practical issues in new hkfrs and co - nelson … · practical issues in new hkfrs and co ......
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20132016NelsonConsultingLimited 1
PracticalIssuesinNewHKFRSandCO2June2016
LAMChiYuenNelsonCFACharterHolder,FCPA(Practising)MBAMScBBAACISACSCGMACPA(U.S.)CTAFCAFCCAFCPA(Aust.)FHKIoD FSCAFTIHKMHKSI
20132016NelsonConsultingLimited 2
Effectivefor2015Dec.YearEnd
AmendmentstoHKAS19(2011) EmployeeBenefits DefinedBenefitPlans:EmployeeContributions
AnnualImprovements20102012Cycle AnnualImprovements20112013Cycle SMEFRFandSMEFRS(Revised2014)(pursuanttotheNew
CompaniesOrdinance(Cap.622)effectivefrom3Mar.2014)
AccountingBulletin5GuidanceforthePreparationofaBusinessReviewundertheHongKongCompaniesOrdinanceCap.622
AccountingBulletin6GuidanceontheRequirementsofSection436oftheHongKongCompaniesOrdinanceCap.622
1Jul. 2014
1Jul. 2014(orother) 1Jul. 2014(orother) 3Mar. 2014(early
applicationnotallowed)
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning on/after
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Effectivefor2016Dec.YearEnd
Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations
Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation
Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants
Amendments to HKAS 27 Equity Method in Separate Financial Statements
Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Annual Improvements to HKFRSs 2012-2014 Cycle Amendments to HKAS 1 Disclosure Initiative Amendments to HKFRS 10 and 12 and HKAS 28 Investment
Entities: Applying the Consolidation Exception HKFRS 14 Regulatory Deferral Accounts
1 Jan.2016
1 Jan.2016
1 Jan.2016
1 Jan.2016
1 Jan.2016
1 Jan.2016 (or other) 1 Jan.2016 1 Jan.2016
1 Jan.2016
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning on/after
UpdatedtoHKICPAUpdateNo.184of24May2016
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Effectiveafter2016Dec.YearEnd
HKFRS 9 (2014) Financial Instruments HKFRS 15 Revenue from Contracts with Customers Amendments to HKFRS 15 Effective Date of HKFRS 15 Revenue
from Contracts with Customers Amendments to HKFRS for Private Entities HKFRS 16 Leases
1 Jan. 2018 1 Jan. 2017 1 Jan. 2018
1 Jan. 2017 1 Jan. 2019
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning on/after
UpdatedtoHKICPAUpdateNo.184of24May2016
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PracticalIssuesonNewCORelevanttoFinancialReporting
TodaysAgenda
PracticalIssuesonNewHKFRS
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TodaysAgenda
Full Presentation and Sample Financial Statements can be found in:
www.Facebook.com/NelsonCFA
PracticalIssuesonNewCORelevanttoFinancialReporting
PracticalIssuesonNewHKFRS
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PracticalIssuesonNewCORelevanttoFinancialReporting
TodaysAgenda
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PracticalIssuesonNewCo.Ordinance
ImpactonFinancialStatements AdoptionofSMEFRS Section379:Directorsmustpreparefinancialstatements
(andconsolidationexemption) Section380:Generalrequirementsforfinancialstatements Section383:Disclosureofemolumentsandothermattersrelatingto
directors Schedule4andSection387
ImpactonDirectorsReport BusinessReviewandAG5 Section436andAG6
ImpactonFinancialStatements
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ImpactonFinancialStatements
AdoptionofSMEFRS:CriteriaCompany Qualifying ConditionsA. Aprivateco.isasmallprivate co.,
orAprivateco.isthe holdingco.ofagroupofsmallprivatecompanies
Sizetest, meetingany2ofthefollowing:i. Revenuelessthan$100M,ii. Assetslessthan $100M,iii. Employeelessthan100
B. Aneligible privateco.,orAneligibleprivateco.istheholdingco.ofagroupofeligibleprivatecompanies
Sizetest, meetingany2ofthefollowing:i. Revenuelessthan$200M,ii. Assetslessthan$200M,iii. Employeelessthan100
75%membersapprovalwithoutanymemberobjection
C. A"smallguaranteeco.,orAguaranteeco. istheholdingco.ofa"groupofsmallguaranteecompanies"
Sizetest, revenuelessthan$25M
D. Optionsimilartos.141DofCap.32 S.359(1)(b)
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AdoptionofSMEFRS:Criteria
ShareholderApproval TheNewCOFAQQ7 oftheCompanies
Registryalsoclarifiesthat: Sections360(1)and(2)requirea
resolutionpassedbythemembersholdingatleast75%ofthevotingrightsinthecompany,i.e.75%ofthevotingrightsofallmembersofthecompany.
Source:CRwebsite(Lastrevisiondate:27April2016)
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AdoptionofSMEFRS:Criteria
Source:CRwebsiteasat23October2015
Isitcorrect?
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AdoptionofSMEFRS:Criteria
ThenewCO(CAP622),Section2:bodycorporate ()
(a)includes(i)acompany;and(ii)acompanyincorporatedoutsideHongKong;but
(b)excludesacorporationsole;company ()means
(a)acompanyformedandregisteredunderthisOrdinance;or(b)anexistingcompany;
existingcompany ()meansacompanyformedandregisteredunderaformerCompaniesOrdinance
Isitcorrect?
Youmakeyourowndecision
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AdoptionofSMEFRS:Criteria
Isthereanyrequirementtodeliveracopyoftheagreement(Section359(1)(b)(iii))ortheresolution(Sections360(1)and(2))totheRegistrarofCompaniesforregistration? TheNewCOFAQQ8oftheCompaniesRegistryclarifiesthat:
Yes.Acompanymustdeliver acopyof anagreementmade forthepurposesofsection359(1)(b)(iii) or aresolutionpassed forthepurposesofsection360(1)or(2)totheRegistrarforregistrationrespectivelywithin15daysafteritismadeorpassed pursuanttosections622(1)(e)and(f) ofthenewCO.
Source:CRwebsite(Lastrevisiondate:27April2016)
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ImpactonFinancialStatements
Noparornonominalvalueregime(effectiveon3March2014) TerminologyupdatedtoHKFRSs
Financialstatements,consolidatedfinancialstatements,statementofcomprehensiveincome,statementoffinancialposition
Section379.Directormustpreparefinancialstatements Section379(1):Acompanysdirectorsmustprepareforeachfinancialyear
statements thatcomplywithsections380and383. Section379(2):Despitesubsection(1),ifthecompanyisaholding
companyattheendofthefinancialyear,thedirectorsmustinsteadprepareforthefinancialyearconsolidatedstatements thatcomplywithsections380,381and383.
ImpactonFinancialStatements
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ImpactonFinancialStatements
Exemptions frompreparingconsolidatedfinancialstatements Section379(3)(a):awhollyownedsubsidiary ofanotherbodycorporate Section379(3)(b):if
apartiallyownedsubsidiary ofanotherbodycorporate; atleast6monthsbeforeyearend,notifythemembersinwriting ofthe
intentionnottoprepareconsolidatedstatementsforthatyearonly;and 3monthsbeforeyearend,nomemberhasrespondedawrittenrequest
forthepreparationofconsolidatedstatementsforthatyear
ImpactonFinancialStatements
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ImpactonFinancialStatements
Section379.Directormustpreparefinancialstatements Section379(4):If,asrespectsanyfinancialstatementsacopyofwhichis
laidbeforeacompanyingeneralmeetingundersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,adirectorofthecompanyfailstotakeallreasonablestepstosecurecompliancewithsubsection(1)or(2),thedirector commitsanoffence and isliabletoafineof$300,000.
ImpactonFinancialStatements
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ImpactonFinancialStatements
Section379.Directormustpreparefinancialstatements Section379(5):If,asrespectsanyfinancialstatementsacopyofwhichis
laidbeforeacompanyingeneralmeetingundersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,adirectorofthecompanywilfully failstotakeallreasonablestepstosecurecompliancewithsubsection(1)or(2),thedirector commitsanoffence and isliable
toafineof$300,000 and toimprisonmentfor12months.
ImpactonFinancialStatements
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ImpactonFinancialStatements
Section380.Generalrequirementsforfinancialstatements LegalbackingtoHKFRSs(withprosandcons) LengthylistofdisclosureinTenthScheduleoftheoldCO(Cap.32)fully
deleted
ImpactonFinancialStatements
SFSPage5
SFSPage6
Example
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ImpactonFinancialStatements
Section380.Generalrequirementsforfinancialstatements LegalbackingtoHKFRSs(withprosandcons) LengthylistofdisclosureinTenthScheduleoftheoldCO(Cap.32)fully
deleted
ImpactonFinancialStatements
SFSPage20
Example
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ImpactonFinancialStatements
ImpactonFinancialStatements
SFSPage4
Section380.Generalrequirementsforfinancialstatements(4) Thefinancialstatementsforafinancialyearmustalsocomplywith
(a) anyotherrequirementsofthisOrdinanceinrelationtothefinancialstatements;and
(b) theaccountingstandards applicabletothefinancialstatements.
Example
SFSPage4
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ImpactonFinancialStatements
Q&Arelatingtoconsol.andco.levelfinancialstatementspreparedunderPart9ofthenewCO(dated25.1.16byHKICPA) Topic1Applicationofsection379 Question1.5:Identifyingtherelevant
accountingstandardswhenaholdingcompanypreparescompanylevelfinancialstatementsinaccordancewithsection379(3) Theholdingcompanycanexemptfrompreparationofconsolidatedfinancialstatementsundersection379(3),butforexample,thecriteriainHKFRS10.4(a)(iv)wouldnotbemetinthefollowingsituations:(a)theholdingco.isawhollyownedsubsidiaryofaprivateHKincorporatedco.
whichisnotrequiredtofileitsfinancialstatementsonpublicrecord;or(b)theholdingco.isawhollyownedsubsidiaryofaUSparentwhichissuesUS
GAAPfinancialstatementsbutdoesnotissueIFRSfinancialstatements. Insuchcaseswhichaccountingstandardsaretheapplicable
accountingstandardsforthepurposesofcomplyingwiths380(4)(b) oftheCOifthecompanyfollowstherequirementsofs379(3)?
Source:HKICPAwebsiteasat12April2016
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ImpactonFinancialStatements
Summaryofanswers: s379 determineswhichtypeoffinancialstatementsneedtobeprepared
(companylevelorconsolidated)and s380 thencontainsthegeneralrequirementsforfinancialstatements
beingtherequirementsforthecontentsofthosefinancialstatements(companylevelorconsolidated)asarerequiredtobepreparedunders379
(asaresult)thecompany,asaholdingcompany,shallaccountforinvestmentsinsubsidiarieseitheratcostorinaccordancewithHKFRS9initscompanylevelfinancialstatements ifthecompanydoesnotelecttoaccountfortheinvestmentsusingtheequitymethodaspermittedbyparagraph10(c)ofHKAS27SeparateFinancialstatements.
