Technical news

Update no. 263 amends the Code of Ethics for Professional Accountants (code) to:

• Reflect Revisions to the Code to Promote the Role and Mindset Expected of Professional Accountants in Chapter A that will become effective on 31 December 2021. Early adoption is permitted.
• Revise Part 4B in Chapter A of the code to reflect terms and concepts used in Hong Kong Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other Than Audits or Reviews of Historical Financial Information.
• Revise paragraph 400.71 of Section 400 in Chapter C.

Issues Revisions to the Non-Assurance Services Provisions of the Code. The revisions aim to enhance the independence standards by clarifying and addressing the circumstances in which firms and network firms may or may not provide a non-assurance service (NAS) to an audit or assurance client. The revised provisions include new requirements that expressly prohibit firms and network firms from providing certain types of NAS to their audit clients, especially when they are public interest entities (PIEs).

Issues Revisions to the Fee-Related Provisions of the Code. They include a prohibition on firms allowing the audit fee to be influenced by the provision of services other than audit to the audit client; in the case of PIEs, a requirement to cease to act as auditor if fee dependency on the audit client continues beyond a specified period; communication of fee-related information to those charged with governance and to the public to assist their judgements about auditor independence; and enhanced guidance on identifying, evaluating and addressing threats to independence.

Financial reporting 

Institute workshops on HKFRS 17 Insurance Contracts

The Institute will hold a series of face-to-face full day workshops in August for professionals who have acquired an understanding of the basic principles of Hong Kong Financial Reporting Standard (HKFRS) 17 Insurance Contracts and now wish to develop a working knowledge of the standard:

• 26 August: Life insurance: Deep dive application – Contractual service margin (CSM) calculation, expense allocation, highlights of the June 2020 amendments, and practical insights.
• 30 August: General insurance: Deep dive application – CSM calculation, expense allocation, and application examples.
• 31 August: General insurance: Reinsurance, interaction with other standards, presentation and disclosures, highlights of the June 2020 amendments, and practical insights.

Institute webcast on impairment post-HKFRS 16

A recording of the webcast on impairment post-HKFRS 16 Leases is now available on the Institute’s YouTube channel. The webcast addresses the following commonly asked questions:

• Can all the legacy operating lease payments continue to be included in the value in use calculation post-HKFRS 16?
• What discount rate should be used in determining the recoverable amount of the cash-generating unit (CGU)?
• Should the lease liability be included in the carrying amount and/or the recoverable amount of the CGU for impairment test purposes?
• What other considerations should an entity be aware of?

IASB Exposure Draft Management Commentary

Members may be interested in the following recordings concerning the International Accounting Standards Board (IASB) Exposure Draft ED/2021/6 Management Commentary, which sets out a proposed comprehensive framework for companies preparing management commentary in response to investors and creditors’ changing information needs and developments in narrative reporting.

• IASB webinar on the overview of the project and proposals. The recording will be available on the IASB’s YouTube channel afterwards.
• IASB, European Accounting Association, and the European Financial Reporting Advisory Group virtual research workshop recording.

Members can submit comments on the exposure draft to the Institute by 8 October.

IASB webinar on Request for Information Third Agenda Consultation 

The IASB webinar on 14 July on the Request for Information Third Agenda Consultation, gave an overview of the agenda consultation. The recording will be available on the IASB’s YouTube channel afterwards. Members can also submit comments to the Institute by 10 August.

IASB second webinar recording on the Exposure Draft Disclosure Requirements in IFRS Standards – A Pilot Approach

A recording is now available for the second webinar held by the IASB on Exposure Draft ED/2021/3 Disclosure Requirements in IFRS Standards – A Pilot Approach. The webinar featured a question and answer session with board members and explored particular aspects of the proposed new approach to developing disclosure requirements in International Financial Reporting Standards (IFRS), such as the application of judgement, comparability, auditability and enforceability and digital reporting. Members can submit their comments on the exposure draft to the Institute by 31 August.

