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2 SME-FRS disclosure and presentation checklist

3 SME-FRS DISCLOSURE AND PRESENTATION CHECKLIST OBJECTIVE: This checklist is intended as an aid in ensuring that the entity: 1. is eligible to apply the Small and Medium-sized Entity Financial Reporting Framework (SME-FRF) and Financial Reporting Standard (SME-FRS) issued by the Council of the Hong Kong Institute of Certified Public Accountants (HKICPA), and 2. complies with the disclosure and presentation requirements of the SME-FRS. This checklist does not address the recognition and measurement requirements of the SME-FRS. We have to ascertain that we have used the following assertions to consider the different types of potential misstatements for presentation and disclosures: 1. Validity 1 ~ disclosed events, transactions, and other matters have occurred and pertain to the entity; 2. Completeness 2 ~ all valid disclosures that should have been included have been included; and 3. Accuracy 3 ~ financial and other information, if any, are disclosed fairly and at appropriate amounts, appropriately presented and described, and disclosures are clearly expressed. APPLICABILITY OF SME-FRS: Please refer to Companies applying Section 141D, SME-FRF and SME-FRS for audit procedures to determine whether an entity is eligible to apply SME-FRF and SME-FRS. The SME-FRS does not apply to the preparation and presentation of consolidated financial statements. Note: The Council of the HKICPA approved the adoption of HKFRS for Private Entities as a financial reporting option for private entities. The scope and applicability of HKFRS and SME-FRF and SME-FRS are unchanged and preparers can continue to use HKFRS or SME-FRF and SME-FRS to prepare their financial statements even though they are qualified to use HKFRS for Private Entities, if they wish to do so. 1 This assertion is equivalent to occurrence and rights and obligations in HKSA This assertion is equivalent to completeness in HKSA This assertion is equivalent to both classification and understandability and accuracy and valuation in HKSA

4 SME-FRS DISCLOSURE AND PRESENTATION CHECKLIST CONTENT: SECTION 1 PRESENTATION OF FINANCIAL STATEMENTS... 3 Components of Financial Statements... 3 Compliance with the SME-FRS... 3 Going Concern... 3 Consistency of Presentation... 3 Materiality, Aggregation and Offsetting... 3 Comparative Information... 4 Identification of Financial Statements... 4 Frequency of Reporting... 4 Balance Sheet... 4 Information to be Presented Either on the Face of the Balance Sheet or in the Notes... 5 Income Statement... 6 Changes in Equity... 6 Accounting Policies and Explanatory Notes... 7 SECTION 2 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS... 7 Changes in Accounting Policies... 7 Changes in Accounting Estimates... 8 Errors... 8 SECTION 3 PROPERTY, PLANT AND EQUIPMENT... 8 SECTION 4 INTANGIBLE ASSETS... 9 SECTION 5 LEASES... 9 SECTION 6 INVESTMENTS SECTION 7 INVENTORIES SECTION 8 CONSTRUCTION CONTRACTS SECTION 10 PROVISIONS, CONTINGENCIES LIABILITIES AND CONTINGENT ASSETS Provisions Contingent Liabilities Contingent Assets Prejudicial Disclosures SECTION 11 REVENUE SECTION 12 GOVERNMENT GRANTS AND OTHER GOVERNMENT ASSISTANCE SECTION 13 BORROWING COSTS SECTION 14 INCOME TAXES Presentation Disclosures SECTION 15 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES SECTION 16 RELATED PARTY DISCLOSURES Parent-Subsidiary Relationships Key Management Personnel Compensation Related Party Transactions SECTION 17 EVENTS AFTER THE BALANCE SHEET DATE