Inaddition,asthefinancialstatementsarepreparedinrespectoftheholdingcompanyonly,thedisclosuresrequiredbyHKFRS12DisclosuresofInterestsinOtherEntities arenotapplicable
Fordetails,pleaserefertooriginalQ&AinHKICPAswebsite
Summaryofanswers: s379 determineswhichtypeoffinancialstatementsneedtobeprepared
(companylevelorconsolidated)and s380 thencontainsthegeneralrequirementsforfinancialstatements
beingtherequirementsforthecontentsofthosefinancialstatements(companylevelorconsolidated)asarerequiredtobepreparedunders379
(asaresult)thecompany,asaholdingcompany,shallaccountforinvestmentsinsubsidiarieseitheratcostorinaccordancewithHKFRS9initscompanylevelfinancialstatements ifthecompanydoesnotelecttoaccountfortheinvestmentsusingtheequitymethodaspermittedbyparagraph10(c)ofHKAS27SeparateFinancialstatements.
Inaddition,asthefinancialstatementsarepreparedinrespectoftheholdingcompanyonly,thedisclosuresrequiredbyHKFRS12DisclosuresofInterestsinOtherEntities arenotapplicable
Fordetails,pleaserefertooriginalQ&AinHKICPAswebsite
Source:HKICPAwebsiteasat12April2016
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ImpactonFinancialStatements
However,pleasenotethat HKAS1.16states:
AnentitywhosefinancialstatementscomplywithHKFRSsshallmakeanexplicitandunreservedstatementofsuchcomplianceinthenotes.
AnentityshallnotdescribefinancialstatementsascomplyingwithHKFRSsunlesstheycomplywithalltherequirementsofHKFRSs.
HKFRSforPEparagraph3.3states AnentitywhosefinancialstatementscomplywiththeHKFRSfor
PrivateEntitiesshallmakeanexplicitandunreservedstatementofsuchcomplianceinthenotes.
FinancialstatementsshallnotbedescribedascomplyingwiththeHKFRSforPrivateEntitiesunlesstheycomplywithalltherequirementsofthisHKFRS.
Youmakeyourowndecision
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ImpactonFinancialStatements
Source:CRwebsite(Lastrevisiondate:27April2016)
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ImpactonFinancialStatements
Section381.Subsidiaryundertakingstobeincludedinannualconsolidatedfinancialstatements Section381(1):Subjecttosubsections(2)and(3),theannualconsolidated
financialstatementsforafinancialyearmustincludeallthesubsidiaryundertakingsofthecompany.
Section381(2):Wherethecompanyfallswithinthereportingexemptionforthefinancialyear,oneormoresubsidiaryundertakingsmaybeexcludedfromtheannualconsolidatedfinancialstatementsincompliancewiththeaccountingstandardsapplicabletothestatements.
ImpactonFinancialStatements
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ImpactonFinancialStatements
Section381.Subsidiaryundertakingstobeincludedinannualconsolidatedfinancialstatements Section381(3):Wherethecompanydoesnotfallwithinthereporting
exemptionforthefinancialyear(a) onesubsidiaryundertakingmaybeexcluded fromtheannual
consolidatedfinancialstatementsiftheinclusionofthesubsidiaryundertakingisnotmaterial forthepurposeofgivingatrueandfairviewofthefinancialposition,andofthefinancialperformance,mentionedinsection380(2)(a)and(b);and
(b) morethanonesubsidiaryundertakingmaybeexcluded fromtheannualconsolidatedfinancialstatementsiftheinclusionofthosesubsidiaryundertakingstakentogetherisnotmaterial forthepurposeofgivingatrueandfairviewofthefinancialposition,andofthefinancialperformance,mentionedinsection380(2)(a)and(b).
ImpactonFinancialStatements
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ImpactonFinancialStatements
Source:CRwebsite(Lastrevisiondate:27April2016)
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ImpactonFinancialStatements
Disclosureofemolumentsandothermattersrelatingtodirectors Section383(1) requirestheinformationprescribedbytherelevant
Regulationaboutthefollowingitemstobedisclosedinthenotes:a. thedirectors'emoluments;b. thedirectors'retirementbenefits;c. paymentsmadeorbenefitprovidedinrespectoftheterminationofthe
serviceofdirectors (inthedirectorsorothercapacitywhiledirectors);d. loans,quasiloansandotherdealings infavourof(i)directorsofthe
companyandaholdingcompanyofthecompany;(ii)bodiescorporatecontrolledbysuchdirectors;(iii)entitiesconnectedwithsuchdirectors;
e. materialinterestsofdirectorsintransactions,arrangementsorcontracts enteredintobythecompanyoranothercompanyinthesamegroupofcompanies;
f. considerationprovidedtoorreceivablebythirdparties formakingavailabletheservicesofapersonasadirectororinanyothercapacitywhiledirector.
ImpactonFinancialStatements
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ImpactonFinancialStatementsCaseCase
LenovoGroupLimited(incorporatedinHK)Note11a(extract)toAnnualReportasat31March2015
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ImpactonFinancialStatementsCaseCase
ChinaMotorBusCompany,Limited(incorporatedinHK)Note6a(extract)toAnnualReportasat30June2015
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ImpactonFinancialStatements
ImpactonFinancialStatements
SFSPage34
Example
SFSPage22
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ImpactonFinancialStatements
IntroduceSchedule4totheNewCO(Cap.622) Part1(forallcompanies,asalsorelevanttoanddiscussedintherevised
SMEFRS) Part2(forcompanieswithoutReportingExemptions)
ImpactonFinancialStatements
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ImpactonFinancialStatements
Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption1. Aggregateamountofauthorizedloans
Thefinancialstatementsforafinancialyearmustcontain,underseparateheadings,theaggregateamountofanyoutstandingloansmadeundertheauthorityofsections 280(i.e.exceptionforemployeeshareschemes,blanketadded) and 281(i.e.exceptionforloanstoemployees,blanketadded)duringthefinancialyear.
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ImpactonFinancialStatements
Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption2.Statementoffinancialpositiontobecontainedinnotestoannual
consolidatedfinancialstatements(1) Theannualconsolidatedfinancialstatementsforafinancialyear
(a) mustcontain,inthenotestothestatements,theholdingcompanysstatementoffinancialposition forthefinancialyear;and
(b) mustincludeanotedisclosingthemovementintheholdingcompanysreserves.
(2) Despitesection380(4),theholdingcompanysstatementoffinancialpositiontobecontainedinthenotestotheannualconsolidatedfin.statementsforafinancialyearisnotrequiredtocontainanynotes.
(3) Thatstatementoffinancialpositionmustbeintheformatinwhichthatstatementwouldhavebeenpreparediftheholdingcompanyhadnotbeenrequiredtoprepareanyannualconsolidatedfinancialstatements forthefinancialyear.
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ImpactonFinancialStatementsCaseCase
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ImpactonFinancialStatementsCaseCase
ChinaMotorBusCompany,Limited(incorporatedinHK)Note23(extract)toAnnualReportasat30June2015
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ImpactonFinancialStatements
Source:CRwebsite(Lastrevisiondate:27April2016)
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ImpactonFinancialStatements
Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption3.Subsidiarysfinancialstatementsmustcontainparticularsofultimate
parentundertaking(1)Thissectionappliesif,attheendofafinancialyear,acompanyisthe
subsidiaryofanotherundertaking.(2)Thecompanysfinancialstatementsforthefinancialyearmustcontain,inthe
notestothestatements(a) thenameoftheundertaking regardedbythedirectorsasbeingthe
companysultimateparentundertaking;and(b) thefollowinginformationrelatingtothatundertaking asknowntothe
directors(i)ifthatundertakingisabodycorporate,thecountryinwhichitis
incorporated;(ii)ifthatundertakingisnotabodycorporate,theaddressofitsprincipal
placeofbusiness.
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ImpactonFinancialStatements
Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption4.Compliancewithapplicableaccountingstandards
Thefinancialstatementsforafinancialyearmuststate(a) whethertheyhavebeenpreparedinaccordancewiththeapplicable
accountingstandards withinthemeaningofsection380;and(b) iftheyhavenotbeensoprepared,the
particularsof,andthereasonsfor,anymaterialdeparturefromthosestandards.
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ImpactonFinancialStatements
Schedule4 AccountingDisclosures Part2 DisclosuresforCompaniesnotFallingwithinReportingExemption1.Remunerationofauditor
(1) Acompanysfinancialstatementsforafinancialyearmuststate,underaseparateheading,theamountoftheremunerationoftheauditor.
(2) Inthissectionremuneration (),inrelationtoanauditorofacompany,includesanysumpaidbythecompanyinrespectoftheauditorsexpenses.
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ImpactonFinancialStatementsCaseCase
ChinaMotorBusCompany,Limited(incorporatedinHK)Note5b(extract)toAnnualReportasat30June2015
OPERATINGPROFITOperatingprofitisarrivedat
2015 2014$000s $000s
aftercharging:
(b)Otheritems:Auditorsremuneration auditservices 3,680 3,393 taxservices 552 460 otherauditrelatedservices 1,750 450
20132016NelsonConsultingLimited 42
ImpactonFinancialStatements
SFSPage21
ExampleExample
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ImpactonFinancialStatements
Section387.Statementoffinancialpositiontobeapprovedandsigned(1) Astatementoffinancialpositionthatformspartofanyfinancial
statements(a) mustbeapproved bythedirectors;and(b) mustbesigned
(i) by2directors onthedirectorsbehalf;or(ii) inthecaseofacompanyhavingonlyonedirector,bythedirector.
(2) Everycopyofastatementoffinancialpositionthatformspartofanyfinancialstatementslaidbeforeacompanyingeneralmeetingundersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,muststatethename ofthepersonwhosignedthestatementonthedirectorsbehalf.
ImpactonFinancialStatements
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ImpactonFinancialStatements
ImpactonFinancialStatements
SFSPage6
Example
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ImpactonFinancialStatements
Section387.Statementoffinancialpositiontobeapprovedandsigned(3) If,asrespectsanyfinancialstatementsacopyofwhichiscirculated,
publishedorissuedbythecompany,subsection(1)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit
anoffence,and eachisliabletoafineatlevel4 (i.e.HK$25,000,blanketadded).
(4) Ifsubsection(2)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit
anoffence,and eachisliabletoafineatlevel4 (i.e.HK$25,000,blanketadded).
ImpactonFinancialStatements
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ImpactonDirectorsReport
Section391.Directorsreporttobeapprovedandsigned(1) Adirectorsreport
(a)mustbeapproved bythedirectors;and(b)mustbesigned onthedirectorsbehalfbyadirector orbythe
companysecretary.(2) Everycopyofadirectorsreportlaidbeforeacompanyingeneralmeeting
undersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,muststatethename ofthepersonwhosignedthereportonthedirectorsbehalf.
ImpactonDirectorsReport
ImpactonFinancialStatements
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ImpactonDirectorsReport
Section391.Directorsreporttobeapprovedandsigned(3)If,asrespectsanydirectorsreportacopyofwhichiscirculated,published
orissuedbythecompany,subsection(1)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit
anoffence,and eachisliabletoafineatlevel4 (i.e.HK$25,000,blanketadded).
