New Companies Ordinance

Questions and Answers on financial reporting issues relating to the transition from the predecessor Companies Ordinance (Cap. 32) to the new Companies Ordinance (Cap. 622) ("new CO")

These Questions and Answers ("Q&As") have been developed by the Institute's Companies Ordinance Application Issues (Financial Reporting) Working Group (Working Group) and are endorsed by the Institute's Financial Reporting Standards Committee (FRSC). These Q&As will be updated from time to time to provide guidance on emerging financial reporting related application issues specific to the transition from the predecessor Hong Kong Companies Ordinance (Cap. 32) to the new Hong Kong Companies Ordinance (Cap.622).

These Q&As deal with transitional matters and are therefore only expected to have relevance in a financial year which crosses over 3 March 2014 or in the first financial reporting year beginning on or after 3 March 2014. A separate series of Q&As has been developed by the Working Group to cover other financial reporting related application issues relating to requirements of the new Hong Kong Companies Ordinance (Cap.622). These other Q&As are expected to have continuing relevance beyond the end of the first financial reporting year beginning on or after 3 March 2014.

These Q&As are non-mandatory in nature and intended for general guidance only. Users of these Q&As should consider taking their own legal advice if in doubt as to their obligations under the Hong Kong Companies Ordinance.

The Institute, the FRSC and the Working Group do not accept responsibility or liability, and disclaim all responsibility and liability, in respect of the Q&As and any consequences that may arise from any person acting or refraining from action as a result of any materials in the Q&As.

All references to Parts, Divisions, Sub-divisions, Schedules and Sections in the questions and answers are to the new CO, unless otherwise indicated.

Last revision date: 30 September 2014

Question A1 – References to specific sections of the CO
Is there any requirement to amend the general CO references in the annual report (such as references to section 161 in respect of directors' emoluments) if the financial year covered by that annual report ended before 3 March 2014?

Answer

No, the new CO and the financial reporting standards do not contain such requirement. This answer applies even if the date of approval of that annual report is on or after 3 March 2014, since Schedule 11, "Transitional and saving provisions", only refers to financial years which began before 3 March 2014 and end on or after 3 March 2014, and not to earlier financial years.

However, as the relevant provisions in the predecessor CO (Cap. 32) were repealed on 3 March 2014, companies are encouraged (but not mandated) to add a note or remark in their financial statements that references to the provisions in the CO are references to the provisions in the predecessor Companies Ordinance (Cap.32) as was in force before 3 March 2014 or other wordings to similar effect.

Question A2 – Disclosure under HKAS 10 Events after the Reporting Period
For financial years which end before 3 March 2014, is it necessary to disclose the commencement of the new CO on 3 March 2014 in the financial statements for those periods, and/or the automatic transition to the no-par value regime as non-adjusting post balance sheet events under paragraph 21 of Hong Kong Accounting Standard (HKAS) 10?

Answer

No. As the commencement of the new CO on 3 March 2014 and the transition to the no-par value regime have no immediate financial impact on the company and no impact on the number of shares in issue or the relative entitlement of any of the members, they are not events that should influence the economic decisions of users of the financial statements. They therefore fall outside the scope of the disclosure required by paragraph 21 of HKAS 10.

However, care should be taken to ensure that any post balance sheet (reporting date) event note (or other disclosure, such as in the directors' report), which refers to a specific transaction (such as an issuance of new share capital), makes the correct references to the relevant Companies Ordinance (i.e. either the predecessor Ordinance, Cap. 32, or the new Ordinance Cap. 622), depending on whether the transaction occurred before or after 3 March 2014.

Question A3 - Disclosure under HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
For financial years that end before 3 March 2014, is it necessary to mention in the financial statements for those periods the new CO when disclosing information under paragraph 30 of HKAS 8 about the possible impact of amendments, new standards and interpretations issued but not yet effective?

Answer

No. Paragraph 30 of HKAS 8 refers to HKFRS which have not yet been adopted. HKAS 8 does not specifically require equivalent disclosure when there are other regulatory requirements that impact on the preparation of the financial statements, such as the annual report requirements of Part 9 "Accounts and Audit", which have not yet been adopted by a company.

However, the company may wish to make disclosure about the commencement date for the annual report requirements of Part 9 for the avoidance of doubt. For example, it would be acceptable to expand the disclosure made under paragraph 30 of HKAS 8 for new HKFRS not yet effective as follows:

"Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended [31 December 2013*]
*Amend date as appropriate

Up to the date of issue of these financial statements, the Institute has issued a few amendments and a new standard which are not yet effective for the year ended [31 December 2013*] and which have not been adopted in these financial statements. These include the following which may be relevant to the group …
*Amend date as appropriate

In addition, the annual report requirements of Part 9, "Accounts and Audit", of the new Hong Kong Companies Ordinance (Cap. 622) come into operation as from the company's first financial year commencing on or after 3 March 2014 in accordance with section 358 of that Ordinance. The group is in the process of making an assessment of the expected impact of the changes in the Companies Ordinance on the consolidated financial statements in the period of initial application of Part 9 of the new Hong Kong Companies Ordinance (Cap. 622). So far it has concluded that the impact is unlikely to be significant and will primarily only affect the presentation and disclosure of information in the consolidated financial statements."

(Note: Similar disclosure is also relevant for financial years which cross over 3 March 2014: see question B1)

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New Companies Ordinance