The council and office bearers of the Institute during the year and up to the date of this report were:

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1 THE HONG KONG INSTITUTE OF ARCHITECTS COUNCIL'S REPORT The Council have pleasure in presenting their annual report and the audited financial statements of the Group and of the Institute for the year ended 31 March PRINCIPAL ACTIVITIES The principal activities of the Institute are holding of meetings, lectures, examinations, exhibitions and competitions and similar activities. The activities of the subsidiaries are set out in note 12 to the financial statements. RESULTS The results of the Group for the year ended 31 March 2012 are set out in the consolidated statement of comprehensive income on page 6 of the annual report. RESERVES Movements in the reserves of the Group and of the Institute during the year are set out in the consolidated statement of changes in reserves on page 7 of the annual report and note 18 to the financial statements, respectively. PROPERTY, PLANT AND EQUIPMENT Details of the movements in the property, plant and equipment of the Group and of the Institute during the year are set out in note 11 to the financial statements. COUNCIL AND OFFICE BEARERS The council and office bearers of the Institute during the year and up to the date of this report were: Mr. Lam Kwong Ki, Dominic (President) Ms. Fung Yin Suen, Ada (Vice President) Mr. Lam Ping Hong, Robert (Vice President) Mr. Tang Wai Man, Tony (Honorary Treasurer) Mr. Chi Wuh Cherng, Daniel (Honorary Secretary) Prof. Chan Hon Wan, Edwin (Council Member) Mr. Chen Marvin (Council Member) Mrs. Cheng Chan Ching Ying, (Council Member) Elizabeth Mr. Choi Kam Lung, Franky (Council Member) Mr. Hau Hon Fai, Patrick (Council Member) (Effected on 1 January 2012) Mr. Hui Man Bock, Bernard (Council Member) Ms. Kam Heung Wah, Briena (Council Member) Ms. Leung So Wan, Susan (Council Member) Mr. Lu Hing Yiu, Bryant (Council Member) Mr. Lu Lam, Leslie (Council Member) Ms. So Ching (Council Member) Mr. Tam Tin Fong, Martin (Council Member) Mr. Tseng Yen Wei, William (Council Member) Ms. Wai Chui Chi, Rosman (Council Member) Mr. Yu Franklin (Council Member) Ms. Kwong Sum Yee, Anna (Immediate Past President) 1

2 HONORARY AUDITORS The honorary auditors of the Institute during the year and up to the date of this report were: Mr. Kwan Pak Lam (Effected on 1 January 2012) Mr. Ling Chi Kong, Thomas Mr. Pau Shiu Hung (Expired on 31 December 2011) COUNCIL'S INTERESTS IN CONTRACTS OF SIGNIFICANCE No contracts of significance to which the Institute or its subsidiaries was a party and in which a council of the Institute had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. MANAGEMENT CONTRACTS No contracts concerning the management and administration of the whole or any substantial part of the business of the Group were entered into or existed during the year. AUDITORS The financial statements have been audited by Katon CPA Limited who retire and, being eligible, offer themselves for re-appointment. On behalf of the Council Lam Kwong Ki, Dominic President Hong Kong, 13 September

3 STATEMENT BY THE HONORARY AUDITORS TO THE MEMBERS OF THE HONG KONG INSTITUTE OF ARCHITECTS (Registered under the Hong Kong Institute of Architects Incorporation Ordinance) We have reviewed the accompanying financial statements of the Hong Kong Institute of Architects together with the Council's and the Auditor's reports for the year ended 31 March 2012 and confirm that, in accordance with the Rule 48 of "The Rules of the Institute", we approve the financial statements and reports referred to above. Kwan Pak Lam Honorary Auditor Ling Chi Kong, Thomas Honorary Auditor Hong Kong, 13 September