(4)Ifsubsection(2)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit
anoffence,and eachisliabletoafineatlevel4 (i.e.HK$25,000,blanketadded).
ImpactonDirectorsReport
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ImpactonDirectorsReport
Inadditiontosection391,whichsetsouttherequirementsrelatingtotheapprovalandsignatureofthedirectorsreport,thedisclosurerequirementsforthedirectorsreport underthenewCO(Cap.622)arecontainedinthefollowinglocations:a. Sections388to391and543(2)b. Schedule5ContentsofDirectors'Report:BusinessReview
(unlessexemptundersection388(3));andc. Companies(DirectorsReport)Regulation(Cap.622D)
ImpactonDirectorsReport
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ImpactonDirectorsReport
Changesinthedirectorsreportsummarisedasfollows: Therearenewprovisionsrequiringthedirectorsreporttocontainthe
followinginformation abusinessreview (discussedlater); equitylinkedagreements enteredintobythecompany(section6of
Cap.622D),ifany; asummaryofthereasons relatingtotheaffairsofthecompany given
byadirectorwhohasresignedorrefusedtostandforreelection(section8ofCap.622D)(exceptforcompaniesfallingwithinthereportingexemption),ifany;and
permittedindemnityprovision forthebenefitofdirectors(section470andsection9ofCap.622D),ifany.
ImpactonDirectorsReport
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ImpactonDirectorsReport
CAP622DCompanies(DirectorsReport)Regulationcontains Section1 Commencement Section2 Interpretation Section3 Directorsinterests Section4 Donations Section5 Sharesissued Section5ADebenturesissued Section6 Equitylinkedagreements Section7 Recommendeddividend Section8 Reasonsforresignation,etc. Section9 Permittedindemnityprovision Section10 Materialinterestsintransaction,arrangementorcontract
ImpactonDirectorsReport
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ImpactonDirectorsReportCaseCase
LenovoGroupLimited(incorporatedinHK)DirectorsReportasat31March2015 EQUITYLINKEDAGREEMENTS
Noequitylinkedagreementswereenteredintoduringtheyear,savefortheshareoptionswhichwereoutstandingundertheShareOptionSchemeandtheLongTermIncentiveProgramdescribedinthisreport.
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ImpactonDirectorsReportCaseCase
LenovoGroupLimited(incorporatedinHK)DirectorsReportasat31March2015 DIRECTORSINDEMNITIESANDINSURANCE
AspermittedbythearticlesofassociationoftheCompany,adirectororaformerdirectoroftheCompanymaybeindemnifiedoutoftheCompanysassetsagainstanyliabilityincurredbythedirectortoapersonotherthantheCompanyoranassociatedcompanyoftheCompanythatattachestosuchdirectorinhisorhercapacityasadirectoroftheCompany,totheextentpermittedbylaw.
SuchpermittedindemnityprovisionhasbeeninforcesincetheadoptionofthenewarticlesofassociationoftheCompanyonJuly2,2014andiscurrentlyinforceatthetimeofapprovalofthisreport.
TheCompanyhasalsotakenoutandmaintaineddirectorsandofficersliabilityinsurancethroughouttheyear,whichprovidesappropriatecoverforcertainlegalactionsbroughtagainstitsdirectorsandofficers.
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ImpactonDirectorsReport
Indemnityofdirectors Apermittedindemnityprovision(asdefinedinsection469oftheHK
CompaniesOrdinance)forthebenefitofthedirectorsofthecompanyiscurrentlyinforceandwasinforcethroughouttheyear.[KPMG(2015)]
Indemnityofdirectors Apermittedindemnityprovision(asdefinedinsection469oftheHK
CompaniesOrdinance)forthebenefitofthedirectorsofthecompanyiscurrentlyinforceandwasinforcethroughouttheyear.[KPMG(2015)]
ExampleExample
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ImpactonDirectorsReport
Changesinthedirectorsreportsummarisedasfollows: Theamountofdonationsmadebythecompanyanditssubsidiary
undertakingswhichareexemptedfromdisclosureisraisedto$10,000from$1,000insection129D(3)(e)oftheoldCompaniesOrdinance(Cap.32)(theoldOrdinance)(section4ofCap.622D);and
Therequirementundersection129D(3)(j)oftheoldOrdinanceismodified,(refertothefollowingslides).
ImpactonDirectorsReport
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ImpactonDirectorsReport
Changesinthedirectorsreportsummarisedasfollows: Thedisclosureofinformationonmaterialinterestsofdirectorsincontracts
ofsignificanceenteredintobyacompany oraspecifiedundertaking ofthecompanyisexpandedtocover transactionsandarrangements inadditiontocontracts and, wherethecompanyisapubliccompany,materialinterestsofa
connectedentity ofadirectorofthecompany. Specifiedundertakingmeans
aparentcompanyorsubsidiaryundertakingofthecompany,or asubsidiaryundertakingofthecompanysparentcompany.
ImpactonDirectorsReport
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ImpactonDirectorsReport
Changesinthedirectorsreportsummarisedasfollows: Formaterialinterestsofdirectorsintransactions,arrangementsand
contractsenteredintobyaspecifiedundertaking ofacompany, theinformationmustbecontainedinthedirectorsreport ofthe
company. Fortransactions,arrangementsandcontractsenteredintobythe
company, disclosureoftheinformationisrequiredtobemadeinthenotesto
financialstatementsinstead (section383andsection22ofCap.622G). Disclosureofsignificanttransactions,arrangementsorcontracts
enteredintobythecompany,whereadirectorhasamaterialinterest,hasbeenmovedtothefinancialstatementsandwillthereforebesubjecttoaudit
ImpactonDirectorsReport
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20132016NelsonConsultingLimited 57
ImpactonDirectorsReport
Changesinthedirectorsreportsummarisedasfollows: Thenamesofallthedirectorsinthegroup mustbedisclosedina
consolidateddirectorsreport,andthedisclosureshouldextendtothedateofapprovingthedirectorsreport
Foracompanywhichisaholdingcompany andanannualconsolidatedfinancialstatements andaconsolidateddirectorsreportarepreparedundersection388(2),theconsolidateddirectorsreportmustcontain thename ofeverypersonwhowasadirector ofthecompany or ofthesubsidiaryundertakings includedinthefinancialstatements
(i) duringthefinancialyear;or(ii) duringtheperiodbeginningwiththeendofthefinancialyearand
endingonthedateofthereport.ImpactonDirectors
Report
20132016NelsonConsultingLimited 58
ImpactonDirectorsReport
Source:CRwebsite(Lastrevisiondate:27April2016)
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20132016NelsonConsultingLimited 59
ImpactonDirectorsReport
Changesinthedirectorsreportsummarisedasfollows: Certaindisclosurerequirementshavebeendroppedfromthedirectors
report(asmovedtonotestofinancialstatements) Unlessthecompanyisexempt,anewbusinessreviewsection mustbe
includedinthedirectorsreport
ImpactonDirectorsReport
BusinessReview
SFSPage3
Example
20132016NelsonConsultingLimited 60
BusinessReview Exemption
Section388(3)setsout3situationsunderwhichacompanyisexemptfromincludingabusinessreview inthedirectors'reportincompliancewithSchedule5.Theseare:a. thecompanyfallswithinthereportingexemption;b. thecompanyisawhollyownedsubsidiaryofanotherbodycorporate in
thefinancialyear;orc. thecompanyisaprivatecompany thatdoesnotfallwithinthereporting
exemptionforthefinancialyear,andaspecialresolution ispassedbymemberstotheeffectthatthecompanyisnottoprepareabusinessreviewrequiredbythatScheduleforthefinancialyear. Section388(4)requiresthattheresolutionmustbepassedatleast6
monthsbefore theyearend Section622(2)requiresthedeliveryofacopy
oftheresolutiontotheCompaniesRegistrarforregistrationwithin15daysafteritismadeorpassed
BusinessReview
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20132016NelsonConsultingLimited 61
BusinessReview Contents
Schedule5ContentsofDirectorsReport:BusinessReview:1. Adirectorsreportforafinancialyearmustcontainabusinessreviewthat
consistsofa. afairreviewofthecompanysbusiness;b. adescriptionoftheprincipalrisksanduncertainties facingthe
company;c. particularsofimportantevents affectingthecompanythathave
occurredsincetheendofthefinancialyear;andd. anindicationoflikelyfuturedevelopment inthecompanysbusiness.
BusinessReview
20132016NelsonConsultingLimited 62
BusinessReview Contents
Schedule5ContentsofDirectorsReport:BusinessReview:2. Totheextentnecessaryforanunderstandingofthedevelopment,
performance orposition ofthecompanysbusiness,abusinessreviewmustincludea. ananalysisusingfinancialkeyperformanceindicators;
keyperformanceindicators(,KPIs)meansfactors byreferencetowhichthedevelopment,performance orposition ofthecompanysbusinesscanbemeasuredeffectively.
b. adiscussiononi. thecompanysenvironmentalpoliciesandperformance;andii. thecompanyscompliancewiththerelevantlawsandregulations
thathaveasignificantimpactonthecompany;andc. anaccountofthecompanyskeyrelationshipswithitsemployees,
customersandsuppliersandothers thathaveasignificantimpact onthecompanyandonwhichthecompanyssuccessdepends.
BusinessReview
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20132016NelsonConsultingLimited 63
BusinessReviewandAG5
AG5.15GuidingPrinciples: Businessreviewspreparedandpresentedforthepurposesofcompliance
withSchedule5shouldbeconsistentwiththefollowingguidingprinciples:(a) Thereviewshouldsetoutananalysisofthebusiness throughtheeyes
oftheboardofdirectors(b) Thescopeofthereviewshouldbeconsistentwiththescopeofthe
financialstatements(c) Thereviewshouldcomplementaswellassupplementthefinancial
statements,inordertoenhancetheoverallcorporatedisclosure(d) Thereviewshouldbeunderstandable(e) Thereviewshouldbebalancedandneutral,dealingevenhandedly
withbothgoodandbadaspects
BusinessReview
20132016NelsonConsultingLimited 64
BusinessReviewandAG5
AG5.31Afairreviewofthereportingentitysbusiness: Inordertosatisfytheminimumrequirements forafairreviewofthe
reportingentitysbusiness,thereviewshouldincludeasaminimum:(a) adescriptionofthebusinessandtheexternalenvironment inwhichthe
reportingentityoperates,ascontextforthedirectorsdiscussionandanalysis;(b) ananalysis oftheperformance ofthereportingentityfortheyearunder
reviewandthefinancialposition ofthereportingentityasattheendofthatperiodusingfinancialKPIs whichcomplementorsupplementthefinancialstatements;
(c) adiscussionofthereportingentitysenvironmentalpoliciesandperformanceandthereportingentityscompliance withtherelevantlawsandregulationsthathaveasignificantimpactontheentity;and
(d) anaccountofthereportingentityskeyrelationships withitsemployees,customers andsuppliers andothers thathaveasignificantimpactontheentityandonwhichtheentityssuccessdepends.