June IASB update and podcast

The June IASB Update, highlighting the tentative decisions reached at the IASB monthly meeting, and the June podcast, focusing on the IASB discussions at its monthly meeting, are now available.

Interview with the new Chair of the IASB

Andreas Barckow, the new Chair of the IASB, talks about his experience at the IFRS Foundation so far and his priorities for the next few years as he takes over from Hans Hoogervorst. Read the full interview here.

June IFRS Interpretations Committee update

The June IFRS Interpretations Committee Update newsletter, summarizing the decisions reached by the committee, is now available.

June IFRS for SMEs update

The June 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

IAASB webinars on quality management standards

The International Auditing and Assurance Standards Board (IAASB) and the International Federation of Accountants (IFAC) will hold a series of webinars on International Standard on Quality Management (ISQM) 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements via Zoom, including question and answer sessions. Recordings will be available on the IAASB’s YouTube channel afterwards. Register now for sessions on 5 August and 18 August.

IAASB new quality management implementation guide

The IAASB released two first time implementation guides to help stakeholders implement its suite of quality management standards:

• ISQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements.
• ISQM 2 Engagement Quality Reviews.

The IAASB also plans to issue an implementation guide for International Standard on Auditing (ISA) 220 (Revised), Quality Management for an Audit of Financial Statements, in Q3 this year.

The standards will come into effect on 15 December 2022.

IAASB June board meeting

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

The state of play in sustainability assurance

A study from the IFAC, the American Institute of CPAs and the Chartered Institute of Management Accountants analyses the extent to which companies are reporting and obtaining assurance of their sustainability disclosures, which assurance standards are being used, and which companies are providing assurance services.

ICAEW audit and assurance resources 

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

• Webinar recording on ISA 315 (Revised) Identifying and Assessing the Risks of Material Misstatement explores different starting points of implementation; changes to methodology and practical implementation challenges.
• Webinar recording on ISA 540 (Revised) Auditing of Accounting Estimates and Related Disclosures discusses required changes for the audit of accounting estimates and practical implementation tips in the 2020/2021 reporting environment.
• Webinar recording on quality management in audit firms discusses the new requirements; how firms can be proactive and practical implementation issues.
• The June Audit & Beyond on technical articles such as fraud and COVID-19 support; improving audit files and quality management.

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

Value of the audit

A foundational paper by the Centre for Audit Quality explores the historical importance of the audit in well-functioning capital markets, examines independence and expertise as the two key cornerstones of audit quality, and describes how independent public company auditors can apply their skills and knowledge to meet growing investor demand for company-reported information outside of the historical financial statements.

Ethics

IESBA webinars on revisions to the code of ethics

Watch the International Ethics Standards Board for Accountants’ (IESBA) webinar recordings on the revised non-assurance services provisions and revised fee-related provisions to the International Code of Ethics for Professional Accountants (Including International Independence Standards) that will come into effect in December 2022.

IESBA eNews

The second quarter, 2021 edition of the IESBA eNews is now available. It includes highlights of the various activities going on in and around the IESBA.

IESBA June board meeting

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

Sustainability

Speech by the Chair of the IFRS Foundation Trustees

Erkki Liikanen, Chair of the IFRS Foundation Trustees, delivered a speech at the CFA Institute’s Global Financial Regulatory Symposium on 29 June reflecting the foundation’s work to meet the information needs of investors and other capital market participants by creating a new board to develop a global baseline of sustainability-related disclosures focused on enterprise value.

A4S issues net zero guidance 

Achieving net zero greenhouse gas emissions in an organization will rely on the knowledge, skills and processes inherent within the finance function. Finance professionals are well placed to develop pathways to achieve net zero, setting interim targets, allocating funds, reporting progress and integrating net zero into decision making processes over time. The Prince’s Accounting for Sustainability Project (A4S) has developed guidance to share the practical steps that finance teams can take to support their organization to progress towards net zero emissions.