4 INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF THE HONG KONG INSTITUTE OF ARCHITECTS (Registered under the Hong Kong Institute of Architects Incorporation Ordinance) We have audited the consolidated financial statements of The Hong Kong Institute of Architects (the "Institute") and its subsidiaries (collectively referred to as the "Group") set out on pages 6 to 34, which comprise the consolidated and Institute statement of financial position as at 31 March 2012, and the consolidated statement of comprehensive income, consolidated statement of changes in reserves and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Council's responsibility for the financial statements The council of the Institute are responsible for maintaining proper accounts and the preparation of annual consolidated financial statement pursuant to the Hong Kong Institute of Architects Incorporation Ordinance, and the true and fair presentation of these consolidated financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with Rule 64 of "The Rules of the Institute" and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and true and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the council, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. (To be continued) 4

5 INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF THE HONG KONG INSTITUTE OF ARCHITECTS (Registered under the Hong Kong Institute of Architects Incorporation Ordinance) (Continued) Limitation of audit scope Because of the absence of audited accounts of the associate, the Group had not adopted the equity method of accounting for the associate as required by "Investments in associates" (HKAS 28). The financial effects of this departure could not be quantified. Qualified Opinion Except for the matters set out above, in our opinion, the consolidated financial statements give a true and fair view of the state of the affairs of the Institute and of the Group as at 31 March 2012 and of the Group's surplus and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Institute of Architects Incorporation Ordinance. Katon CPA Limited Certified Public Accountants Hong Kong Date: 13 September 2012 Lee Kit Wah Practising Certificate number P01453 Aud Acc\HKIA 12 5

6 THE HONG KONG INSTITUTE OF ARCHITECTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH Notes Turnover 4 22,950,008 14,371,763 Costs Functions costs 5 (9,675,243) (4,283,303) Lecture and examination costs (1,483,473) (909,535) Publication costs (311,717) (297,041) Gross profit 11,479,575 8,881,884 Other revenue 4 178, ,590 Less: Employment costs 6 (4,886,208) (4,274,335) Other operating and administrative expenses 8 (3,327,151) (3,233,450) Surplus before taxation 3,444,885 2,024,689 Less: Taxation Hong Kong Profits Tax 9 0 (44,287) Deferred taxation ,690 Surplus after taxation 3,444,885 2,023, Other comprehensive income Net gain on revaluation of available-for-sale investments (120,400) 646,663 Other comprehensive income for the year (120,400) 646, Total comprehensive income for the year 3,324,485 2,669,755 6

7 THE HONG KONG INSTITUTE OF ARCHITECTS CONSOLIDATED STATEMENT OF CHANGES IN RESERVES FOR THE YEAR ENDED 31 MARCH 2012 Investment General revaluation Sinking Retained reserves reserves fund surplus Total At 1 April , ,075 50,000 35,352,171 36,808, Surplus for the year ,023,092 2,023,092 Other comprehensive income for the year 0 646, ,663 Total comprehensive income for the year 0 646, ,023,092 2,669,755 Transfer from retained surplus to sinking fund ,000 (50,000) 0 Sinking fund used in refurbishment 0 0 (100,000) 100,000 0 General reserves transfer to surplus or deficit (58,787) (58,787) (58,787) 646,663 (50,000) 2,073,092 2,610, At 31 March ,526 1,321, ,425,263 39,419, Surplus for the year ,444,885 3,444,885 Other comprehensive income for the year 0 (120,400) 0 0 (120,400) Total comprehensive income for the year 0 (120,400) 0 3,444,885 3,324,485 Transfer from retained surplus to sinking fund ,000 (50,000) 0 General reserves transfer to surplus or deficit (112,279) (112,279) (112,279) (120,400) 50,000 3,394,885 3,212, At 31 March ,247 1,201,338 50,000 40,820,148 42,631,733 7