BusinessReview
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20132016NelsonConsultingLimited 65
BusinessReviewandAG5
AG5.41KPIs(KeyPerformanceIndicators): TheKPIsdisclosedshouldbethosethatthedirectorsjudgeareeffectivein
measuringthedeliveryoftheirstrategiesandmanagingtheirbusiness. RegularmeasurementusingKPIsenablesareportingentitytosetand
communicateitsperformancetargetsandtomeasurewhetheritisachievingthem.
BusinessReview
20132016NelsonConsultingLimited 66
BusinessReviewandAG5
AG5.42KPIs(KeyPerformanceIndicators): KPIsshouldbepresentedinawaywhichisunderstandabletotheuser. Toachievethisobjectiveitmaybenecessary forthebusinessreviewto
includeinformationwhich: explainsthecalculationmethods; disclosesthesourceofunderlyingdataand,whererelevant,explainsthe
assumptions; highlightswhereinformationfromthefinancialstatementshasbeen
adjustedforthepurposesofcomputingaKPI,andprovidesareconciliation;
disclosescorrespondingamountsforthefinancialyearimmediatelyprecedingthecurrentyearwhereavailable;and/or
identifiesandexplainsanysignificantchangestothecalculationmethodusedtocomputetheKPIscomparedtopreviousfinancialyears,includingsignificantchangesintheunderlyingaccountingpoliciesadoptedinthefinancialstatements.
BusinessReview
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20132016NelsonConsultingLimited 67
BusinessReviewandAG5
AG6.IG7:Anumberofeconomicmeasuresexistthatarecommonlyusedbycompaniesinordertoassessacompanysabilitytocreatevalueovertime,andwhicharelikelytobeconsideredaKPI.Theseincludethefollowingexample: IGExample1:Returnoncapitalemployed(ROCE)
AG6.IG8:Inaddition,directorsoftensupplementthesewithothermeasurescommontotheirindustrytomonitortheirlongtermobjectives aroundmarketpositioning andprogresstowardsstatedobjectives.ThefollowingexamplesareillustratedinthisImplementationGuidance: IGExample2:Marketshare IGExample3:Averagerevenueperuser(customer) IGExample4:Salespersquarefoot IGExample5:Percentageofrevenuefromnewproducts IGExample6:Costperunitsold IGExample7:Economiccapital IGExample8:Cashconversionrate
AG6.IG7:Anumberofeconomicmeasuresexistthatarecommonlyusedbycompaniesinordertoassessacompanysabilitytocreatevalueovertime,andwhicharelikelytobeconsideredaKPI.Theseincludethefollowingexample: IGExample1:Returnoncapitalemployed(ROCE)
AG6.IG8:Inaddition,directorsoftensupplementthesewithothermeasurescommontotheirindustrytomonitortheirlongtermobjectives aroundmarketpositioning andprogresstowardsstatedobjectives.ThefollowingexamplesareillustratedinthisImplementationGuidance: IGExample2:Marketshare IGExample3:Averagerevenueperuser(customer) IGExample4:Salespersquarefoot IGExample5:Percentageofrevenuefromnewproducts IGExample6:Costperunitsold IGExample7:Economiccapital IGExample8:Cashconversionrate
ExampleExample
20132016NelsonConsultingLimited 68
COSection436andAG6
Section436.Requirementinconnectionwithpublicationoffinancialstatementsetc.(1)Thissectionappliesifacompany
(a) circulates,publishesorissues(i) anyspecifiedfinancialstatements inrelationtothecompany;or(ii) anynonstatutoryaccounts inrelationtothecompany;or
(b)otherwisemakessuchfinancialstatementsoraccountsavailableforpublicinspection inamannercalculatedtoinvitemembersofthepublicgenerally,oranyclassofthem,toreadthefinancialstatementsoraccounts.
NonStatutoryAccounts
SpecifiedFinancialStatements
AG6.26:Section436sscopeispotentiallyawideone.
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COSection436andAG6
Section436(5)states: Ifsubsection(2),(3)or(4)iscontravened,thecompany,and
everyresponsiblepersonofthecompany,commitanoffence,andeachisliabletoafineof$150,000.
NonStatutoryAccounts
SpecifiedFinancialStatements
20132016NelsonConsultingLimited 70
COSection436andAG6 Specifiedfinancialstatements (),inrelationtoacompany,meansanyfinancialstatementspreparedbythedirectors(a) acopyofwhichisrequiredbysection429(1) to
belaidbeforethecompanyingeneralmeeting;or
(b) acopyofwhichisrequiredbysection430(3) tobesenttoeverymemberorisotherwisecirculated,publishedorissuedbythecompany.
Section429.Directorsmustlayfinancialstatementsetc.beforecompanyingeneralmeeting
Section430.Companymustsendcopiesoffinancialstatementsetc.tomembersbeforegeneralmeeting
SpecifiedFinancialStatements
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COSection436andAG6SpecifiedFinancial
Statements
AG6.18:Sections429(1)and430(3)inturnrefertoreportingdocuments,whichinclude acompanysannualfinancialstatements or, ifthecompanyisaholdingcompany,itsannualconsolidatedfinancial
statements. AG6.19:Consequently,acompanysspecifiedfinancialstatementsareineffectitsannualauditedfinancialstatementspreparedforthestatutorypurposeofreportingtoitsmembers. Theseareoftenreferredtoasstatutoryfinancialstatementsandmaybe
companylevelorconsolidatedfinancialstatementsdependingonwhetherornotthecompanypreparesconsolidatedfinancialstatementsundersection379(2).
20132016NelsonConsultingLimited 72
COSection436andAG6SpecifiedFinancial
Statements
AG6.20:Itshouldalsobenotedthatsection436appliesirrespectiveofwhetheracompanyiseligibleforthereportingexemptionundersection359. Thereforeacompanysspecifiedfinancialstatementsmayhavebeen
prepared underthefulltrueandfairreportingregime(i.e.inaccordancewith
HKFRSissuedbytheHKICPA),or underthesimplifiedreportingregime(i.e.inaccordancewiththeSME
FRFandFRS(Revised2014)issuedbytheHKICPA).
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20132016NelsonConsultingLimited 73
AG6.29:ForspecifiedfinancialstatementsunderS.436(1)(b): publiclydisplayingacopyofanannualreport,forexample,inthe
receptionareaofacompanyorthepublicareaofabankeitherinhardcopyoronscreenthroughadigitaldisplaydevice;
displayingthesoftcopyoftheannualreport onapartofthecompany'swebsitewhichisbroadlyaccessible,eithertothepublicatlargeortoageneralgroupofemployees;
includingthefinancialstatementsinotherpublications,forexample,publicitybrochures;
inthecaseofalistedcompany, makingthemavailablethroughtheSEHKwebsite orthatofastockexchangeoutsideofHongKong;and
filingthemonpublicrecordwiththeHKCompaniesRegistryorequivalentoverseasbody.
COSection436andAG6SpecifiedFinancial
Statements
Example
20132016NelsonConsultingLimited 74
COSection436andAG6SpecifiedFinancial
Statements Section436(2)requiresthat: Thespecifiedfinancialstatementsmustbe
accompaniedbytheauditorsreport onthosestatements.
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20132016NelsonConsultingLimited 75
COSection436andAG6 Nonstatutoryaccounts (),inrelationtoacompany,means(a) anystatementoffinancialposition orstatement
ofcomprehensiveincome,otherwisethanaspartofanyfinancialstatements preparedbythedirectors,relatingto,orpurportingtodealwith,afinancialyear ofthecompany;or
(b) accountsinanyform,otherwisethanaspartofanyfinancialstatements preparedbythedirectors,purportingtobe astatementoffinancialposition orstatementofcomprehensiveincome foragroupofcompanies consistingofthecompanyanditssubsidiaryundertakingsrelatingto,orpurportingtodealwith,afinancialyear ofthecompany
NonStatutoryAccounts
20132016NelsonConsultingLimited 76
AG6.30:ExamplesofnonstatutoryaccountswithinS.436(1)(b): Prospectuses,ListingDocuments,orStockExchangeCirculars (seepara.31); PreliminaryannouncementsofResultsforafinancialyear ofcompanieslistedontheMainBoard/GEMoftheSEHKcomplyingwithListingRules13.49(1)orGEMRules18.49respectively;
FinancialstatementspreparedinaccordancewithHKAS3410,suchas: Preliminaryannouncementsofinterimresultsofcompanies listedontheMainBoard/GEMoftheSEHKcomplyingwithListingRules13.49(6)orGEMRules18.78respectively;
Halfyearlyinterimreportsorsummaryinterimreports ofcompanieslistedontheMainBoard/GEMoftheSEHKcomplyingwithListingRule13.48(1)orGEMRule18.53respectively;
VoluntaryquarterlyFinancialandBusinessReviewsorquarterlyinterimreportsorquarterlysummaryinterimreportsofcompanies listedontheMainBoardoftheSEHKorQuarterlyreportsofGEMcompaniescomplyingwithGEMRule18.66;
COSection436andAG6Example
NonStatutoryAccounts
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20132016NelsonConsultingLimited 77
AG6.30:ExamplesofnonstatutoryaccountswithinS.436(1)(b): Specialpurposefinancialstatementsifmadepubliclyavailable; Financialinformationpublishedonapartofthecompanyswebsite whichisbroadlyaccessible,eithertothepublicatlargeortoageneralgroupofemployees;
Companycommunicationdocuments,suchas: Briefingmaterialsprovidedtoanalystsand/orinvestors (includingroadshowmaterials);
Newspaperadvertisements; Pressreleases; Companypublicitybrochures.
Thislistisnotexhaustive.
COSection436andAG6Example
NonStatutoryAccounts
20132016NelsonConsultingLimited 78
COSection436andAG6
AG6.25:Accountsdonotqualifyasnonstatutoryaccounts andareoutsidethescopeofsection436 iftheyonlycontain astatementoffinancialpositiondrawnupatadatethatisnotthe
companysfinancialyearend or astatementofcomprehensiveincomethatcoversonlypartofa
companysfinancialyear
NonStatutoryAccounts
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20132016NelsonConsultingLimited 79
Forexample(notwithinSection436): iftheaccountsonlyinclude
astatementofcomprehensiveincomedealingwithjustthefirstthreemonthsofafinancialyear and/or
astatementoffinancialpositionasattheendofthatthreemonthperiod, thenthesewouldnotberegardedasnonstatutoryaccounts;
However, iftheaccountsalsoinclude,forexampleascomparativeinformation,
astatementofcomprehensiveincomedealingwithafullfinancialyear,and/or
astatementoffinancialpositionasattheendofafullfinancialyear, thentheseaccountswouldberegardedasnonstatutoryaccountsforthepurposesofsection436.
COSection436andAG6Example
NonStatutoryAccounts
20132016NelsonConsultingLimited 80
COSection436andAG6
Section436(3)requiresthat: Thenonstatutoryaccountsmustbe accompanied
byastatement indicating(a) thatthoseaccountsarenotspecifiedfinancialstatements inrelation
tothecompany;(b) whether thespecifiedfinancialstatements forthefinancialyearwith
whichthoseaccountspurporttodealhavebeendeliveredtotheRegistrar;
(c) whether anauditorsreport hasbeenpreparedonthespecifiedfinancialstatements forthefinancialyear;and
(d) whether theauditorsreport(i) wasqualified orotherwisemodified;(ii) referredtoanymattertowhichtheauditor drewattentionby
wayofemphasis withoutqualifyingthereport;or(iii) containedastatementundersection406(2)or407(2)or(3).
