Hong Kong Accounting Standard 1 (Revised)

The Hong Kong Institute of Certified Public Accountants (“HKICPA”) issued a revised HKAS 1 Presentation of Financial Statements in December 2007. The revision is aimed at improving the presentation of financial statements for users to analyse and compare the financial information by exclusion of changes not arising from transactions with owners in their capacity as owners from the statement of changes in equity. The revised standard will come into effect for the annual periods beginning on or after 1 January 2009, but early adoption is permitted.

Change in terminology

The term “equity holders” is replaced by “owners”. Owners are defined as “holders of instruments classified as equity”.

In addition, the titles “balance sheet” and “cash flow statement” are changed to “statement of financial position” and “statement of cash flows”. The new titles reflect more closely the function of those statements. However, these new titles are not mandatory for use in financial statements.

Statement of changes in equity and statement of comprehensive income

 HKAS 1 (Revised) requires that changes in equity of an entity during a period are separated into two categories:

1.   Non-owner changes in equity – represent all other changes in equity that are also the items of income and expenses recognised during a period; and

2.   Owner changes in equity – represent changes arising from transactions with owners in their capacity as owners.

The non-owner changes in equity during a period are further separated into two categories:

1.   Components of “profit or loss”; and

2.   Components of “other comprehensive income”.

The components of other comprehensive income include:

1.   Changes in revaluation surplus (under HKAS 16 Property, Plant and Equipment and HKAS 38 Intangible Assets);

2.   Actuarial gains and losses on defined benefit plans recognized in accordance with paragraph 93A of HKAS 19 Employee Benefits;

3.   Gains and losses arising from translating the financial statements of a foreign operation (under HKAS 21 The Effects of Changes in Foreign Exchange Rates);

4.   Gains and losses on re-measuring available-for-sale financial assets (under HKAS 39 Financial Instruments: Recognition and Measurement); and

5.   The effect portion of gains and losses on hedging instruments in a cash flow hedge (under HKAS 39).

HKAS 1 (Revised) requires an entity to present non-owner changes in equity in a period in the statement of comprehensive income by using either:

1.   Single statement approach – present all items of income and expense recognised in a period in a single statement of comprehensive income, or

2.   Two-statement approach – present all items of income and expense recognised in a period in 2 statements:

(i)         a statement displaying components of profit or loss (i.e. a separate income statement) and

(ii)         a second statement

-      beginning with profit or loss and

-      displaying components of other comprehensive income (i.e. a statement of comprehensive income)

All owner changes in equity are presented separately from non-owner changes in equity in a statement of changes in equity.

HKAS 1 (Revised) prohibits presenting components of comprehensive income in the “statement of changes in equity”.

Statement of financial position

HKAS 1 (Revised) requires an entity to present a statement of financial position as at the beginning of the earliest comparative period whenever an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in the financial statements or when the entity reclassifies items in the financial statements.

In those limited circumstances, an entity is required to present, as a minimum, three statements of financial position (and related notes), i.e. as at:

(a)     the end of the current period;

(b)     the end of the previous period (which is the same as the beginning of the current period);and

(c)     the beginning of the earliest comparative period.

Other comprehensive income – reclassification and related tax effect

HKAS 1 (Revised) requires an entity to disclose reclassification adjustments relating to components of other comprehensive income. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in previous periods. Entities may choose to present reclassification adjustments in the statement of comprehensive income or in the notes.

HKAS 1 (Revised) also requires an entity to disclose income tax relating to each component of other comprehensive income, as these components often have tax rates different from those applied to profit or loss.

Presentation of dividends

HKAS 1 (Revised) requires dividends and related amounts per share are disclosed either on the face of the statement of changes in equity or in the notes. The presentation of such disclosures in the statement of comprehensive income is not permitted. 

Disclaimer:

The publication contains information in summary form and is therefore intended for general guidance only.  This publication is not intended as legal, accounting or other professional advice and should not be relied upon as such.  If legal, accounting or other professional advice or expert assistance is required, the services of a competent professional should be sought.  Neither Reanda Lau & Au Yeung Limited nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication.

For details, please refer to HKICPA website:
http://app1.hkicpa.org.hk/professionaltechnical/financial/HKICPAStaffSummaryofHKAS1.pdf