8 THE HONG KONG INSTITUTE OF ARCHITECTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH Notes ASSETS Non-current assets Property, plant and equipment , ,104 Available-for-sale investments 14 21,174,903 8,321,738 21,548,090 8,764, Current assets Inventories - Finished goods 94,440 78,157 Trade and other receivables 15 8,923,444 9,096,683 Tax recoverable 44,287 29,855 Bank balances and cash 16 20,187,847 26,645,832 29,250,018 35,850, TOTAL ASSETS 50,798,108 44,615,369 RESERVES AND LIABILITIES Members' funds General reserves , ,526 Investment revaluation reserves 1,201,338 1,321,738 Sinking fund 50,000 0 Retained surplus 40,820,148 37,425,263 42,631,733 39,419, Non-current liabilities Obligations under finance leases 19 62,304 89, Current liabilities Other payables 21 8,076,380 5,078,157 Obligations under finance leases 19 27,691 27,690 8,104,071 5,105, TOTAL RESERVES AND LIABILITIES 50,798,108 44,615,369 Approved by the Council on 13 September Lam Kwong Ki, Dominic President Tang Wai Man, Tony Honorary Treasurer 8

9 THE HONG KONG INSTITUTE OF ARCHITECTS STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH Notes ASSETS Non-current assets Property, plant and equipment , ,104 Investments in subsidiaries Available-for-sale investments 14 13,274,092 8,321,738 13,647,288 8,764, Current assets Inventories - Finished goods 94,440 78,157 Trade and other receivables 15 8,922,544 9,006,742 Amounts due from subsidiaries 12 68,020 1,555,101 Bank balances and cash 16 16,661,484 13,680,390 25,746,488 24,320, TOTAL ASSETS 39,393,776 33,085,237 RESERVES AND LIABILITIES Members' funds General reserves , ,526 Investment revaluation reserves 18 1,300,527 1,321,738 Sinking fund 18 50,000 0 Retained surplus 18 29,322,547 25,901,131 31,233,321 27,895, Non-current liabilities Obligations under finance leases 19 62,304 89, Current liabilities Other payables 21 8,070,380 5,072,157 Amount due to subsidiary Obligations under finance leases 19 27,691 27,690 8,098,151 5,099, TOTAL RESERVES AND LIABILITIES 39,393,776 33,085,237 Approved by the Council on 13 September Lam Kwong Ki, Dominic President Tang Wai Man, Tony Honorary Treasurer 9

10 THE HONG KONG INSTITUTE OF ARCHITECTS CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH Operating activities Cash from operations [Note 22] 6,666,270 3,368,393 Hong Kong Profits Tax paid (14,432) (79,627) Net cash from operating activities 6,651,838 3,288, Investing activities Interest received 19,479 1,534 Proceeds on disposal of property, plant ad equipment 0 10,920,406 Purchases of available-for-sale investments (12,973,565) 0 Purchases of property, plant and equipment (126,589) (345,568) Net cash (used in)/from investing activities (13,080,675) 10,576, Financing activities Interest paid (1,458) (1,790) Obligations under finance leases 0 138,453 Repayments of obligations under finance leases (27,690) (21,116) Net cash (used in)/from financing activities (29,148) 115, Net (decrease)/increase in cash and cash equivalents (6,457,985) 13,980,685 Cash and cash equivalents at the beginning of the year 26,645,832 12,665,147 Cash and cash equivalents at the end of the year 20,187,847 26,645,832 Analysis of the balances of cash and cash equivalents Bank balances and cash 20,187,847 26,645,832 10

11 THE HONG KONG INSTITUTE OF ARCHITECTS NOTES TO THE FINANCIAL STATEMENTS 1 GENERAL The Institute is registered under the Hong Kong Institute of Architects Incorporation Ordinance for the general advancement of Civil Architecture and for promoting and facilitating the acquisition of the knowledge of the various Arts and Sciences connected therewith. The principal activities of the Institute are holding of meetings, lectures, examinations, exhibitions and competitions and similar activities. The activities of the subsidiaries are set out in note 12 to the financial statements. The address of its registered office is 19/F., One Hysan Avenue, Causeway Bay, Hong Kong. 2 THE ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS In the current year, the Group has applied all the new and revised Standards, Amendments and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA") that are relevant to its operations and effective for annual period beginning on or after 1 April The new and revised Standards, Amendments and Interpretations adopted in the current year are referred to as new and revised HKFRSs. The Group has not applied the new HKFRSs that have been issued but are not yet effective. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a material impact on its results of operations and financial position. Other new standards, amendments to standards and interpretations, which are mandatory for the first time for the financial year beginning 1 April 2011, are not currently relevant for the Group or do not have material impact on the Group for the year ended 31 March SIGNIFICANT ACCOUNTING POLICIES (a) Statement of compliance The consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards, which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. (b) Basis of preparation of the financial statements The consolidated financial statements have been prepared on the historical cost basis, except for certain properties and financial instruments, which are measured at revalued amounts or fair values, as explained in the accounting policies set out below. The preparation of financial statements in conformity with Hong Kong Financial Reporting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. 11