NonStatutoryAccounts
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COSection436andAG6
Section436(4)requiresthat: Thenonstatutoryaccountsmustnotbe
accompaniedbyanyauditorsreport onthespecifiedfinancialstatements.
NonStatutoryAccounts
20132016NelsonConsultingLimited 82
COSection436andAG6
TheListingRulesrequirethatcertainstockexchangecirculars(forexample,notifiabletransactions)includethecompanyorgroupsfinancialinformation.
NonStatutoryAccounts
SpecifiedFinancialStatements
Thiscanbedoneinoneofthreeways:a. Incorporationbycrossreference:crossreferencetowheretheco.s
annualreportsareavailableonthecompanysandtheSEHKswebsites. Nottriggersection436
b. Reproductioninfull:reproducingthecompanysfullauditedstatutoryfinancialstatements(withtheauditorsreports) wouldfallwithinsection436(1) asspecifiedfinancialstatements
triggeringtheneedtomeettherequirementofsection436(2).c. Extractedinformation:extractingtherequiredinformationfromthe
companysauditedstatutoryfinancialstatements. maymeetthedefinitionofnonstatutoryaccounts andtherefore
therequirementsofsection436(3)mustbemet
Example
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PracticalIssuesonNewHKFRS
TodaysAgenda
20132016NelsonConsultingLimited 84
HKFRS9FinancialInstruments
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20132016NelsonConsultingLimited 85
HKFRS9Issuedin2014
EffectiveDate AnentityshallapplyHKFRS9forannualperiodsbeginningonorafter1January2018.
Earlierapplicationispermitted. IfanentityelectstoapplyHKFRS9early,itmustdisclosethatfactandapplyalloftherequirementsinHKFRS9atthesametime(butseealsoparagraphs7.1.2,7.2.21and7.3.2).
Itshallalso,atthesametime,applytheamendmentsinAppendixC.(para.7.1.1)
20132016NelsonConsultingLimited 86
HKFRS9Issuedin2014
1. Objective2. Scope3. RecognitionandDerecognition4. Classification5. Measurement6. HedgeAccounting7. EffectiveDateandTransition
TransferredfromHKAS39TransferredfromHKAS39
Debtinstrumentscannowbemeasuredatfairvaluethroughothercomprehensiveincome
Debtinstrumentscannowbemeasuredatfairvaluethroughothercomprehensiveincome
InitialmeasurementoftradereceivableNewimpairmentrequirementsInitialmeasurementoftradereceivableNewimpairmentrequirementsChangesmainlyonhedgeconditionsChangesmainlyonhedgeconditions
Todays update
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20132016NelsonConsultingLimited 87
HKFRS9Issuedin2014
1. Objective2. Scope3. RecognitionandDerecognition4. Classification5. Measurement6. HedgeAccounting7. EffectiveDateandTransition
20132016NelsonConsultingLimited 88
Chapter4.1ClassificationofFA
Unlesspara.4.1.5ofHKFRS9(socalledfairvalueoption)applies,anentityshallclassifyfinancialassetsassubsequentlymeasuredateither amortised cost, fairvaluethroughothercomprehensiveincome,or fairvaluethroughprofitorloss
onthebasisofboth:a) theentitysbusinessmodel formanagingthefinancialassets;andb) thecontractualcashflowcharacteristics ofthefinancialasset.
(para.4.1.1)
AmortisedCost FairValueThroughOtherComprehensiveincomeFairValueThrough
ProfitorLoss
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20132016NelsonConsultingLimited 89
No
Chapter4.1ClassificationofFA
AmortisedCost FairValueThroughOtherComprehensiveincomeFairValueThrough
ProfitorLoss
Contractualcashflowsaresolelyprincipaland
interest?
Determinethecategoryofafinancialassetforsubsequent
measurement
No
Choosefairvalueoption(designateatfairvaluethroughprofitorloss)?
No
Yes
Yes
Heldwithinabusinessmodeltocollectcontractual
cashflow?Yes
No HeldwithinabusinessmodeltocollectcontractualcashflowandsellingFA?
Contractualcashflowsaresolelyprincipaland
interest?
Yes
Yes
No
No
Entitleandelecttopresentfairvaluechangesinothercomprehensiveincome
Yes
20132016NelsonConsultingLimited 90
Chapter4.1ClassificationofFA
Afinancialassetshallbemeasuredatfairvaluethroughothercomprehensiveincome ifbothofthefollowingconditionsaremet:a. thefinancialassetisheldwithinabusinessmodel whoseobjectiveis
achievedbyboth collecting
contractualcashflows and sellingfinancialassets,and
b. thecontractualterms ofthefinancialassetgiveriseonspecifieddatestocashflows thataresolelypaymentsofprincipalandinterest ontheprincipalamountoutstanding. Para.B4.1.1B4.1.26provideguidanceonhowtoapplytheseconditions.(para.4.1.2A)
HeldwithinabusinessmodeltocollectcontractualcashflowandsellingFA?
FairValueThroughOtherComprehensiveincome
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20132016NelsonConsultingLimited 91
HKFRS9Issuedin2014
1. Objective2. Scope3. RecognitionandDerecognition4. Classification5. Measurement6. HedgeAccounting7. EffectiveDateandTransition
20132016NelsonConsultingLimited 92
Chapter5Measurement
Initialmeasurement Exceptfortradereceivableswithinthescopeofpara.5.1.3, atinitialrecognition,anentityshallmeasurea
financialassetorfinancialliability atitsfairvalue plusorminus,inthecaseofafinancialassetorfinancialliabilitynotatfairvaluethroughprofitorloss,transactioncosts thataredirectlyattributabletotheacquisitionorissueofthefinancialassetorfinancialliability.(para.5.1.1)
However,ifthefairvalue ofthefinancialassetorfinancialliabilityatinitialrecognition differsfromthetransactionprice,anentityshallapplypara.B5.1.2A.(para.5.1.1A)
InitialMeasurementFairValue
TransactionCost+
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20132016NelsonConsultingLimited 93
Chapter5Measurement
SubsequentMeasurementofFinancialAssets Afterinitialrecognition,anentityshallmeasureafinancialassetinaccordancewithpara.4.1.14.1.5at:a. amortisedcost;b. fairvaluethroughothercomprehensiveincome;orc. fairvaluethroughprofitorloss.(para.5.2.1)
AmortisedCost FairValueThroughOtherComprehensiveincomeFairValueThrough
ProfitorLoss
20132016NelsonConsultingLimited 94
Chapter5Measurement
Anentityshallapplytheimpairmentrequirements inSection5.5 tofinancialassetsthataremeasuredatamortisedcost inaccordancewith
para.4.1.2(i.e.undertheholdtocollectbusinessmodel)and tofinancialassetsthataremeasuredatfairvaluethroughother
comprehensiveincome inaccordancewithpara.4.1.2A(i.e.undertheholdtocollectandsellbusinessmodel).(para.5.2.2)
AmortisedCost FairValueThroughOtherComprehensiveincomeFairValueThrough
ProfitorLoss
SubsequentMeasurementofFinancialAssets
No
EntitleandelecttopresentfairvaluechangesinothercomprehensiveincomeYes
Impairmentrequirementsappliedtothesetwocategoriesonly(impliedthatequityinstrumentsarenotsubjectto
impairmentrequirements)
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20132016NelsonConsultingLimited 95
Chapter5.5Impairment
Anentityshallrecognise alossallowanceforexpectedcreditlosseson afinancialasset thatismeasuredinaccordancewithpara.4.1.2or4.1.2A, aleasereceivable, acontractasset or aloancommitment andafinancialguarantee
contract towhichtheimpairmentrequirementsapplyinaccordancewithpara.2.1(g),4.2.1(c)or4.2.1(d).(para.5.5.1)
RecognitionofExpectedCreditLosses GeneralApproach
HKFRS9definesexpectedcreditlosses as: Theweightedaverage ofcreditlosseswiththe
respectiverisksofadefaultoccurringastheweights.
20132016NelsonConsultingLimited 96
Chapter5.5Impairment
Tounderstandandapplytheserequirements,anentityhastoascertain thescopeoftheimpairmentinHKFRS9, theconceptofexpectedcreditlosses, theapproachinrecognitionofexpectedcreditlosses, thefinancialinstrumentswiththescopeinrecognitionofexpectedcredit
lossesbutnotfallingwithinthethreestagemodel, theassessmentofthecreditriskonafinancialinstrumentsinceinitial
recognition, thedeterminationoffinancialinstrumentsbeingcreditimpaired,and thethreestagemodelinsuchrecognition.
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Chapter5.5Impairment Alwaysrecognisealossallowanceforchangesinlifetimeexpectedcreditlosses,and
Calculateacreditadjustedeffectiveinterestrate
Calculateinterestrevenueongrosscarryingamount
Hastherebeenasignificantincreaseincreditrisksince
initialrecognition?
No
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?No
Yes
No
Isthelowcreditrisksimplification
applied?
Yes
Yes
Isthefinancialinstrumentacreditimpairedfinancialasset?(Section16.5.1.6)
Yes
Yes
No
No
Calculateinterestrevenueongrosscarryingamount
YesNo
Calculateinterestrevenueonamortisedcost
RecogniselifetimeexpectedcreditlossesRecognise12monthexpectedcreditlosses
Stage1 Stage2 Stage3
Doesthefinancialinstrumenthavelowcreditriskatthereportingdate?
Isthefinancialinstrumentapurchasedororiginatedcreditimpairedfinancialasset?
20132016NelsonConsultingLimited 98
Chapter5.5Impairment
ScopeinRecognitionofExpectedCreditLosses InHKFRS9,notonlyfinancialassetsbutalsosomefinancialinstrumentsmayfallwithinthescopeinrecognitionofexpectedcreditlosses.
HKFRS9specificallyrequirestoanentitytorecognisealossallowanceforexpectedcreditlossesonthefollowingfinancialassets:1. Financialassetatamortisedcost;2. Financialasset(notbeinginvestmentinequityinstrument)atfairvalue
throughothercomprehensiveincome;3. Leasereceivable,4. Contractasset,or5. Loancommitmentandfinancialguaranteecontracttowhichthe
impairmentrequirementsapplyinaccordancewithHKFRS9
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Chapter5.5Impairment
TheConceptofExpectedCreditLosses ThemainchangeoftheimpairmentrequirementsinHKFRS9istheintroductionoftheexpectcreditlosstoreplacetheincurredlossmodel.
TheIASBconsideredthat,forthosefinancialassetsbeingthedebtinstruments,theeffectofchangesincreditriskaremorerelevanttoaninvestorsunderstandingofthelikelihoodofthecollectionoffuturecontractualcashflowsthantheeffectsofotherchanges,forexamplechangesinmarketinterestrates.