5 Disclosure and Presentation Requirements SME- FRS Ref. 1 SECTION 1 PRESENTATION OF FINANCIAL STATEMENTS 1.1 Components of Financial Statements A complete set of financial statements include: 1.1 (a) a balance sheet. (b) an income statement. (c) accounting policies and explanatory notes. 1.2 Compliance with the SME-FRS The entity whose financial statements comply with the SME-FRS should make an explicit and unreserved statement of such compliance in the notes. Financial statements should not be described as complying with the HKFRS unless they comply with all the requirements of the HKFRS Inappropriate accounting treatments are not rectified either by disclosure of the accounting policies used or by notes or explanatory material In the extremely rare circumstances when management concludes that compliance with the SME-FRS would be misleading, and that therefore departure from a requirement is necessary in order to achieve a proper presentation, in accordance with the SME-FRS, the entity should disclose: (a) that management has concluded that the financial statements properly present the entity s financial position and financial performance. (b) that it has complied in all material respects with applicable sections of the SME-FRS, except for departing from them in order to achieve a proper presentation. (c) i) the nature of the departure (including the treatment that the SME- FRS would require). ii) the reason why that treatment would be so misleading in the circumstances. iv) the treatment adopted. 1.3 Going Concern When management is aware, in making its assessment of the entity's ability to continue as a going concern, of material uncertainties related to events or conditions which may cast significant doubt upon the entity s ability to continue as a going concern, the entity should disclose: - those uncertainties. - the basis on which the financial statements are prepared. - the reason why the entity is not considered to be a going concern. 1.4 Consistency of Presentation The entity should retain the presentation and classification of items in the financial statements from one period to the next unless: (a) following a significant change in the nature of the entity s operations or a review of its financial statements, that another presentation or classification would be more appropriate. (b) the SME-FRS requires a change in presentation. 1.2 ~ Materiality, Aggregation and Offsetting The entity should present separately each material class of similar items The entity should present separately items of a dissimilar nature or function unless they are immaterial

6 Disclosure and Presentation Requirements Assets and liabilities should not be offset in the financial statements unless: (a) offsetting is required or permitted in exceptional circumstances, or (b) offsetting take place where gains, losses, and related circumstance where its presentation comes into questions. 1.6 Comparative Information Except when the SME-FRS permit or require otherwise, the entity should disclose comparative information in respect of the previous period for all amounts reported in the current period s financial statements The entity should include comparative information for narrative and descriptive information when it is relevant to an understanding of the current period s financial statements. 1.7 Identification of Financial Statements The entity should clearly identify the financial statements and the notes and distinguish them from other information in the same documents The entity should display the following information prominently, and repeat it when necessary for an understanding of the information presented: (a) the name of the reporting entity or other means of identification. (b) the balance sheet date or the period covered by the financial statements, whichever is appropriate to the related component of the financial statements. (c) the reporting currency. 1.8 Frequency of Reporting When the entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, the entity should disclose, in addition to the period covered by the financial statements: (a) the reason why a period other than one year is being used; and (b) the fact that comparative amounts for the income statement and related noted are not comparable. SME- FRS Ref Balance Sheet The entity should determine whether or not to present current and noncurrent 1.14 assets, and current and non-current liabilities, as separate classifications on the face of the balance sheet If the entity chooses not to make the classification, assets and liabilities should be presented broadly in order of their liquidity and the entity should disclose: for each asset and liability item that combines amounts expected to be recovered or settled both before and after 12 months from the balance sheet date, the amount expected to be recovered or settled after more than 12 months The entity should classify asset as current when: 1.16 (a) it expect to be realise the asset, or intends to sell or consume it, in its normal operating cycle, (b) it holds the asset primarily for the purpose of trading, (c) it expects to realise the asset within 12 months after the balance sheet date, or (d) the asset is cash or a cash equivalent, which is not restricted in its 4

7 Disclosure and Presentation Requirements SME- FRS Ref. use for at least 12 months after the balance sheet date The entity should classify all other assets as non-current The entity should classify a liability as current when: 1.17 (a) it expect to settle the liability in its normal operating cycle, (b) it holds the liability primarily for the purpose of trading, (c) the liability is due to be settled within 12 months after the balance sheet date, or (d) the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date The entity should classify all other liabilities non-current The face of the balance sheet should include, where applicable, line items 1.19 present the following amounts: (a) property, plant and equipment. (b) intangible assets. (c) financial assets (excluding amounts under (e) and (g)) (d) inventories. (e) trade and other receivables. (f) tax assets. (g) cash and cash equivalents. (h) trade and other payables. (i) tax liabilities. (j) provisions. (k) non-current liabilities. (l) issued capital. (m) reserves The entity should present additional line items, headings and sub totals on the face of the balance sheet when such presentation is necessary to present properly the entity s financial position Information to be Presented Either on the Face of the Balance Sheet or in the Notes The entity should disclose for each class of share capital: 1.21(a) (i) the number of shares authorised. (ii) the number of shares issued and fully paid, and issued but not fully paid. (iii) par value per share, or that the shares have no par value. (iv) a reconciliation of the number of shares outstanding at the beginning and at the end of the period. (v) the rights, preferences and restrictions attaching to that class, including restrictions on the distribution of dividends and the repayment of capital. (vi) shares in the entity held by the entity itself. (vii) shares reserved for issuance under options and sales contract, including the terms and amounts The entity should disclose a description of the nature and purpose of 1.21(b) each component within equity The amount of dividends that were proposed or declared after the 1.21(c) balance sheet date but before the financial statements were authorised for issue The amount of any cumulative preference dividends not recognised. 1.21(d) The entity without share capital (e.g. a partnership), should disclose information equivalent to that required by paragraph 1.21(a) (d), showing movements during the period in each category of equity and