12 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Basis of preparation of the financial statements (continued) The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of Hong Kong Financial Reporting Standards that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 25. (c) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Institute and entities controlled by the Institute (its subsidiaries). Control is achieved where the Institute has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All significant intra-group transactions, balances, income and expenses are eliminated on consolidation. (d) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. In the Institute's statement of financial position the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Institute on the basis of dividend received and receivable. (e) Associates Associates are all entities over which the Institute has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Interests in associates are stated at cost less provision for impairment losses. The results of associates are accounted for by the Institute on the basis of dividend received and receivable. The equity method of accounting for the associates is not adopted as the accounts of associates are not available. 12

13 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Property, plant and equipment Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses. Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual values, if any, using the straight-line method over their estimated useful lives at the following annual rates: Leasehold improvements 20% Furniture, fixtures and office equipment 20% - 25% Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the period in which the item is derecognised. (g) Investment properties Investment properties are properties held to earn rentals and/or for capital appreciation. On initial recognition, investment properties are measured at cost including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment property are included in profit or loss in the period in which they arise. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised. (h) Financial instruments Financial assets and financial liabilities are recognised on consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets The Group's financial assets are classified into loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. 13

14 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Financial instruments (continued) Financial assets (continued) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each reporting date subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from subsidiaries, bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below). Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments. At each reporting date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss (see accounting policy on impairment loss on financial assets below). For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at the end of the reporting period (see accounting policy on impairment loss on financial assets below). Impairment of financial assets Financial assets are assessed for indicators of impairment at the end of the reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include: - significant financial difficulty of the issuer or counterparty; or - default or delinquency in interest or principal payments; or - it becoming probable that the borrower will enter bankruptcy or financial re-organisation. 14

15 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Financial instruments (continued) Financial assets (continued) For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period and observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss. In respect of available-for-sale equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss in subsequent periods. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of available-for-sale debt securities, impairment losses are subsequently reversed if an increase in the fair value of investment can be objectively related to an event occurring after the recognition of the impairment loss. Financial liabilities Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group's financial liabilities are classified as other financial liabilities. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis. Other financial liabilities Other financial liabilities (including other payables, amount due to subsidiary and obligations under finance leases) are subsequently measured at amortised cost, using the effective interest method. Equity instruments Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 15

16 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Impairment losses on tangible and intangible assets At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the assets is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately. (j) Inventories Inventories consist mainly of standard contract forms, Standard Form of Building Contract, Form of Tender which are stated at the lower of cost or net realisable value. Cost includes direct costs of purchases and incidental costs in bringing the inventory to their present location and condition. Net realisable value is based on anticipated selling price less all further costs to be incurred prior to sale. (k) Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessor Rental income from operating leases is recognised in profit or loss on a basis of specific percentage of the revenue of the lease in accordance with the contractual term of the leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term. The Group as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the consolidated statement of comprehensive income. Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis. (l) Borrowing costs All borrowing costs are recognised as and included in finance costs in profit or loss in the period which they are incurred. 16