Theexpectedcreditlossescanbefurtherdividedintotwotypes: 12monthexpectedcreditlosses(recognisedinStage1oftheimpairment
stages);and lifetimeexpectedcreditlosses(recognisedinStage2and3ofthe
impairmentstagesandforspecificfinancialinstruments)
20132016NelsonConsultingLimited 100
Chapter5.5Impairment
ApproachinRecognitionofExpectedCreditLosses ToachievetheobjectiveandcomplytheimpairmentrequirementsinHKFRS9,anentityisrequiredtohavethefollowing3kindsofassessment:1. Assettypeassessment toassessthetypeofthefinancialassetand
determinewhetheritisa) purchaseororiginatedcreditimpairedfinancialassets;b) tradereceivables,contractassetsandleasereceivablesforwhichthe
entityappliessimplifiedapproach;orc) otherfinancialassets.
2. Creditriskassessment Toassessthecreditriskonthefinancialasset;and
3. CreditimpairedassessmentTodeterminewhetherthefinancialassetiscreditimpaired.
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20132016NelsonConsultingLimited 101
Chapter5.5Impairment
Assettypeassessment
Creditriskassessment
Creditimpairedassessment
Hastherebeenasignificantincreaseincreditrisksince
initialrecognition?
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?
Isthelowcreditrisksimplification
applied?
Isthefinancialinstrumentacreditimpairedfinancialasset?(Section16.5.1.6)
Doesthefinancialinstrumenthavelowcreditriskatthereportingdate?
Isthefinancialinstrumentapurchasedororiginatedcreditimpairedfinancialasset?
20132016NelsonConsultingLimited 102
Chapter5.5Impairment
Assettypeassessment Thefinancialinstrumentswiththescopeinrecognitionofexpectedcreditlossesbutnotfallingwithinthethreestagemodel
Beforehavingcreditriskassessment,anentityisrequiredtodirectlyrecogniselifetimeexpectedcreditlossesfortwotypesoffinancialinstruments:1. Purchaseororiginatedcreditimpairedfinancialassets;and2. Tradereceivables,contractassetsandleasereceivablesforwhichtheentity
appliessimplifiedapproach;or
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?
AssettypeassessmentNo
Isthefinancialinstrumentapurchasedororiginatedcreditimpairedfinancialasset?
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20132016NelsonConsultingLimited 103
Chapter5.5Impairment Alwaysrecognisealossallowanceforchangesinlifetimeexpectedcreditlosses,and
Calculateacreditadjustedeffectiveinterestrate
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?
Yes
Isthefinancialinstrumentapurchasedororiginatedcreditimpairedfinancialasset?
Isthefinancialinstrumentacreditimpairedfinancialasset?(Section16.5.1.6)
Yes
No
Calculateinterestrevenueongrosscarryingamount
YesNo
Calculateinterestrevenueonamortisedcost
Recogniselifetimeexpectedcreditlosses
Stage2 Stage3
20132016NelsonConsultingLimited 104
Chapter5.5Impairment
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?
Example
BonnieCorporationisamanufacturerandhasaportfoliooftradereceivablesof$30millionin2015andoperatesonlyinSingapore.Bonniesdeterminesthat: Thecustomerbaseconsistsofalargenumberofsmallclients. Thetradereceivablesarecategorisedbycommonriskcharacteristicsthatarerepresentativeofthecustomersabilitiestopayallamountsdueinaccordancewiththecontractualterms.
ThetradereceivablesdonothaveasignificantfinancingcomponentinaccordancewithHKFRS15.
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20132016NelsonConsultingLimited 105
Chapter5.5Impairment
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?
Example
InaccordancewithIFRS9,thelossallowanceforsuchtradereceivablesisalwaysmeasuredatanamountequaltolifetimetimeexpectedcreditlosses.
Todeterminetheexpectedcreditlossesfortheportfolio,Bonnieusesaprovisionmatrix.
Theprovisionmatrixisbasedonitshistoricalobserveddefaultratesovertheexpectedlifeofthetradereceivablesandisadjustedforforwardlookingestimates.
Ateveryreportingdate,thehistoricalobserveddefaultratesareupdatedandchangesintheforwardlookingestimatesareanalysed.Inthiscase,itisforecastthateconomicconditionswilldeteriorateoverthenextyear.
20132016NelsonConsultingLimited 106
Chapter5.5Impairment
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?
Example
Onthatbasis,Bonnieestimatesthefollowingprovisionmatrix:130days 3160days 6190days Over90days
Current pastdue pastdue pastdue pastdueDefaultrate 1% 3% 5% 10% 15%
Tradereceivablesfromthelargenumberofsmallcustomersamountto$30millionandaremeasuredusingtheprovisionmatrixasfollows:
Grosscarrying Default Lifetimeexpectedamount rate creditlossallowance
Current $15,000,000 1% $150,000130dayspastdue 7,500,000 3% 225,0003160dayspastdue 4,000,000 5% 200,0006190dayspastdue 2,500,000 10% 250,000Over90dayspastdue 1,000,000 15% 150,000
$30,000,000 $975,000
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20132016NelsonConsultingLimited 107
Chapter5.5Impairment
Creditriskassessment Ateachreportingdate,forallfinancialinstruments,otherthanpurchased
ororiginatedcreditimpairedfinancialassets,orfinancialassetsthatsimplificationapproachisapplied, anentityisrequiredtoassesswhetherthecreditrisk onafinancialinstrumenthasincreasedsignificantlysinceinitialrecognition.
Hastherebeenasignificantincreaseincreditrisksince
initialrecognition?
Isthelowcreditrisksimplification
applied?
Doesthefinancialinstrumenthavelowcreditriskatthereportingdate?
Creditriskassessment
20132016NelsonConsultingLimited 108
Chapter5.5Impairment
Creditriskassessment RiskofDefaultandPastDueInformation
HKFRS9incorporatestworebuttablepresumptionsinassessingsignificantincreasesincreditriskandriskofdefault:i. 30Dayspastduerebuttableresumption inrespectofsignificantincreasesincreditrisk Regardlessofthewayinwhichanentityassessessignificantincreasesin
creditrisk,thereisarebuttablepresumptionthatthecreditrisk onafinancialassethasincreasedsignificantlysinceinitialrecognition whencontractualpaymentsaremorethan30dayspastdue(HKFRS9.5.5.11).
ii. 90Dayspastduerebuttableresumption inrespectofdefaultoccurred Indefiningdefault,thereisarebuttablepresumptionthatdefaultdoesnot
occurlaterthanwhenafinancialassetis90dayspastdue unlessanentityhasreasonableandsupportableinformationtodemonstratethatamorelaggingdefaultcriterionismoreappropriate.
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20132016NelsonConsultingLimited 109
Chapter5.5Impairment
Creditimpairedassessment thedeterminationoffinancialinstrumentsbeingcreditimpaired, InHKFRS9,afterassessingcreditriskandascertainingpastdueinformation,anentityhastodeterminewhetherthefinancialinstrumentiscreditimpaired.
Isthefinancialinstrumentacreditimpairedfinancialasset?(Section16.5.1.6)
Creditimpairedassessment
20132016NelsonConsultingLimited 110
Chapter5.5Impairment
ThreeStageModel ByapplyingsuchimpairmentapproachinHKFRS9toafinancialinstrumentandbasedontheresultofcreditriskassessment,anentitymay,asexplainedbytheIASB,dividetheimpairmentrequirementsintothreeimpairmentstages:Stage1 Performingfinancialinstrumentstage;Stage2 Underperformingfinancialinstrumentstage;andStage3 Nonperformingfinancialinstrumentstage.
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20132016NelsonConsultingLimited 111
Stage1 Performing Stage2 Underperforming Stage3 NonPerformingIncrease in credit risk since initial recognition
Impairmentrecognition
Interestrevenue
12monthexpectedcreditlosses
Effectiveinterestongrosscarryingamount
Lifetimeexpectedcreditlosses
Effectiveinterestonamortisedcost
AdaptedfromProjectSummaryofIFSR9(July2014)
Assettypeassessment
Creditriskassessment
Creditimpairedassessment
Otherfinancialassetsonly
Creditimpaired
Significantincreaseincreditrisk
Otherfinancialassetsandthosesimplificationapproachapplied
Notcreditimpaired
Nosignificantincreasein(orlow)creditrisk
Chapter5.5Impairment
20132016NelsonConsultingLimited 112
Chapter5.5Impairment Alwaysrecognisealossallowanceforchangesinlifetimeexpectedcreditlosses,and
Calculateacreditadjustedeffectiveinterestrate
Calculateinterestrevenueongrosscarryingamount
Hastherebeenasignificantincreaseincreditrisksince
initialrecognition?
No
Issimplifiedapproachfortradereceivables,contractassetsandlease
receivablesapplicable?No
Yes
No
Isthelowcreditrisksimplification
applied?
Yes
Yes
Isthefinancialinstrumentacreditimpairedfinancialasset?(Section16.5.1.6)
Yes
Yes
No
No
Calculateinterestrevenueongrosscarryingamount
YesNo
Calculateinterestrevenueonamortisedcost
RecogniselifetimeexpectedcreditlossesRecognise12monthexpectedcreditlosses
Stage1 Stage2 Stage3
Doesthefinancialinstrumenthavelowcreditriskatthereportingdate?
Isthefinancialinstrumentapurchasedororiginatedcreditimpairedfinancialasset?
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TodaysAgenda
HKFRS15RevenuefromContractswithCustomers
20132016NelsonConsultingLimited 114
HKFRS15Issuedin2014
HKFRS15establishesacomprehensiveframeworkfordetermining when torecogniserevenueand howmuch revenuetorecognise.
Thecoreprincipleisthatanentityrecognisesrevenue todepictthetransferofpromisedgoodsorservicestocustomers inanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices
UnderHKFRS15,anentityappliesa5stepapproach inrecognisingrevenue
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
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20132016NelsonConsultingLimited 115
HKFRS15Issuedin2014
EffectiveDate AnentityshallapplyHKFRS15forannualreportingperiodsbeginningonorafter1January2017 2018.(HKICPAUpdateNo.174)
Earlierapplicationispermitted. IfanentityappliesHKFRS15,itshalldisclosethatfact.
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
20132016NelsonConsultingLimited 116
HKFRS15Issuedin2014
HKFRS15supersedesthefollowingStandards:a. HKAS11ConstructionContractsb. HKAS18Revenuec. HK(IFRIC)Int 13CustomerLoyaltyProgrammesd. HK(IFRIC)Int 15Agreementsforthe
ConstructionofRealEstatee. HK(IFRIC)Int 18TransfersofAssetsfromCustomersf. HK(SIC)Int 31Revenue BarterTransactions
InvolvingAdvertisingServices
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
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20132016NelsonConsultingLimited 117
ContentsinHKFRS15Issuedin2014
A. ObjectiveB. ScopeC. Recognition
Identifyingthecontract(Step1) Identifyingperformanceobligations(Step2) Satisfactionofperformanceobligations(Step5)
D. Measurement Determiningthetransactionprice(Step4) Allocatingthetransactionpricetoperformanceobligations(Step5)
E. ContractcostsF. PresentationG. Disclosure
Todays update
20132016NelsonConsultingLimited 118
BriefSummaryofChangesExistingPractice HKFRS15 UsingIAS11 and 18,IFRIC Int.13,
15,and18,andSIC31 UsingHKFRS15,onestandardonly
Inconsistentanddiversifiedpractices
Single andunified5step revenuerecognitionmodel
Riskandrewardapproachinsatisfying recognition
Controlapproachinsatisfying theperformanceobligation
Limitedguidanceon multipleelementarrangements,variableconsideration,licencesandetc.
