💡Weekly E-Newsletter

💵 Hong Kong | HKFRS 18: A Paradigm Shift in Financial Performance Presentation

In July 2024, the Hong Kong Institute of Certified Public Accountants (HKICPA) introduced HKFRS 18, replacing HKAS 1 and aligning with IFRS 18. Effective from January 1, 2027, with early adoption permitted, this new standard enhances financial performance presentation through clearer classification and improved disclosure requirements. Key changes include the introduction of three income statement categories—operating, investing, and financing—along with new subtotal requirements for operating profit and profit before financing and income tax. Specific classification rules apply to entities engaged in financing or investment-related activities, requiring careful assessment of business operations.

HKFRS 18 also mandates the disclosure of Management-Defined Performance Metrics (MPMs), which are financial measures used outside of financial statements. Entities must provide reconciliations, tax effects, and justifications for these metrics, ensuring transparency and comparability. Additionally, the standard refines classification and disclosure rules, requiring better aggregation and disaggregation of financial information, improved labeling of financial items, and enhanced reporting of operating expenses by nature or function. These updates aim to improve consistency in financial reporting and investor analysis.

Entities will need to reassess financial reporting structures, adjust accounting policies, and update internal processes to comply with HKFRS 18. Those using derivatives, foreign currency transactions, or non-GAAP metrics may face additional costs in classification and disclosure. The changes impact not only financial statement presentation but also internal reporting systems and external communication strategies, making early assessment and adaptation essential.

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