Hong Kong Accounting Standards: All You Need to Know in 2026

Most founders who set up a Hong Kong company already know they need annual financial statements. The question that comes up at the first compliance cycle is usually more specific: which accounting standard actually applies to my company, and how complex will it be?

The answer for most small Hong Kong businesses is simpler than they expect. Hong Kong operates three distinct reporting frameworks. Only the most complex, full HKFRS, applies to publicly listed or regulated entities. Most SMEs qualify for a significantly lighter framework.

This guide explains what each framework covers, how to determine which one applies to your company, the core components of Hong Kong Financial Reporting Standards (HKFRS), and the annual compliance steps required under each.

Hong Kong Accounting Standards, also known as Hong Kong Financial Reporting Standards (HKFRS), are the rules that govern how companies record, report, and present their financial transactions. They are issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) and overseen by the Accounting and Financial Reporting Council (AFRC).

The AFRC is the independent regulator for the accounting profession in Hong Kong. It oversees auditors and audit quality. The HKICPA issues the actual accounting, auditing, and ethics standards under the AFRC’s oversight. The two bodies have distinct roles: the AFRC regulates, the HKICPA standardises.

While HKFRS is closely aligned with International Financial Reporting Standards (IFRS), it includes local modifications to suit Hong Kong’s legal and business environment.

This is the most important question in this guide. Hong Kong operates three financial reporting frameworks. Every company must apply exactly one.

Framework Overview

Framework 1: Full HKFRS

• Who must apply it: Any company with public accountability, meaning a company whose debt or equity instruments are traded in a public market, or an entity that holds assets in a fiduciary capacity for a large group of outside parties (such as insurance companies or investment funds). Applies regardless of size.
• What it means for your company: Full HKFRS is the most comprehensive framework, with strict disclosure requirements, detailed financial reporting obligations, and the highest compliance costs. Most SMEs will never need to apply it.

Framework 2: HKFRS for Private Entities

• Who can apply it: Private companies without public accountability that do not qualify as a small company, meaning they exceed at least two of the following thresholds: annual revenue above HKD 200 million, total assets above HKD 200 million, or more than 100 employees.
• What it means for your company: Fewer disclosure requirements than full HKFRS while maintaining alignment with international standards. Typically used by mid-size private companies preparing financial statements for external users such as lenders or investors.

Framework 3: SME-FRF & SME-FRS (The Most Common for Small Businesses)

• Who can apply it: Small private companies that qualify under the size thresholds below and obtain approval from at least 75% of shareholders.

• What it means for your company: The simplest reporting framework available in Hong Kong. Significantly fewer disclosure requirements than full HKFRS or HKFRS for Private Entities, while still meeting your statutory obligations. If your company qualifies, this is almost always the right starting point.

Scenario: A Hong Kong private limited company provides B2B software services. In its first full financial year, it generated HKD 8 million in annual revenue, held HKD 3 million in total assets, and employed 12 people. It has no public accountability and no listed debt or equity.

Result: Revenue, total assets, and employee count are all below the SME thresholds. The company qualifies to adopt the SME-FRF & SME-FRS.

What happens if it grows? If the company later exceeds two of the three size thresholds, it must reassess its eligibility. Depending on its figures, it may need to transition to HKFRS for Private Entities or, if it becomes publicly accountable, to full HKFRS.

The most significant upcoming change in Hong Kong accounting affects companies currently applying HKFRS for Private Entities. The 2025 revision of this framework takes effect on 1 January 2027.

What is changing:

• IFRS 9 alignment: New classification and measurement rules for financial assets and liabilities. Companies with significant financial instruments, loans, trade receivables, investments, will need to review how these are classified on the balance sheet.
• IFRS 15 alignment: The 5-step revenue recognition model becomes the standard approach. Companies with contracts spanning multiple periods, variable consideration, or performance obligations will need to assess how their revenue recognition policies will change.
• Simplified disclosures: The revision also removes or simplifies certain disclosure requirements, which reduces reporting burden for some entities.

Who is affected: Companies applying HKFRS for Private Entities. Companies on SME-FRF & SME-FRS are not affected by this revision.