Moreguidance onseparatingelements,allocatingthetransactionprice,licences,andetc.
Newestimatesandjudgementsrequired
Newsetofdisclosurerequirements
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20132016NelsonConsultingLimited 119
Step1:IdentifytheContract(s)Step5:
Recogniserevenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
Step1:IdentifyingtheContract(s) Acontractisanagreementbetweentwoormorepartiesthatcreates
enforceablerightsandobligations. TherequirementsofHKFRS15applytoeachcontract thathasbeenagreed
uponwithacustomerandmeetsspecifiedcriteria. Insomecases,HKFRS15requiresanentitytocombinecontracts and
accountforthemasonecontract. HKFRS15alsoprovidesrequirementsfortheaccountingforcontract
modifications.(HKFRS15.IN7)
20132016NelsonConsultingLimited 120
Step1:IdentifytheContract(s)
Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenallofthefollowingcriteria(i.e.contractcriteria)aremet:a. thepartiestothecontracthaveapprovedthecontract (inwriting,orally
orinaccordancewithothercustomarybusinesspractices)andarecommittedtoperformtheirrespectiveobligations;
b. theentitycanidentifyeachpartysrights regardingthegoodsorservicestobetransferred;
c. theentitycanidentifythepaymentterms forthegoodsorservicestobetransferred;
d. thecontracthascommercialsubstance(i.e.therisk,timingoramountoftheentitysfuturecashflowsisexpectedtochangeasaresultofthecontract);and
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Step1:IdentifytheContract(s)
Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenall ofthefollowingcriteria(i.e.contractcriteria)aremet:e. itisprobable thattheentitywillcollecttheconsideration towhichitwill
beentitledinexchangeforthegoodsorservicesthatwillbetransferredtothecustomer. Inevaluatingwhethercollectabilityofanamountofconsiderationis
probable,anentityshallconsideronlythecustomersabilityandintentiontopay thatamountofconsiderationwhenitisdue.
Theamountofconsiderationtowhichtheentitywillbeentitledmaybelessthanthepricestatedinthecontractiftheconsiderationisvariablebecausetheentitymayofferthecustomerapriceconcession(seeHKFRS15.52)(HKFRS15.9)
20132016NelsonConsultingLimited 122
Step2:IdentifyPerformanceObligations
Step2:IdentifyingthePerformanceObligationsintheContract Acontractincludespromisestotransfergoodsorservicestoacustomer. Ifthosegoodsorservicesaredistinct,thepromises
areperformanceobligations andareaccountedforseparately Agoodorserviceisdistinct if
thecustomercanbenefit fromthegoodorserviceonitsownortogetherwithotherresourcesthatarereadilyavailabletothecustomerand
theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiable fromotherpromisesinthecontract.(HKFRS15.IN7)
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
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20132016NelsonConsultingLimited 123
Step2:IdentifyPerformanceObligations
Atcontractinception,anentityshall assessthegoodsorservicespromised inacontractwithacustomer,and identifyasaperformanceobligation eachpromisetotransfer tothe
customereither:a. agoodorservice (orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservices thataresubstantiallythesame
andthathavethesamepatternoftransfertothecustomer(seeHKFRS15.23)(HKFRS15.22)
PerformanceobligationsHKFRS15definesperformanceobligation as:Apromiseinacontractwithacustomertotransfertothecustomereither:
a. agoodorservice(orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservicesthataresubstantiallythesame
andthathavethesamepatternoftransfertothecustomer.
20132016NelsonConsultingLimited 124
Step2:IdentifyPerformanceObligations
Agoodorservicethatispromisedtoacustomerisdistinct ifbothofthefollowingcriteriaaremet:a. thecustomercanbenefitfromthegoodorservice eitheronitsownor
togetherwithotherresourcesthatarereadilyavailabletothecustomer(i.e.thegoodorserviceiscapableofbeingdistinct);and
b. theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiablefromotherpromises inthecontract(i.e.thegoodorserviceisdistinctwithinthecontextofthecontract).(HKFRS15.27)
Performanceobligations
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20132016NelsonConsultingLimited 125
ExistingPracticevsHKFRS15ExistingPractice HKFRS15IncidentalObligationsandSalesIncentives(seemorein Step 2) Somecompaniesmaynotseparately
recogniserevenue forthetransfertothecustomerofgoodsorservicesthatsomeconsidertobesalesincentives orotherwiseincidentalorancillarytotheotherpromisedgoodsorservicesinthecontract.
Thatpracticeresultsinacompanyrecognisingallofthetransactionprice asrevenue eventhoughithasremainingperformanceobligationstosatisfy.
Thissometimesoccursintheautomotiveindustrywhenamanufacturersellsacaralongwithanincentivesuchasmaintenancethatwillbeprovidedatalaterdate.
Acompanywillassess whetherthepromisedgoodsorservicesarisingfromincidentalobligationsandsalesincentivesaregoodsorservicesthataredistinct.
Ifthegoodsorservicesaredistinct,thecompanywillrecogniserevenuewhen(oras)eachdistinctgoodorserviceistransferredtothecustomer.
AdaptedfromtheIASBsProjectSummaryissuedinMay2014
20132016NelsonConsultingLimited 126
ExistingPracticevsHKFRS15
Sourcefromhttp://www.teslamotors.com/en_HK/
CaseCase
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20132016NelsonConsultingLimited 127
Step3:DetermineTransactionPrice
Step3:DeterminingtheTransactionPrices Thetransactionprice
istheamountofconsiderationinacontracttowhichanentityexpectstobeentitled inexchangefortransferringpromisedgoodsorservicestoacustomer
canbeafixedamountofcustomerconsideration,butitmaysometimesinclude variableconsiderationor considerationinaformotherthancash
isalsoadjustedfortheeffectsofthetimevalueofmoney ifthecontractincludesasignificantfinancingcomponentandforanyconsiderationpayabletothecustomer.(HKFRS15.IN7)
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
20132016NelsonConsultingLimited 128
Step3:DetermineTransactionPrice
Step3:DeterminingtheTransactionPrices Iftheconsiderationisvariable,anentityestimates theamountof
considerationtowhichitwillbeentitledinexchangeforthepromisedgoodsorservices.
Theestimatedamountofvariableconsiderationwillbeincludedinthetransactionprice onlytotheextentthatitishighlyprobable thatasignificantreversal inthe
amountofcumulativerevenuerecognisedwillnotoccur whentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.(HKFRS15.IN7)
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
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20132016NelsonConsultingLimited 129
Step3:DetermineTransactionPrice
Thenature,timing andamount ofconsiderationpromisedbyacustomeraffecttheestimateofthetransactionprice.
Whendeterminingthetransactionprice,anentityshallconsidertheeffectsofallofthefollowing:a. variableconsideration (seeHKFRS15.5055and59);b. constrainingestimates ofvariableconsideration
(seeHKFRS15.5658);c. theexistenceofasignificantfinancingcomponent
inthecontract(seeHKFRS15.6065);d. noncashconsideration (seeHKFRS15.6669);ande. considerationpayabletoacustomer
(seeHKFRS15.7072).(HKFRS15.48)
VariableConsideration
ConstrainingEstimatesofVariableCon.
SignificantFinancingComponentNoncash
ConsiderationConsiderationPayable
toCustomer
20132016NelsonConsultingLimited 130
Step3:DetermineTransactionPrice Anentityshallestimate anamountofvariableconsiderationbyusingeither
ofthefollowingmethods,dependingonwhichmethodtheentityexpectstobetterpredicttheamountofconsideration towhichitwillbeentitled:a. Theexpectedvalue theexpectedvalueisthesumofprobability
weightedamounts inarangeofpossibleconsiderationamounts. Anexpectedvaluemaybeanappropriateestimateoftheamountof
variableconsiderationifanentityhasalargeno.ofcontractswithsimilarcharacteristics.
b. Themostlikelyamount themostlikelyamountisthesinglemostlikelyamountinarangeofpossibleconsiderationamounts (i.e.thesinglemostlikelyoutcomeofthecontract). Themostlikelyamountmaybeanappropriate
estimateoftheamountofvariableconsiderationifthecontracthasonlytwopossibleoutcomes (e.g.anentityeitherachievesaperformancebonusordoesnot).(HKFRS15.53)
VariableConsideration
ExpectedValue
MostLikelyAmount
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20132016NelsonConsultingLimited 131
ExistingPracticevsHKFRS15ExistingPractice HKFRS15EstimatesofVariableConsideration(seemoreinStep 3) Revenuerequirementsdonotinclude
detailedguidance formeasuringtheamountofrevenuethatshouldberecognisedwhentheconsiderationisvariable
Iftheconsiderationpromisedbyacustomerisvariable,acompanywillestimateit usingeithertheexpectedvalueorthemostlikelyamount,dependingonwhichamountbetterpredictstheamountofconsiderationtowhichthecompanywillbeentitled.
Someoralloftheestimatedamountofvariableconsiderationisincludedinthetransactionpriceonlytotheextentthatitishighlyprobablethatasignificantreversalintheamountofcumulativerevenuerecognisedwillnotoccurwhentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.
AdaptedfromtheIASBsProjectSummaryissuedinMay2014
20132016NelsonConsultingLimited 132
ExistingPracticevsHKFRS15ExistingPractice HKFRS15SignificantFinancingComponents(see moreonStep 3) Ifacustomerpaysforgoodsorservices
inadvanceorinarrears,somecompaniesmaynotconsidertheeffectsofanyfinancingcomponents inthecontractwhendeterminingtheamountofrevenuetoberecognised.
Acompanyisrequiredtoconsidertheeffectsofanysignificantfinancingcomponents inthedeterminationofthetransactionprice(andthustheamountofrevenuerecognised).
Thismayaffectlongtermcontracts inwhichpaymentbythecustomerandperformancebythecompanyoccuratsignificantlydifferenttimes.
AdaptedfromtheIASBsProjectSummaryissuedinMay2014
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20132016NelsonConsultingLimited 133
Step4:AllocateTransactionPricetoPO
Step4:AllocatingtheTransactionPricetoPerformanceObligations Anentitytypicallyallocatesthetransactionpricetoeachperformance
obligationonthebasisoftherelativestandalonesellingpricesofeachdistinctgoodorservicepromised inthecontract. Ifastandalonesellingpriceisnotobservable,anentityestimatesit.