8 Disclosure and Presentation Requirements the rights, preferences and restrictions attaching to each category of equity interest Income Statement As a minimum, the income statement should include line items that present the following amounts for the period: (a) revenue. (b) finance costs. (c) tax expense. (d) profit or loss for the period The entity should present additional line items, headings and sub totals on the face of the balance sheet when such presentation is necessary to present properly the entity s financial performance Except when the SME-FRS permit or require otherwise, all items of income and expense recognised in a period should be included in the determination of the profit or loss for the period When items of income and expense within profit or loss are of such size, nature or incidence that their disclosure is relevant to explain the performance of the entity for the period, the nature and amount of such items should be disclosed separately Circumstances that may give rise to the separate disclosure of items of income and expenses in accordance with paragraph 1.24 include the following: (a) the write-down of inventories to net realisable value or property, plant and equipment to recoverable amount, as well as the reversal of such write-downs. (b) the write-down of intangible assets to recoverable amount, as well as the reversal of such write-downs. (c) a restructuring of the activities of an activities of an entity and the reversal of any provisions for the costs of restructuring. (d) disposals of items of property, plant and equipment. (e) disposals of intangible assets. (f) disposals of long-term investments. (g) litigation settlements. (h) other reversals of provisions The entity should present, either on the face of the income statement or in the notes, analysis of expenses using a classification based on either: - the nature of expenses or - their function, within the entity If entities classified expenses by function should disclose additional information on the nature of expenses, including depreciation and amortisation expense and staff costs The entity should disclose, either on the face of income statement or in the notes the amount of dividends per share, declared or proposed, for the period covered by the financial statements Changes in Equity The entity should present a statement of changes in equity, either in the notes or as a separate component of the financial statements, showing: (a) the profit or loss for the period. (b) each item of income and expense, gain or loss that, as required by the SME-FRS, is recognised directly in equity, and the total of these SME- FRS Ref

9 Disclosure and Presentation Requirements items. (c) the cumulative effect of changes in accounting policy and the correction of prior period errors. (d) capital transactions with owners and distributions to owners. (e) the balance of accumulated reserves at the beginning of the period and at the balance sheet date, and the movements for the period. (f) a reconciliation between the carrying amount of each class of equity capital, share premium and each reserve at the beginning and end of the period, separately disclosing each movement. Note: Comparative information is not required for this reconciliation. SME- FRS Ref Accounting Policies and Explanatory Notes The notes to the financial statements should: 1.30 (a) present information about the basis of preparation of the financial statements and the specific accounting policies selected and applied for significant transactions and events. (b) disclose the information required by the SME-FRS that is not presented elsewhere in the financial statements; and (c) provide additional information that is necessary for a proper presentation The entity should present the notes in a systematic manner. The entity 1.31 should cross-reference each item in the financial statements to any related information in the notes The accounting policies section of the notes to the financial statements 1.32 should describe: (a) whether the financial statements have been prepared in accordance with the SME-FRS and the criteria on which the entity qualifies to apply the SME-FRS; (b) the measurement basis (or bases) used in preparing the financial statements; and (c) each specific accounting policy that is necessary for a proper understanding of the financial statements The entity should disclose the following, if the information is not 1.33 disclosed elsewhere in information published with the financial statements: (a) the domicile and legal form of the entity, its place of incorporation and the address of the registered office (or principal place of business, if different from the registered office); (b) a description of the nature of the entity s operations and its principal activities. 2 SECTION 2 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2.1 Changes in Accounting Policies When an amendment to the SME-FRS has an effect on the current period or any prior period, the entity should disclose: (a) the fact that the change in accounting policy is made in accordance with the change in the SME-FRS, with a description of those provisions;. (b) the amount of the adjustment for the current period and for each prior period presented; (c) the amount of the adjustment relating to periods prior to those included in the comparative information; and 2.6 7

