SME-FRS, HKFRS for Private Entities or Full HKFRS? Choosing a Reporting Framework in Hong Kong

By Di Ma, Project Manager 27 OCT 2026 · 5 MIN READ

Every Hong Kong company prepares annual financial statements, and every set is prepared under a financial reporting framework: the rulebook that decides what goes in, how it's measured and what's disclosed. For private companies there are three to choose from, and the choice affects how much year-end work the accounts take.

The three frameworks

Hong Kong's three financial reporting frameworks for companies, in brief
Framework	Who can use it	What it's like
SME-FRF & SME-FRSHKICPA's small-entity framework	Companies that fall within the Companies Ordinance's reporting exemption	Cost-based and the simplest: generally no fair values and no deferred tax; a cash flow statement isn't required
HKFRS for Private Entitiesbased on the IFRS for SMEs	Entities without public accountability	A simplified version of full standards; revised edition effective for years from 1 January 2027
Full HKFRSequivalent to IFRS	Anyone; required where neither of the others is available	The complete standards, including fair values, deferred tax and leases on the balance sheet

All three are issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). Which ones your company may use depends first on the Companies Ordinance.

The reporting exemption

The SME-FRS is available to companies that fall within the reporting exemption in section 359 of the Companies Ordinance (Cap. 622). For a single private company, there are three routes in:

Small private company: it meets the size tests below for a small private company.
Any private company with all members agreeing: a private company with no subsidiary, that isn't itself a subsidiary, qualifies for a year if all members agree in writing, whatever its size.
Eligible private company: a larger private company meeting the eligible-company size tests qualifies if members holding at least 75% of the votes pass a resolution and no member votes against (section 360).

Size tests in Schedule 3 of the Companies Ordinance: a company must meet any 2 of the 3
Test	Small private company	Eligible private company
Total revenue	up to HK$100 million	up to HK$200 million
Total assets	up to HK$100 million	up to HK$200 million
Average employees	up to 100	up to 100
Members' approval	not needed	members with at least 75% of the votes, and none against

After a company's first financial year, it generally has to meet the tests for two consecutive years to qualify, and loses the status only after failing them for two consecutive years (sections 361 and 362). Groups have their own tests.

Some companies can't use the exemption at all, whatever their size: banks, corporations licensed by the SFC for regulated activities, insurers (other than those acting solely as agents) and companies that take deposits by way of business (section 359(4)).

What changes inside the exemption

No "true and fair" requirement. Financial statements of a company within the reporting exemption don't have to give a true and fair view (section 380(7)). The auditor reports instead on whether they've been properly prepared in compliance with the Ordinance (section 406).
A simpler standard. The SME-FRS is cost-based: assets are generally carried at cost rather than fair value, deferred tax isn't recognised, and a cash flow statement isn't required.

HKFRS for Private Entities

For companies without public accountability that can't, or don't want to, use the SME-FRS, HKFRS for Private Entities is a simplified version of the full standards, based on the international IFRS for SMEs. The HKICPA issued a revised edition in April 2025, equivalent to the third edition of the IFRS for SMEs. It's effective for annual periods beginning on or after 1 January 2027, with early application permitted (HKICPA, A Plus). The changes touch most sections, notably revenue from contracts with customers and financial instruments disclosures. Leases are still not brought onto the balance sheet as they are under full HKFRS.

A company with a 31 December year end reporting under HKFRS for Private Entities first applies the revised edition to the year beginning 1 January 2027. The change is retrospective, so the comparative figures for 2026 are affected too. That's worth discussing with your auditor during 2026.

Full HKFRS

Full HKFRS is equivalent to IFRS Accounting Standards and is the framework for entities with public accountability. A private company can choose it too, for example because a parent, an investor or a lender asks for IFRS-standard accounts. It's the most demanding: fair values, deferred tax, leases on the balance sheet and fuller disclosures.

How to choose

Who reads your accounts? If only the shareholders and the IRD do, the SME-FRS is often enough. A bank, an investor or an overseas parent may ask for HKFRS for Private Entities or full HKFRS.
Are you in a group? A subsidiary of a foreign group often reports under the group's framework for consolidation.
Are you growing? A company approaching the size limits may be better off moving early than switching in a hurry.
What does it cost? Simpler frameworks mean fewer year-end adjustments and shorter notes, and often a lighter audit.

Changing frameworks means restating the comparatives, so decide with your auditor before the year starts, not at the audit.

Where the framework shows up elsewhere

The profits tax return. If you e-file, the IRD's iXBRL Template Tool has an HKFRS for Private Entities template that also covers SME-FRF & SME-FRS (see filing in iXBRL on a Mac).
The audit. The auditor's report states the framework and the type of opinion (see what your auditor will ask for).

How Certanta helps

The same books underneath. The framework changes the year-end adjustments and the presentation, not the day-to-day bookkeeping. Books kept current, reconciled and documented all year work under any of the three.
Accrual books all year, so the year end starts from complete figures (see accrual vs cash and month-end adjustments).
The schedules your auditor needs, from the trial balance to the documents behind each line.

The Certanta client portal, income statement for the fictional demo company Harbourfront Trading Ltd from 1 January to 31 August 2026: sales, cost of goods sold, gross profit, expenses and profit for the period, with PDF, Excel and management-pack downloads. — The demo company's income statement in the Certanta portal: the figures your financial statements start from, whichever framework they're prepared under.

Frequently asked questions

What is the difference between SME-FRS and HKFRS?

The SME-FRS is the HKICPA's simplified, cost-based framework for companies within the Companies Ordinance's reporting exemption: generally no fair values, no deferred tax and no required cash flow statement. HKFRS for Private Entities is a simplified version of full standards for entities without public accountability. Full HKFRS is equivalent to IFRS and the most demanding.

Which companies can use SME-FRS in Hong Kong?

Companies within the reporting exemption in section 359 of the Companies Ordinance. That includes small private companies meeting any 2 of 3 tests (revenue up to HK$100 million, total assets up to HK$100 million, up to 100 employees), any private company without subsidiaries that is not a subsidiary if all members agree in writing, and eligible private companies (tests of HK$200 million, HK$200 million and 100 employees) with a 75% members' resolution and no member voting against. Banks, SFC-licensed corporations, insurers and deposit-taking businesses are excluded.

Do SME-FRS financial statements give a true and fair view?

They are not required to. Under section 380(7) of the Companies Ordinance the true and fair requirement does not apply to a company within the reporting exemption; the auditor reports on whether the statements are properly prepared in compliance with the Ordinance (section 406).

When does the revised HKFRS for Private Entities take effect?

For annual periods beginning on or after 1 January 2027, with early application permitted. The HKICPA issued it in April 2025, equivalent to the third edition of the IFRS for SMEs Accounting Standard. It applies retrospectively, so comparative figures are affected too.

Can a small company choose full HKFRS?

Yes. A company that qualifies for the simpler frameworks can still choose HKFRS for Private Entities or full HKFRS, for example because a bank, an investor or a parent company asks for it.

Can I change reporting framework?

Yes, but the comparative figures have to be restated on the new basis, so plan the change with your auditor before the financial year begins.

Books that work under any framework

Whichever framework your company reports under, the year end starts from the same place: books kept current, reconciled and documented all year.

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This article summarises the Companies Ordinance (Cap. 622) as published on e-Legislation and the HKICPA's published material, as at 27 October 2026. It is general information, not accounting, audit or legal advice. Which framework your company can and should use depends on its facts; decide it with your auditor.