17 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes. i) Members' entrance and subscription fees are recognised to the extent of cash received. Annual subscription fees are accrued on a time basis. ii) Lecture and examination fees are recognised when the lecture and the examination are held. iii) Revenue from sales of publications and advertisement is recognised when the publications are sold and advertisements are published. iv) Revenue from exhibitions and other functions are recognised when the exhibitions and the functions are held. v) Rental income under operating leases is recognised on a straight-line basis over the terms of the relevant leases. vi) Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition. vii) Sales of securities are recognised on a trade-date basis when contracts are executed. viii) Revenue from sales of goods are recognised when the goods are delivered and title has passed. (n) Taxation The Institute has been granted exemption from Hong Kong Profits Tax by the Inland Revenue Department for its excess of income over expenditure in prior years. The Council believes that the exemptions will continue to be granted accordingly no provision for Profits Tax has been made. Income tax expenses represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised on differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. 17

18 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Taxation (continued) The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively. (o) Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise. For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong Dollar) at the rate of exchange prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (the translation reserves). (p) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grants will be received and all attaching conditions will be complied with. Government grants related to income are recognised as income over the periods necessary to match them with the related costs. Grants related to assets are deducted from the cost of the assets in arriving at their carrying amounts to the extent of the grants received and receivable as at the date of the consolidated statements of financial position. (q) Related parties Parties are considered to be related to the Group if the Group has the ability to control, directly or indirectly, the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or entities and include entities which are controlled or under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group. 18

19 3 SIGNIFICANT ACCOUNTING POLICIES (continued) (r) Employee benefits (i) Pension obligations Contributions to defined contribution retirement plans, including the mandatory provident fund as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognised as an expense in the consolidated statement of comprehensive income as incurred. (ii) Employee leave entitlements Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the reporting date. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave. 4 TURNOVER AND OTHER REVENUE Group Turnover Members' subscription and entrance fees 7,224,703 6,431,030 Corporate membership fee 673, ,250 Functions income [Note 5] 10,068,303 3,723,708 Lecture and examination fees 4,274,600 2,997,100 Rental income from investment properties 0 52,955 Sales of Architects Practices Directory 448, ,000 Sales of publications and advertisements 44,302 40,720 Sponsor from corporate member 216, ,000 22,950,008 14,371,763 Other revenue Administrative charge 9,000 0 Bank interest income 19,479 1,534 Gain on disposal of property, plant and equipment 0 520,406 HKIA credit card rebate commissions 40,246 34,959 Sales of souvenirs 1,400 0 Sundry income 16,294 33,691 Web recruit package 92,250 60, , ,590 19

20 5 FUNCTIONS INCOME AND COSTS Receipts and expenses relating to various functions held during the year were as follows: - Group Income Expenses Mainland & HK Construction Industry Forum 0 (8,378) (8,378) 0 55th Anniversary Conference 1,291,240 (1,030,890) 260,350 0 Academic Exchange 2,900 (1,306) 1,594 (1,404) Academic Qualification Assessment 24,000 (16,090) 7,910 2,000 Annual Awards (12,154) ,960 (584,982) (153,022) 0 Annual Awards Publication 7,005 (12) 6,993 5,992 Annual Ball/Dinner ,559,300 (1,036,549) 522,751 (121,740) Annual Golf Day ,692 Annual Report 0 (22,746) (22,746) (28,280) APEC Architects 6,200 (904) 5,296 1,854 ARCASIA Function (24,486) (52,858) (52,858) 0 Architectural Excursion to Fujian Tulou ,034 Architecture Tour 177,300 (73,800) 103, ,440 Architecture Week 0 (2,275) (2,275) 31,001 Attending ASC events 0 (18,251) (18,251) 0 Best Paper Award 0 (4,312) (4,312) (4,254) Biennale Architecture HK&SZ Bi-city Biennale (570) Venice Biennale ,231,400 (4,103,177) 128,223 0 Board of Practices 11,850 (3,856) 7, Building Committee 19,900 (5,827) 14,073 0 Business Promotion Committee 0 (39,000) (39,000) (3,159) CEPA Issue Committee 20,000 (2,406) 17,594 0 CEPA Legal Exam 348,610 (236,623) 111,987 0 Coalition of Professional Services 0 (10,000) (10,000) (15,782) Community Development Committee Project (CDC) 0 (1,369) (1,369) (300) Contract and Dispute Resolution Committee 12,200 (1,070) 11,130 (29,584) Corporate Events 0 (5,900) (5,900) (328) Courtesy Visit Beijing 0 (2,797) (2,797) (15,863) Macau (5,584) CPD Seminars and Events 91, ,290 47,020 CPD Seminars and Site Visit 8, ,250 15,930 CUHK Visitation (17,842) Donation to Local Architectural School Association/Society (3,000) c/f 8,243,405 (7,265,378) 978,027 23,