10 Disclosure and Presentation Requirements (d) that comparative information has been restated, or that restatement for a particular prior period has not been made because it would require undue cost or effort When a voluntary change in accounting policy has an effect on the current period or any prior period, the entity should disclose: (a) the reasons for the change. (b) the amount of the adjustment for the current period and for each prior period presented. (c) the amount of the adjustment relating to periods prior to those presented. (d) that comparative information has been restated, or that restatement for a particular prior period has not been made because it would require undue cost or effort. 2.2 Changes in Accounting Estimates The effect of a change in an accounting estimate should be recognised prospectively by including it in profit or loss in: (a) the period of the change, if the change affects that period only; or (b) the period of the change and future periods, if the change affects both The nature and amount of a change in an accounting estimate that has an effect on the current period or is expected to have an effect in subsequent periods should be disclosed. If it would require undue cost or effort to quantify that amount, this fact should also be disclosed. SME- FRS Ref Errors If it would not require undue cost or effort to restate the comparative 2.13 information for a particular prior period, the entity should disclose those restated information. When no restatement of comparative figures take places, the opening balance of reserves for the next period should be restated for the cumulative effect of the error before the beginning of that period The entity should disclose the following about prior period errors: 2.14 (a) the nature of the prior period error. (b) the amount of the correction for each prior period presented. 3 SECTION 3 PROPERTY, PLANT AND EQUIPMENT 3.1 The entity should disclose the following for each class of property, plant and equipment that was deemed appropriate: (a) the measurement bases used for determining the gross carrying amount; (b) the depreciation methods used; (c) the useful lives or the depreciation rates used; (d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and (e) a reconciliation of the carrying amount at the beginning and end of the period showing (comparative information is not required): (i) additions. (ii) disposals. (iii) impairment losses recognised in the income statement during the period. (iv) impairment losses reversed in the income statement during the

11 Disclosure and Presentation Requirements period. (v) depreciation. (vi) other movements. 3.2 The entity should also disclose the existence and carrying amounts of property, plant and equipment to which the entity has restricted title and that is pledged as security separately for: (a) the entity s liabilities; and (b) another entity s liabilities. SME- FRS Ref SECTION 4 INTANGIBLE ASSETS 4.1 The entity should disclose the following for each class of intangible 4.22 assets distinguishing between internally generated intangible assets and other intangible assets: (a) the useful lives or the amortisation rates used. (b) the amortisation methods used. (c) the gross carrying amount and any accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period. (d) the line item(s) of the income statement and in the income in which the amortisation of intangible assets is included. (e) a reconciliation of the carrying amount at the beginning and end of the period showing (comparative information is not required): (i) additions. (ii) retirements and disposals. (iii) impairment loses recognised in the income statement during the period. (iv) impairment loses reversed in the income statement during the period. (v) amortisation recognised during the period. (vi) other changes in the carrying amount during the period. 4.2 The entity should also disclose: 4.23 (a) if any intangible assets is amortised over more than 20 years, the reasons why the presumption that the useful life of an intangible asset will not exceed 20 years from the date when the asset is available for use is rebutted. (b) a description, the carrying amount and remaining amortisation period of any individual intangible asset that is material to the entity as a whole. (c) the existence and carrying amounts of intangible assets to which the entity has restricted title and that are pledged as security separately for:. (i) the entity s liabilities; and (ii) another entity s liabilities. 5 SECTION 5 LEASES 5.1 Lessee should disclose for finance lease at the balance sheet date the carrying amount of the asset, and the outstanding liability falling due in each of the following periods: (a) not later than one year. (b) later than one year. 5.2 Lessee should disclose the total of future minimum lease payments under non-cancellable operating lease for each of the following periods: (a) not later than one year

12 Disclosure and Presentation Requirements (b) later than one year. SME- FRS Ref. 6 SECTION 6 INVESTMENTS 6.1 The entity should disclose: 6.11 (a) the measurement bases used for determining the carrying amount of investments. (b) the significant amounts included in income for: (i) interest and dividends. (ii) profits and losses on disposal of investments. (iii) impairment losses. (iv) reversals of impairment losses. (c) the market value of listed investments if they are not carried at market value. (d) significant restrictions and other terms affecting the realisability of investments or the remittance of income and proceeds of disposal. (e) in respect of investments in subsidiaries, associates and joint ventures: (i) the name of the investee. (ii) the proportion of ownership interest in the investee. (iii) the principal place of operation and place of incorporation of the investee. (iv) an indication of the nature of the business of the investee. (f) the accumulated write-down to net carrying amount. 6.2 Investments in securities should be distinguished between: equities and - debt securities. 6.3 They should be analysed between those that are: listed and - unlisted. 6.4 This analysis should be provided separately for: current investments and - long-term investments. 6.5 The entity should disclosed the existence and amounts of restrictions on 6.13 title and investments pledged as security separately for: (i) the entity s liabilities; and (ii) another entity s liabilities 7 SECTION 7 INVENTORIES 7.1 The entity should disclose: 7.6 (a) the accounting policies adopted in measuring inventories, including the cost formula used. (b) the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity. (c) the carrying amount of inventories pledged as security for the entity s liabilities. (d) the carrying amount of inventories pledged as security for another entity s liabilities. 8 SECTION 8 CONSTRUCTION CONTRACTS 8.1 The entity should disclose: 8.12 (a) the amount of contract revenue recognised as revenue in the period. (b) the methods used to determine the contract revenue recognised in the period. 10