HKFRS15specifywhen anentityallocatesthediscountorvariableconsiderationtooneormore,butnotall,performanceobligations (ordistinctgoodsorservices)inthecontract.(HKFRS15.IN7)
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
20132016NelsonConsultingLimited 134
Step4:AllocateTransactionPricetoPO
Theobjectivewhenallocatingthetransactionprice is foranentitytoallocatethetransactionpriceto
eachperformanceobligation (ordistinctgoodorservice)inanamountthatdepictstheamountofconsideration towhichtheentityexpectstobeentitledinexchangefortransferringthepromisedgoodsorservicestothecustomer.(HKFRS15.73)
BasedonStandaloneSellingPrice(SASP)Allocationofa
DiscountAllocationofVariable
Consideration
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20132016NelsonConsultingLimited 135
Step4:AllocateTransactionPricetoPO
Tomeettheallocationobjective,anentityshallallocatethetransactionpricetoeachperformanceobligationidentifiedinthecontractonarelativestandalonesellingpricebasis inaccordancewithHKFRS15.7680,exceptasspecifiedin HKFRS15.8183(forallocatingdiscounts)and HKFRS15.8486(forallocating
considerationthatincludesvariableamounts).(HKFRS15.74)
BasedonStandaloneSellingPrice(SASP)Allocationofa
DiscountAllocationofVariable
Consideration
20132016NelsonConsultingLimited 136
Step4:AllocateTransactionPricetoPO
SuitablemethodsforestimatingSASPofagoodorserviceinclude(notlimitedto):a. Adjustedmarketassessmentapproachb. Expectedcostplusamarginapproachc. Residualapproachd. Combinationoftheabove
BasedonStandaloneSellingPrice(SASP)
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20132016NelsonConsultingLimited 137
ExistingPracticevsHKFRS15ExistingPractice HKFRS15ContingentRevenueCap(seemoreinStep 4) Somepracticesforallocatingthe
transactionpricelimittheamountofconsiderationallocatedtoasatisfiedperformanceobligation totheamountthatisnotcontingentonthesatisfactionofperformanceobligationsinthefuture.
Thatpracticeiscommonlyusedtoaccountfortelecommunicationscontracts thatbundlethesaleofamobilephonewiththeprovisionofnetworkservicesforaspecifiedperiod(oftenforoneortwoyears).
HKFRS15doesnotpermit thetransactionpricetobeallocatedtoperformanceobligationsonabasisthatisconsistentwiththecontingentrevenuecap.
Instead,HKFRS15requiresacompanytoallocatethetransactionpricewhichwouldbeanyamountthatthecustomerpaysonenteringintothecontractandthemonthlypaymentsforthenetworkservicestothemobilephoneandthenetworkservicesonthebasisoftherelativestandalonesellingpricesofeachitem.
AdaptedfromtheIASBsProjectSummaryissuedinMay2014
20132016NelsonConsultingLimited 138
ExistingPracticevsHKFRS15ExistingPractice HKFRS15NoObservableSellingPrice(seemore inStep4) Forsomecontracts,revenue
requirementsprecludeacompanyfromrecognisingrevenue onthetransferofagoodorservicetoacustomerifthereisnoobservableevidenceofthestandalonesellingprices ofeachofthegoodsorservicespromisedinthecontract.
Thisoftenresultsinthedeferralofrevenuerecognition becauserevenuecouldnotberecognisedwhenthefirstofthepromisedgoodsorservicestransferstothecustomer.
Thisregularlyoccursinthesoftwareindustry whenobservablepricesarenotavailableforupgradesandadditionalfunctionalityforcomputersoftware.
Ifobservablepricesofthepromisedgoodsorservicesarenotavailable,acompanywouldallocatethetransactionpriceonthebasisofestimatedstandalonesellingpricesofthosegoodsorservices.
Thecompanywillrecogniserevenueaseachdistinctgoodorserviceistransferredtothecustomer.
AdaptedfromtheIASBsProjectSummaryissuedinMay2014
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20132016NelsonConsultingLimited 139
ExistingPracticevsHKFRS15
Sourcefromhttp://www.teslamotors.com/en_HK/
CaseCase
20132016NelsonConsultingLimited 140
Step5:SatisfyPerformanceObligations
Step5:Satisfactionofperformanceobligations Aanentityrecognisesrevenuewhen(oras)itsatisfiesaperformance
obligation bytransferringapromisedgoodorservicetoacustomer whichiswhenthecustomerobtainscontrolofthatgoodorservice.
Theamountofrevenuerecognisedistheamountallocatedtothesatisfiedperformanceobligation.(HKFRS15.IN7)
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
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20132016NelsonConsultingLimited 141
Step5:SatisfyPerformanceObligations
Step5:Satisfactionofperformanceobligations Aperformanceobligationmaybesatisfied
atapointintime (typicallyforpromisestotransfergoodstoacustomer)or
overtime (typicallyforpromisestotransferservicestoacustomer). Forperformanceobligationssatisfiedovertime,anentityrecognises
revenueovertimebyselectinganappropriatemethodformeasuringtheentitysprogress towardscompletesatisfactionofthatperformanceobligation.(HKFRS15.IN7)
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
20132016NelsonConsultingLimited 142
Step5:SatisfyPerformanceObligations
Anentityshallrecogniserevenue when(oras)theentitysatisfiesaperformanceobligation bytransferring a
promisedgoodorservice (i.e.anasset)toacustomer.
Anassetistransferred when(oras)thecustomerobtainscontrol ofthatasset(HKFRS15.31)
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20132016NelsonConsultingLimited 143
Step5:SatisfyPerformanceObligations
ForeachperformanceobligationidentifiedinaccordancewithHKFRS15.2230, anentityshalldetermineatcontractinception whetherit
satisfiestheperformanceobligationovertime(inaccordancewithHKFRS15.3537)or
satisfiestheperformanceobligationatapointintime (inaccordancewithHKFRS15.38). Ifanentitydoesnotsatisfyaperformanceobligationovertime,theperformanceobligationissatisfiedatapointintime.(HKFRS15.32)
OverTime
AtaPointinTime
20132016NelsonConsultingLimited 144
Step5:SatisfyPerformanceObligations
Goodsandservicesareassets,evenifonlymomentarily,whentheyarereceivedandused(asinthecaseofmanyservices).
Control ofanasset referstotheabilitytodirect theuseof,andobtain
substantiallyalloftheremainingbenefits from,theasset.
includestheabilitytopreventotherentitiesfromdirecting theuseof,andobtainingthebenefitsfrom,anasset.
Whenevaluatingwhetheracustomerobtainscontrolofanasset, anentityshallconsideranyagreement
torepurchasetheasset (seeHKFRS15.B64B76).(HKFRS15.33)
OverTime
AtaPointinTime
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20132016NelsonConsultingLimited 145
Step5:SatisfyPerformanceObligations
Anentitytransferscontrol ofagoodorserviceovertime and,therefore,satisfiesaperformanceobligationandrecognisesrevenueovertime,ifoneofthefollowingcriteriaismet:a. thecustomersimultaneouslyreceivesandconsumes
thebenefits providedbytheentitysperformanceastheentityperforms(seeHKFRS15.B3B4);
b. theentitysperformancecreatesorenhancesanasset (e.g.workinprogress)thatthecustomercontrols astheassetiscreatedorenhanced(seeHKFRS15.B5);or
c. theentitysperformancedoesnotcreateanassetwithanalternativeusetotheentity (seeHKFRS15.36)andtheentityhasanenforceablerighttopaymentforperformancecompletedtodate (seeHKFRS15.37).(HKFRS15.35)
OverTime
20132016NelsonConsultingLimited 146
Step5:SatisfyPerformanceObligations
No
No
Doesthecustomerreceiveandconsumethebenefitsprovidedbytheentityastheentityperforms?
Doesthecustomercontroltheassetbeingcreatedorenhancedbytheentity?
Doestheentitysperformancecreateanassetwithanalternativeusetotheentity?
Yes
Performanceobligationssatisfiedatapointintime
Performanceobligationsatisfiedovertime
Doestheentityhaveanenforceablerighttopaymentforperformancecompletedtodate?
No
Yes
YesNo
Yes
Measuringprogresstowardscompletesatisfactionofthatperformance
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20132016NelsonConsultingLimited 147
Step5:SatisfyPerformanceObligations
MethodsforMeasuringProgress Appropriatemethodsofmeasuringprogressinclude
outputmethods andinputmethods (HKFRS15.B14B19provideguidance)
Indeterminingtheappropriatemethodformeasuringprogress,anentityshallconsiderthenatureofthegoodorservice thattheentitypromisedtotransfertothecustomer.(HKFRS15.41)
Whenapplyingamethodformeasuringprogress,anentityshallexcludefromthemeasureofprogress anygoodsorservicesforwhichtheentitydoesnottransfercontroltoacustomer.
Conversely,anentityshallincludeinthemeasureofprogress anygoodsorservicesforwhichtheentitydoestransfercontroltoacustomer whensatisfyingthatperformanceobligation.(HKFRS15.42)
OverTime
MeasuringProgress
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Step5:SatisfyPerformanceObligations
Ifaperformanceobligationisnotsatisfiedovertime inaccordancewithHKFRS15.3537,anentitysatisfiestheperformanceobligationatapointintime.
Todeterminethepointintimeatwhichacustomerobtainscontrol ofapromisedassetandtheentitysatisfiesaperformanceobligation, theentityshallconsidertherequirementsfor
control inHKFRS15.3134.(HKFRS15.38)
AtaPointinTime
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75
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Step5:SatisfyPerformanceObligations
Inaddition,anentityshallconsiderindicatorsofthetransferofcontrol,whichinclude,butarenotlimitedto,thefollowing:a. Theentityhasapresentrighttopayment fortheassetb. Thecustomerhaslegaltitletotheassetc. Theentityhastransferredphysicalpossession oftheassetd. Thecustomerhasthesignificantrisksand
rewardsofownership oftheassete. Thecustomerhasacceptedtheasset
AtaPointinTime
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C.RecognitionandD.Measurement
When(oras)aperformanceobligationissatisfied, anentityshallrecogniseasrevenue
theamountofthetransactionprice (whichexcludesestimatesofvariableconsiderationthatareconstrained inaccordancewithHKFRS15.5658)thatisallocatedtothatperformanceobligation.(HKFRS15.46)
Step5:Recognise
revenuewhenorasperformanceobligationissatisfied
Step4:Allocatethetransaction
price
Step3:Determine
thetransaction
price
Step2:Identifytheperformanceobligations
Step1:Identifythe
contractwithacustomer
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76
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ExistingPracticevsHKFRS15ExistingPractice HKFRS15Timingof RevenueRecognition(seemoreinStep5) Becauseofalackofclearand
comprehensiveguidance,thereissomediversityinpractice indeterminingwhetheracompanyshouldrecogniserevenueforsomegoodsorservicesatapointintimeorovertime.
Somecompaniessellingresidentialrealestateinmultiunitdevelopments havedifficultydeterminingwhethertheconstructionofsuchassetsis aservicethatisprovidedovertime(revenueisrecognisedovertime)or
agoodthatistransferredtothecustomerwhenconstructioniscomplete(revenueisrecognisedatthatpointintime)
AcompanywillbeabletorecogniserevenueovertimeonlyifthecriteriaspecifiedinHKFRS15aremet.