Revisions to the Hong Kong Financial Reporting Standard for Private Entities (HKFRS for PE)
In Hong Kong, entities without public accountability can choose to adopt the Hong Kong Financial Reporting Standard for Private Entities (HKFRS for PE), which is equivalent to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) issued by the International Accounting Standards Board (IASB), for preparing their financial statements. The requirements of HKFRS for PE are based on those of the full Hong Kong Financial Reporting Standards (HKFRS), but with simplifications to reflect the information needs of financial statement users and the resources available to private entities. By exempting private entities from applying the full HKFRS, HKFRS for PE helps reduce the reporting burden for eligible private entities that do not qualify to apply the cost-based, locally developed Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standards.
Revisions to HKFRS for PE
In September 2022, the IASB published an exposure draft proposing amendments to the IFRS for SMEs, aiming to simplify the standard while reflecting improvements made to the full IFRS. Key proposals include aligning certain requirements in the standard with those in IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers.” In response, the Institute submitted a comment letter to the IASB. After several rounds of deliberation on the feedback, in February 2025, the IASB published the third edition of the IFRS for SMEs. The Institute noted that our comments were addressed in the revised standard. After completing the necessary procedures, the Institute issued the revised HKFRS for PE in April 2025, which is equivalent to the third edition of the IFRS for SMEs.
Key Changes
The revisions to HKFRS for PE are extensive, covering nearly all sections of the standard. A list of the amendments can be found in the introduction of the revised HKFRS for PE. The focus of this article is on the major amendments, which are outlined on the next page. To understand how these major amendments impact local entities currently applying the extant HKFRS for PE, refer to the Institute’s publication “Key Impact of the 2025 Revised HKFRS for PE on Local Entities.”
Key Areas Not Amended in the Revised HKFRS for PE
Although the revisions to the standard are extensive, there are a few areas where the current requirements have been retained or not amended. These areas include:
- The concept of “undue cost or effort” in Section 2 “Concepts and Pervasive Principles.”
- The rebuttable presumption in Section 9 “Consolidated and Separate Financial Statements” that control exists when an investor owns the majority of the voting rights of an investee.
- The incurred loss model for the impairment of financial assets measured at amortized cost. Moreover, Section 20 “Leases” has not been amended to align with Hong Kong Financial Reporting Standard (HKFRS) 16 “Leases” in this revision. Any future alignment will be determined only when more information on entities’ experience applying HKFRS 16 is available.
Effective Date and Transition
The revised HKFRS for PE is effective for annual periods beginning on or after January 1, 2027, with early application permitted. Entities are required to apply the new and amended requirements in the revised HKFRS for PE retrospectively. However, some relief from retrospective application is available for entities applying certain amendments.
What Actions Should Entities Take Now?
The amendments are comprehensive and will affect entities currently applying the extant HKFRS for PE. The impact ranges from changes in accounting policies and related accounting treatments to providing additional disclosures in the financial statements. Preparers should thoroughly read the original text of the revised HKFRS for PE to understand the amendments and assess how they will affect financial reporting based on the entity’s specific facts and circumstances. For example, the revised Section 23 “Revenue from Contracts with Customers” may result in some entities accounting differently for transactions with customers under the new five-step model. Additionally, the new disclosure requirements in the revised Section 11 “Financial Instruments,” such as the aging analysis of financial assets and the maturity analysis of financial liabilities, require entities to collect additional information. Therefore, preparers should consider whether any changes to systems, processes, and controls are necessary in order to apply the new requirements.