Corporate finance

HKEX to introduce new e-platform to update Hong Kong’s IPO settlement process

On 6 July, Hong Kong Exchanges and Clearing Limited (HKEX) released consultation conclusions in relation to a concept paper, issued in November 2020. HKEX will proceed with the development of the Fast Interface for New Issuance (FINI) platform for handling all initial public offerings (IPOs), initially adopting a “T+2” settlement cycle. FINI will also allow clearing participants, under certain circumstances, to opt-in for a compressed prefunding requirement, which could release significant sums of liquid funds, to address the issue of excessive liquidity lock-up in heavily oversubscribed IPOs. FINI is expected to be rolled out in the fourth quarter of 2022. Please refer to the press release for details.

Please also refer to the Institute’s submission generally supporting the launch of FINI.

SFC publishes new guidance on ESG fund disclosures

On 29 June, the Securities and Futures Commission (SFC) issued a circular to provide guidance to management companies of SFC-authorized unit trusts and mutual funds on enhanced disclosures for funds that incorporate environmental, social and governance (ESG) factors as a key investment focus. The circular supersedes a previous version issued in 2019 and includes a new requirement for these funds to conduct and disclose periodic assessments of how they incorporate ESG factors and also provides additional guidance for ESG funds with a climate-related focus.

Corporate governance

Institute submission on HKEX consultation on review of Corporate Governance Code and related listing rules

The HKEX’s proposals covered a range of issues including establishing a corporate culture; directors’ independence and attendance at general meetings; board diversity; communications with shareholders; and linkages with ESG reporting, including the timing of publication of ESG reports. The Institute made a submission, which supports the general direction of the proposals and most of the specific measures put forward in the consultation paper. We also welcome the improvements in clarity. At the same time, the submission also expresses reservations about a few specific proposals.

In addition, the recommended best practice on board evaluations could be considered for upgrading to a provision in the Corporate Governance Code. Regular evaluations would help to underpin various other matters covered in the paper, and to reassure stakeholders that the board is committed to continuous improvement in its performance.

Taxation

Announcements by the IRD

Members may wish to be aware of the following matters:

• Fraudulent email purportedly issued by Inland Revenue Department (IRD).
• Inland Revenue Department waives surcharges for payment of tax by instalments for businesses and individuals in need.
• Hong Kong-Georgia tax treaty in force.
• Tax obligations of property owners.
• The Inland Revenue (Amendment) (Miscellaneous Provisions) Ordinance 2021 was gazetted on 11 June and took effect immediately. Amendments in relation to foreign tax deduction take effect from the year of assessment 2021/22.
• Gazettal of Revenue (Stamp Duty) Ordinance 2021.
• Tax information on stamp duty – inadequate consideration has been updated.
• Stock Borrowing Relief – Filing of Return of Stock Borrowing Transactions.
• IRD Annual Report on Performance Pledge 2020-21.
• Stamp Duty statistics.

Legislation and other initiatives

Announcements by the government

Members may wish to be aware of the following matters:

• Latest amendments to Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulation and Prevention and Control of Disease (Prohibition on Group Gathering) Regulation.
• Government further relaxes social distancing measures under “vaccine bubble.”
• Government invokes place-specific flight suspension mechanism for United Kingdom and suspends passenger flights from there.
• Government tightens quarantine requirements for persons arriving from U.K. and adjusts testing requirement for boarding from high-risk places.
• Government invokes place-specific flight suspension mechanism for Indonesia and suspends passenger flights from there.

AML notices

FATF publication on high-risk and other monitored jurisdictions

The Financial Action Task Force (FATF) published a statement on 25 June 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 are working with the FATF to address these deficiencies. Following recent reviews, updated statements are provided for some of the 22 jurisdictions on the list, and Haiti, Malta, Philippines, and South Sudan have been added to it.

Others

Gazetted list of terrorists and terrorist associates designated by the United Nations Security Council (UNSC), published pursuant to the United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575) was gazetted on 18 June. The List of individuals, groups, undertakings and entities published under section 25 of the United Nations Sanctions (ISIL and AI-Qaida) Regulation (Cap. 537CB) was updated on 18 June. See the relevant UNSC 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