13 Disclosure and Presentation Requirements SME- FRS Ref. (c) the methods used to determine the stage of completion of contracts in progress. 8.2 The entity should disclose each of the following for contracts in progress 8.13 at the balance sheet date: (a) the aggregate amounts of costs incurred and recognised profits (less recognised losses) to date. (b) the amount of advances received. (c) the amount of retentions. 8.3 The entity should present: 8.15 (a) the gross amount due from customers for contract work as an assets. (b) the gross amount due to customers for contract work as a liability. 8.4 The gross amount due from customers for contract work is the net 8.16 amount of: (a) costs incurred plus recognised profits; less (b) the sum of recognised losses and progress billings, for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. 8.5 The gross amount due to customers for contract work is the net amount 8.17 of: (a) costs incurred plus recognised profits; less (b) the sum of recognised losses and progress billings, for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). 9 SECTION 10 PROVISIONS, CONTINGENCIES LIABILITIES AND CONTINGENT ASSETS 9.1 Provisions For each class of provision, the entity should disclose: (a) the carrying amount at the beginning and end of the period. (b) a brief description of the nature of the obligation and the expected amount and timing of any resulting outflows of economic benefits. When discounting is used to arrive at the best estimate of the provision, that fact should also be disclosed. 9.2 Contingent Liabilities Unless the possibility of any outflow of resources in settlement is remote, the entity should disclose, for each class of contingent liability at the balance sheet date: - a brief description of the nature of the contingent liability, and - when practicable an estimate of the financial effect. 9.3 Contingent Assets If an inflow of economic benefits is probable, the entity should disclose: - a description of the nature of the contingent assets at the balance sheet date and, - when practicable an estimate of the financial effect If it is impracticable to make this disclosure required by paragraph and 10.20, that fact should be stated. 9.4 Prejudicial Disclosures In extremely rare cases, where information above is not disclosed because disclosure of some or all of the information required could be

14 Disclosure and Presentation Requirements expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liabilities or contingent assets, the entity should disclose: - the general nature of the dispute. - the fact that, and the reason why, the information has not been disclosed. SME- FRS Ref. 10 SECTION 11 REVENUE 10.1 The entity should disclose: (a) the accounting policies adopted for the recognition of revenue, including the methods adopted to determine the stage of completion of transactions involving the rendering of services. (b) the amount of each category of revenue recognised during the period including revenue arising from: (i) the sale of goods. (ii) the rendering of services. (iii) interest. (iv) royalties. (v) dividends. (c) the amount if revenue arising from exchange of goods and services included in each significant category of revenue. 11 SECTION 12 GOVERNMENT GRANTS AND OTHER GOVERNMENT ASSISTANCE 11.1 The entity should disclose: (a) the accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements. (b) the nature and extent of government grants recognised in the financial statements and an indication of other forms of government assistance from which the entity has directly benefited. (c) unfulfilled conditions and other contingencies attaching to government assistance that has been recognised. 12 SECTION 13 BORROWING COSTS 12.1 The entity should disclose: (a) the accounting policy adopted for borrowing costs. (b) the total borrowing costs incurred during the period. (c) the amount of borrowing costs capitalised during the period. (d) the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation. 13 SECTION 14 INCOME TAXES 13.1 Presentation Current tax assets and current tax liabilities should be presented separately from other assets and liabilities in the balance sheet The entity should offset current tax assets and current tax liabilities, or offset deferred tax assets and deferred tax liabilities, only when it has a legally enforceable right to set off the amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously Disclosures The entity should disclose the accounting policy adopted for income