What to do before January 2027:

• Review your current financial instruments and revenue contracts against the new requirements
• Assess whether any transitional adjustments are needed to the opening balances
• Consider early adoption if it simplifies your 2025 or 2026 reporting process
• Speak to your auditor or accountant about the specific impact on your company

Early adoption is permitted for financial years beginning on or after 1 January 2025. For more information about HKFRS for Private Entities, refer to the official handbook on the HKICPA’s website.

The HKFRS framework comprises multiple standards covering different aspects of financial reporting. The four areas most relevant to operating companies:

Financial Statements (HKAS 1, HKAS 7)

Defines how financial statements must be structured and presented. Every set of financial statements includes:

• Statement of Profit or Loss: Revenue, expenses, and net profit or loss for the reporting period
• Statement of Financial Position (Balance Sheet): Assets, liabilities, and equity at a specific date
• Cash Flow Statement: Cash inflows and outflows during the reporting period
• Statement of Changes in Equity: Movements in shareholders’ equity over time

Revenue Recognition (HKFRS 15)

Revenue is recognised when it is earned, not when payment is received. Under the accrual basis, income is recorded when goods or services are delivered, regardless of when the invoice is paid. This applies consistently across all three reporting frameworks.

Asset Valuation (HKAS 16, HKAS 38)

Physical assets (property, plant, and equipment) are recorded at cost and depreciated over their useful life. Intangible assets such as software licences and patents are amortised. Assets that have declined in value below their carrying amount may need to be written down through an impairment charge.

Liabilities (HKAS 37)

Liabilities include all obligations arising from past events: loans, trade payables, accrued expenses, and provisions for anticipated future costs. Contingent liabilities, possible obligations depending on future events, are disclosed in the notes to the financial statements when relevant.

Here are the key reasons why getting your accounting right is so important.

• Legal compliance: Under the Companies Ordinance (Cap. 622), all Hong Kong companies must keep accounting records sufficient to show and explain transactions and disclose their financial position.
• Accurate tax filing: Properly prepared accounts support accurate Hong Kong Profits Tax filings and reduce the risk of overpayment, underpayment, or penalties.
• Investor and lender confidence: Audited financial statements are required by most lenders and investors before they will extend credit or commit capital.
• Business decisions: Reliable accounts make it possible to identify trends, assess profitability by product or customer, and plan for growth with real numbers rather than estimates.

Once you have identified the applicable framework, the annual compliance process follows a consistent pattern:

1. Prepare financial statements: Record transactions and summarise them in accordance with the selected framework throughout the financial year
2. Board approval: Directors review and approve the financial statements before finalisation
3. Audit: A CPA holding a practising certificate in Hong Kong audits the statements to confirm they present a true and fair view. Dormant companies are the only exception.
4. Tax filing: Audited financial statements are submitted to the Inland Revenue Department (IRD) with the Profits Tax Return
5. Record retention: Accounting records must be kept for at least seven years

To remain compliant, prepare and maintain these documents for each financial year:

• Full set of financial statements under your applicable reporting framework
• Notes to the financial statements (significant accounting policies and explanatory disclosures)
• Auditor’s report
• Supporting accounting records that substantiate reported figures

When must audited accounts be submitted to the IRD?

If your company’s gross income exceeds HKD 2 million, you are generally required to submit audited financial statements with your Profits Tax Return. Below this threshold, submission may not be required, but you must still retain proper accounting records for at least seven years.

Hong Kong accounting standards define how companies must record, prepare, and present their financial information each year. For most small Hong Kong companies, the compliance burden is lighter than it first appears. The SME-FRF & SME-FRS framework simplifies reporting significantly compared with the full HKFRS.

The upcoming 2027 revision to HKFRS for Private Entities is the most significant change on the horizon for mid-size private companies. If your company applies this framework, the time to review the transition requirements is now, not January 2027.

At Statrys, we support Hong Kong companies with professional accounting services covering bookkeeping, financial statement preparation, and audit readiness, alongside a multi-currency business account to keep your transactions organised throughout the year.