21 5 FUNCTIONS INCOME AND COSTS (continued) Group Income Expenses b/f 8,243,405 (7,265,378) 978,027 23,094 Dragon Boat and Others 0 (54,313) (54,313) (73,306) Environment & Sustainable Development 21,250 (34,208) (12,958) 2,215 Events of Northern China Liaison Group Management 0 (14,855) (14,855) 0 Green Tour ,015,389 (1,001,187) 14,202 (22,512) General Activity 0 (124,497) (124,497) (80,307) Guangzhou Trip 95,490 (93,102) 2,388 0 Heritage and Conservation 10,500 (2,109) 8,391 (7,090) HKIA Journal & Newspaper 0 (15,240) (15,240) (67,724) HKIA Student Medal 0 (2,650) (2,650) (2,650) International Standard Online Library 208,600 (213,213) (4,613) (67,827) Interweaving City and Museum Walks (34,129) Joint Booth Expo Asia 0 (5,531) (5,531) 0 Joint Professional Golf Tournament 19,250 (19,138) 112 (20,945) Joint Professional Sport Activity 0 (14,436) (14,436) (5,932) Legal and Finance Committee Membership Committee (SPC) (132) Membership Lists with Photo (56,000) National Conditions Class (2,507) New Members Welcoming Event 2,100 (18,830) (16,730) (15,899) Overseas Excursion 399,500 (390,965) 8,535 0 Planning & Lands 5,920 (637) 5,283 0 Professional Induction Workshop ,174 Quality Building Awards (15,000) Registered Practices Management Committee 0 (630) (630) 0 Set Up New Website/Website Enhancement (17,500) Special Projects Committee 40,849 (40,849) 0 0 Subscriptions to Professional Bodies 0 (139,984) (139,984) (120,591) UIA 2011 Tokyo Congress 0 (94,639) (94,639) 0 Overseas Meeting 0 (32,167) (32,167) (17,106) Web Site Launching 0 (2,136) (2,136) (3,936) Work Programme - "Architecture for All" (2,909) Others (360) YAC Joint Professional Activities 6,050 (10,289) (4,239) (120) Young Architects Awards (6,000) Young Architect Project Fund 0 (82,044) (82,044) (18,360) Welcoming Event for Prospective HKIA Members 0 (2,216) (2,216) (2,936) 10,068,303 (9,675,243) 393,060 (559,595) 21

22 6 EMPLOYMENT COSTS Group Salaries and allowances 4,665,424 4,095,873 Provident fund contribution 200, ,039 Staff messing and welfare 20,726 12,423 4,886,208 4,274,335 7 COUNCILS' REMUNERATION No remuneration was paid or payable to the Council in respect of their services to the Group during the year (2011 : Nil). 8 OTHER OPERATING AND ADMINISTRATIVE EXPENSES Group Accountancy fee 12,480 11,040 Advertising 3,990 4,522 Air conditioning charges 51,530 51,840 Auditors' remuneration 48,000 48,000 Bad debt written off 0 72,000 Bank charges and credit card commission 46,258 33,308 Books and magazines 41,463 24,585 Building management fee 216, ,247 Business registration fee 2,250 10,500 Cleaning 13,747 3,190 Congress expenses [Note 10] 10,990 38,165 Consultancy fee 80,500 40,000 Depreciation on property, plant and equipment 196, ,648 Electricity and telephone 115, ,048 Finance leases interest 1,458 1,790 Formation expenses 16,000 8,720 Insurance 123,112 99,074 Legal and professional fees 76,400 91,503 Management visit to Beijing office 7,033 19,309 Membership fee written off 52, ,875 Postage, printing and stationery 194, ,914 Quarterly general meeting and working meeting expenses 315, ,232 Rent and rates 1,327,699 1,107,265 Repairs and maintenance 23,178 36,483 Souvenirs 17,745 36,430 Sponsorship 2,000 2,000 Stamp duty 0 2,698 Subscription to professional bodies 0 55,265 Sundry expenses 81,805 82,158 Transportation 21,865 26,378 Website programming, IT support and upgrading 226,818 69,263 3,327,151 3,233,450 22