15 Disclosure and Presentation Requirements taxes The entity should disclose major components of tax expense (income), which may include: (a) current tax expense (income). (b) any adjustments recognised in the period for current tax of prior periods. (c) the amount of benefit arising from a previously unrecognised tax loss or tax credit of a prior period that is used to reduced current tax expense. SME- FRS Ref SECTION 15 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 14.1 The entity should disclose the following: 15.9 (a) the accounting policy adopted for foreign currency transactions, including the basis used in the translation of the: - foreign currency transactions, balances denominated in foreign currencies at the balance sheet date, and - financial statements of foreign branches and the treatment accorded to exchange differences. (b) the amount of exchange differences included in the profit or loss for the period. (c) net exchange differences recognised as a separate component of equity, and a reconciliation of the amount of such exchange differences at the beginning and end of the period. 15 SECTION 16 RELATED PARTY DISCLOSURES 15.1 Parent-Subsidiary Relationships The entity should disclose the name of its parent and, if different, the ultimate controlling party irrespective of whether there have been related party transactions Key Management Personnel Compensation The entity should disclose total remuneration of key management personnel Related Party Transactions If the entity has related party transactions, it should disclose the following information necessary for an understanding of the potential effect of the relationship on the financial statements the: - nature of the related party relationship, - transactions, and - outstanding balances Those disclosure requirements are in addition to the requirements in paragraph 16.4 to disclose key management personnel compensation. At a minimum, disclosures should include: (a) the amount of the transactions. (b) the amount of outstanding balances and: (i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, and (ii) details of any guarantees given or received. (c) provisions for doubtful debts related to the amount of outstanding balances. (d) the expense recognised during the period in respect of bad or doubtful debts due from related parties

16 Disclosure and Presentation Requirements The entity should make the disclosures required by paragraph 16.5 separately for each of the following categories: (a) the parent. (b) entities with joint control or significant influence over the entity. (c) associates. (d) joint ventures in which the entity is a venture. (e) key management personnel of the entity or its parent. (f) other related parties The following are examples of transactions that should be disclosed if they are with a related party: (a) purchases or sales of goods (finished or unfinished). (b) purchases or sales of property and other assets. (c) rendering or receiving of services. (d) leases. (e) transfers of research and development. (f) transfers under licence agreements. (g) transfers under finance arrangements (including loans and equity contributions in cash or in kind). (h) provision of guarantees or collateral. (i) settlement of liabilities on behalf of the entity or by the entity on behalf of another party The entity may disclose items of a similar nature in the aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity. SME- FRS Ref SECTION 17 EVENTS AFTER THE BALANCE SHEET DATE 16.1 If the entity receives information after the balance sheet date about conditions that existed at the balance sheet date, the entity should, in the light of the new information, update disclosures that relate to these conditions The entity should disclose the following for each significant category of non-adjusting event after the balance sheet date: (a) the nature of the event, and (b) an estimate of its financial effect, or a statement that such an estimate cannot be made The following are examples of non-adjusting events after the balance sheet date that would generally result in disclosure; the disclosures will reflect information that becomes known after the end of the balance sheet date but before the financial statements are authorised for issue: (a) announcement of a plan to discontinue an operation. (b) major purchases and disposals of assets, or expropriation of major assets by government. (c) the destruction of a major production plant by a fire after the balance sheet date The entity should disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the entity s owners or others have the power to amend the financial statements after issuance, the entity should disclose that fact

17 FINDINGS: No. Issues Impacts Recommendations CONCLUSION: Based on the procedures performed, the financial statements of the entity for the year ended have been prepared in accordance with the disclosure and presentation requirements of the applicable SME-FRS. Based on the procedures performed, the financial statements of the entity for the year ended have not been prepared in accordance with the disclosure and presentation requirements of the applicable SME-FRS: 2011 by AXP Solutions. All rights reserved. 15

18 Companies applying Section 141D, SME-FRF and SME-FRS

19 PART I: AUDIT APPROACH TO COMPANIES APPLYING SECTION 141D, SME-FRF AND SME-FRS OBJECTIVE: This checklist is intended as an aid in ensuring that the financial statements is eligible and comply with the presentation and disclosure requirements of the Financial Reporting Standard (SME-FRS) issued by the Council of the Hong Kong Institute of Certified Public Accountants (HKICPA). We have to ascertain that we have used the following assertions to consider the different types of potential misstatements for presentation and disclosures: 1. Validity 1 ~ disclosed events, transactions, and other matters have occurred and pertain to the entity; 2. Completeness 2 ~ all valid disclosures that should have been included have been included; and 3. Accuracy 3 ~ financial and other information, if any, are disclosed fairly and at appropriate amounts, appropriately presented and described, and disclosures are clearly expressed. ELIGIBILITY TO USE SME-FRF & FRS: An entity is eligible to use the SME-FRF & FRS if it meets item 1 and 2 (for company incorporated in Hong Kong) or 3 and 4 (for other entities) of the followings: No. Checklists X-Ref 1 General 1.1 All of its shareholders agree in writing that they elect to follow section 141D in preparing the company s financial statements for the year. 1.2 The company does NOT involve in the following businesses: Carries on banking business and holds a valid banking licence granted under the Banking Ordinance Being a corporation licensed under the Securities and Futures Ordinance to carry on business in a regulated activity within the meaning of that Ordinance Carries on any insurance business otherwise than solely as an agent By way of trade or business, other than banking business, accepts loans of money at interest, or repayable at a premium, otherwise than on terms involving the issue of debentures or other securities Owns and operates ships or aircraft engaged in the carriage of cargo between Hong Kong and places outside Hong Kong. 2 For entity incorporated in Hong Kong: 2.1 The entity is a private company as set out in Section 29 of the 1 This assertion is equivalent to occurrence and rights and obligations in HKSA This assertion is equivalent to completeness in HKSA This assertion is equivalent to both classification and understandability and accuracy and valuation in HKSA

