certificates
Passage of Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021.
Passage of tax concessions.
Legislative question on revenues from stamp duties and land premiums.
Stamp Duty statistics (March and April 2021).

Legislation and other initiatives

Announcements by the government

Members may wish to be aware of the following matters:

Government announces latest boarding and quarantine arrangements for persons arriving at Hong Kong under “vaccine bubble” concept.
Government facilitates catering premises to make changes to modes of operation according to needs.
Government further adjusts boarding and quarantine arrangements for persons arriving at Hong Kong.
Government relaxes social distancing measures under “vaccine bubble”.
Extension of Return2hk Travel Scheme to Hong Kong residents staying in other Mainland provinces and municipalities (Upon fulfilment of all specified conditions Hong Kong residents could be exempted from the 14-day compulsory quarantine requirement. Visit the scheme’s webpage for more information).

AML notices

The List of individuals and entities published under section 43 of the United Nations Sanctions (Libya) Regulation 2019 (Cap. 537CF) was updated on 30 April. See the relevant United Nations Security Council press release.

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