23 9 TAXATION Group The tax credit/(charge) comprises: Hong Kong Profits Tax: Current year 0 (44,287) Deferred tax credit/(charge) [Note 20] 0 42,690 0 (1,597) Hong Kong Profits Tax has been provided at the rate of 16.5% (2011 : 16.5%) on estimated assessable profits for the year. The tax credit/(charge) for the year can be reconciled to the surplus before taxation per the consolidated statement of comprehensive income as follows: Group Surplus before taxation 3,444,885 2,024,689 Tax charge of Hong Kong Profits Tax rate of 16.5% (2011 : 16.5%) (568,407) (334,074) Tax effect of expenses not deductible for tax purpose 855 (7,619) Tax effect of income not taxable for tax purpose (4,262) 85,876 Tax effect of tax losses not claimed (970) 0 Effect of zero tax rate of tax exempted institution 572, ,220 Tax charge for the year 0 (1,597) 10 CONGRESS EXPENSES Group APEC meeting 0 9,665 ASC Forum in Beijing 0 11,433 CEPA Exchange Forum in Beijing 0 5,072 Delegation to Chongqing 0 3,367 Delegation to Fuzhou 0 4,596 Human Habitat Forum in Beijing 0 4,032 QGM meeting 10, ,990 38,165 23

24 11 PROPERTY, PLANT AND EQUIPMENT Group Furniture, fixtures, Investment Leasehold and office properties improvements equipment Total Cost or valuation At 1 April ,400,000 2,506,862 1,662,011 14,568,873 Additions 0 112, , ,568 Disposals (10,400,000) (67,600) (14,705) (10,482,305) At 31 March ,551,462 1,880,674 4,432,136 Additions 0 16, , ,589 At 31 March ,567,752 1,990,973 4,558, Depreciation At 1 April ,307,249 1,529,440 3,836,689 Provided for the year 0 112, , ,648 Eliminated on disposals 0 (67,600) (14,705) (82,305) At 31 March ,351,654 1,637,378 3,989,032 Provided for the year 0 66, , ,506 At 31 March ,418,284 1,767,254 4,185, Carrying values At 31 March , , ,187 At 31 March , , ,104 24

25 11 PROPERTY, PLANT AND EQUIPMENT (continued) Institute Furniture, fixtures, Leasehold and office improvements equipment Total Cost At 1 April ,439,262 1,647,306 4,086,568 Additions 112, , ,568 At 31 March ,551,462 1,880,674 4,432,136 Additions 16, , ,589 At 31 March ,567,752 1,990,973 4,558, Depreciation At 1 April ,239,649 1,514,735 3,754,384 Provided for the year 112, , ,648 At 31 March ,351,654 1,637,378 3,989,032 Provided for the year 66, , ,506 At 31 March ,418,284 1,767,254 4,185, Carrying values At 31 March , , ,187 At 31 March , , , INVESTMENTS IN SUBSIDIARIES Institute Unlisted shares, at cost 9 5 Amounts due from subsidiaries [Note] 68,020 1,555,101 Amount due to subsidiary [Note] (80) 0 67,949 1,555,106 Note : The amounts are interest free, unsecured and without fixed repayment terms. Particulars of the subsidiaries at 31 March 2012 are as follows: Percentage of issued share Place of Issued and fully capital held by Principal Name of subsidiaries incorporation paid up share capital the Institute activities HKIA Services Limited Hong Kong 2 Ordinary shares 100% Investment of 1 each holding Hong Kong Institute of Hong Kong 3 Ordinary shares 100% Dormant Construction Project of 1 each Management Professionals Limited 25