20 No. Checklists X-Ref Companies Ordinance, where the company by its Article of Association: (i) restricts the right to transfer its shares, (ii) limits the number of its members to 50, (iii) prohibits any invitation to the public to subscribe for any shares or debentures in the company. 2.2 The company does not have subsidiary or is not a subsidiary of another company formed and registered under the Ordinance or an existing company (refer to the exceptions below). 3 For entity not incorporated under the Companies Ordinance 4 : 3.1 The company does NOT have public accountability (consider the following points): At any time during the current or preceding reporting period, the entity (whether in the public or private sector) is NOT an issuer of securities. (ie. its equity or debt securities are publicly traded or it is in the process of issuing publicly traded equity or debt securities); The entity is NOT an institution authorised under the Banking Ordinance; The entity is NOT an insurer authorised under the Insurance Companies Ordinance; or The entity is NOT a corporation which is granted a licence under the Securities and Futures Ordinance to carry on business in a regulated activity in Hong Kong. Note: An entity does not have public accountability, for the purposes of the SME-FRF, solely by reason of receiving public funds from another entity that has the power to tax, rate or levy to obtain public funds. 3.2 The company does NOT exceed any two of the following threshold: Total annual revenue of HK$50 million Total assets of HK$50 million at the balance sheet date Average 50 employees. 3.3 The company does NOT exceed any two of the item to in each of the two consecutive preceding reporting periods. AUDIT PROCEDURES: Note: Paragraph 18 of HKSA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing states that the auditor shall comply with all HKSAs relevant to the audit. The same procedures would be adopted for all audits regardless of the financial reporting framework adopted. No. Checklists X-Ref 1 In addition to carrying out the audit procedures required by HKSAs, we have ascertained that: 4 Pursuant to paragraph 18 of the SME-FRF, an entity which is a subsidiary or an intermediate holding company of an entity qualifies for reporting under the SME-FRF for its own financial statements if it also satisfies all the conditions set out in paragraph 17 (item 3 of this Checklist)

21 No. Checklists X-Ref 1.1 The company is entitled to take advantage of the exemptions permitted under section 141D(3); Note: Refer to the result from the Eligibility to use SME-FRF & FRS. 1.2 The shareholders have entered into a new unanimous written agreement for the particular financial year under review; and 1.3 The balance sheet and accompanying notes contain the information required under the Eleventh Schedule of the Companies Ordinance. (Use Checklist for compliance with the Eleventh schedule to the Companies Ordinance) AUDITORS REPORT REQUIREMENTS: Note: An auditor is required to comply with the requirements of HKSA 700 Forming an Opinion and Reporting on Financial Statements, HKSA 705 Modifications to the Opinion in the Independent Auditor s Report and HKSA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor s Report. No. Disclosure X-Ref 1 Auditors report 1.1 Have we expressed an opinion as to whether the financial statements are prepared, in all material respects, in accordance with the SME-FRS. 1.2 Have we stated the following in the auditors' report: (i) whether or not the we have obtained all the information and explanations which we have required; and (ii) whether, in our opinion, the balance sheet (together with the notes thereon) referred to in the report is properly drawn up so as to exhibit a true and correct view of the state of the company's affairs according to the best of our information and the explanations given to us, and as shown by the books of the company? 1.3 Do we give details in our report of directors' remuneration and loans to officers under sections 161 and 161B to the extent that the information is not provided in the balance sheet and accompanying notes or the profit and loss account of the company applying section 141D? 2 Exemptions 2.1 Do we consider the exemptions under Section 141D(1) where certain private companies as defined in section 29 are exempted from complying with the following requirements of the Companies Ordinance: S121(2) - Books of account to give a true and fair view of the state of the company's affairs and to explain its transactions. S132 Balance sheet to give a true and fair view of the state of affairs of the company as at the end of its financial year

22 No. Disclosure X-Ref Profit and loss account of a company to give a true and fair view of the profit or loss of the company for the financial year. Balance sheet and profit and loss account to comply with the Tenth Schedule of the Companies Ordinance, so far as applicable. S129 - Statement in company's financial statements of identities and places of incorporation of companies, other than subsidiaries, whose shares it holds, and particulars of those shares. S129A - Statement in subsidiary company's financial statements of name and place of incorporation of its ultimate holding company. S129D - Directors' report to be attached to balance sheet. (NB Section 141D(1)(c) does make certain provisions for a limited directors' report.) S129E - Directors' report to show corresponding amounts for preceding financial year for items included under authority of proviso to section 141C. S141(3) - Auditors' report to state whether the financial statements have been prepared in accordance with the provisions of the Companies Ordinance and whether in their opinion the financial statements give a true and fair view. FINDINGS: No. Issues Impacts Recommendations CONCLUSION: Based on the works performed, the company does qualify as a private entity under Section 141D of Companies Ordinance and does comply with the presentation and disclosure requirements of the Small and Medium-sized Entity Financial Reporting Standard (SME-FRS). Based on the works performed, the company does not qualify as a private entity under Section 141D of Companies Ordinance and does not comply with the presentation and disclosure requirements of the Small and Medium-sized Entity Financial Reporting Standard (SME-FRS): - 4 -

23 PART II: CHECKLIST FOR COMPLIANCE WITH THE ELEVENTH SCHEDULE TO THE COMPANIES ORDINANCE OBJECTIVE: This Checklist is intended as an aid in ascertaining that the financial statements include the disclosure requirements of the Eleventh Schedule to the Companies Ordinance. We have to ascertain that we have used the following assertions to consider the different types of potential misstatements for presentation and disclosures: 4. Validity 5 ~ disclosed events, transactions, and other matters have occurred and pertain to the entity; 5. Completeness 6 ~ all valid disclosures that should have been included have been included; and 6. Accuracy 7 ~ financial and other information, if any, are disclosed fairly and at appropriate amounts, appropriately presented and described, and disclosures are clearly expressed. PROCEDURES: No. Disclosure Para in 11 th Schedule 1 Share Capital 1.1 The authorised share capital, issued share capital, 2 liabilities and assets shall be summarised, with such particulars as are necessary to disclose the general nature of the assets and liabilities, and there shall be specified: - any part of the issued capital that consists of 2(a) redeemable shares, the earliest and latest dates on which the company has power to redeem those shares, whether those shares must be redeemed in any event or are liable to be redeemed at the option of the company and whether any (and, if so, what) premium is payable on redemption, - any share capital on which interest has been paid out 2(b) of capital during the financial year, and the rate at which interest has been so paid, - the amount of the share premium account, 2(c) - particulars of any redeemed debentures which the company has power to reissue. 2(d) X- Ref 2 Capital and Other Expenses 2.1 Under separate headings, so far as they are not written off, and specify the basis for carrying forward of the expenditure: 3 5 This assertion is equivalent to occurrence and rights and obligations in HKSA This assertion is equivalent to completeness in HKSA This assertion is equivalent to both classification and understandability and accuracy and valuation in HKSA

24 No. Disclosure Para in 11 th Schedule - the preliminary expenses. 3(a) - any expenses incurred in connection with any issue of 3(b) shares capital or debentures. - any sums paid by way of commission in respect of 3(c) any shares or debentures. - any sum allowed by way of discount in respect of any 3(d) debentures. - the amount of the discount allowed on any issue of 3(e) shares at a discount. X- Ref 3 Assets and Liabilities 3.1 Fixed assets, current assets and assets that are neither fixed nor current are separately identified. 3.2 The method or methods used to arrive at the amount of the fixed assets under each heading are stated. 3.3 The aggregate amount of any outstanding loans made under the authority of section 47C(4)(b) and (c). 3.4 Where any liability of the company is secured otherwise than by operation of law on any assets of the company, the fact that that liability is so secured is stated. (Note: It is not necessary to specify the assets on which the liability is secured) 4(1) 4(2) 5 6 FINDINGS: No. Issues Impacts Recommendations CONCLUSION: Based on the works performed, the financial statements for the year ended have been prepared in accordance with the requirements of Eleventh Schedule to the Companies Ordinance. Based on the works performed, the financial statements for the year ended have not been prepared in accordance with the requirements of Eleventh Schedule to the Companies Ordinance: by AXP Solutions All rights reserved

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