Accounting in Hong Kong

Our service offers accounting guidance in compliance with Hong Kong Accounting Standards (HKAS/HKFRS), ensuring adherence to the financial regulations in Hong Kong.

Accounting Services in Hong Kong

Through our team of Hong Kong accounting experts and foreign management, we ensure accounting and financial reporting is fully compliant according to Hong Kong regulations, while simultaneously ensuring full transparency towards—and an understanding of—the expectations of international management.

Via our outsourced Hong Kong accounting services, we not only alleviate the administrative burden but also provide our clients access to qualified Hong Kong CPAs, licensed tax advisors, and accountants with knowledge of all aspects of accounting in Hong Kong.

Benefits of our Hong Kong Accounting Services

Banking & Treasury Services

Including setup of payment cycles, design of checks and balance process, timely processing of scheduled and ad-hoc payments to third-parties and operational communication with the bank.

Handling of Inward and Outward International Payments

We create transparency in understanding Hong Kong’s foreign exchange regulations, declaring and clearing funds received from abroad or payments made to an entity abroad, processing currency conversions, and advising on tax impact of inbound and outbound transactions.

Custody of Company Chops

Maintaining custody of company chops and safeguarding essential company documentation (incl. business license(s) and statutory records), designing control and approval processes, and processing chopping requests.

VAT Invoicing (Fapiao)

Issuing and verification of official VAT invoices (fapiaos), purchasing VAT invoices with local authorities, and advisory on tax consequences.

Expense Reimbursements

Designing reimbursement processes, collecting supporting documentation, and processing reimbursements following approval.

Improve Your Company’s Accounting Processes

Get in touch with us today to learn more about how you can streamline and simplify your company’s accounting processes.

Hong Kong Accountancy, Bookkeeping, and Financial Reporting Services

We assist our clients with a full range of accounting services in Hong Kong: day-to-day bookkeeping activities, monthly accounting, and preparation of financial reporting. We provide customized services in Hong Kong depending on the requirements of our clients. Our service offering includes:

Setup of accounting processes and creation of financial reporting packages in line with Hong Kong GAAP (HKFRS/HKAS).
Performing on-site or off-site bookkeeping.
Preparation of statutory financial reports (Balance Sheet, Trial Balance, and Income Statement, among others) and submission to Hong Kong authorities.
Preparation of customized financial reports, management accounts, forecasts, and cashflows.
Direct real-time access to accounting and reporting.
Budget preparation, forecasting, and analysis of a company’s financial position.
Secondment of accounting professionals to support the local Hong Kong accounting team.
Advising on Hong Kong accounting policies and procedures.

Hong Kong Accounting Guide

In Hong Kong, foreign-invested enterprises are required to maintain reliable records of accounts in accordance with Hong Kong accounting law and principles and submit tax filings on a monthly basis. The accounting principles are regulated by Hong Kong Financial Reporting Standards (HKFRS), also known as Hong Kong Accounting Standards (HKAS).

Although accounting is not a new profession, the fact that Hong Kong’s accounting system is relatively less mature than its counterparts in some developed economies, alongside the region’s continuous regulatory development, means foreign-invested enterprises (FIEs) may experience challenges with compliance. Therefore, in this article, we explain the difference between accrual-based and cash-based accounting, and its relevance within Hong Kong Accounting Standards.

The Basis of Cash- vs. Accrual-Based Accounting

The main difference between cash- and accrual-based accounting lies in the timing at which sales and purchases are recorded in your accounts.

Cash-Based Accounting:
Revenue and expenses are recorded based on actual receipt and payment (including cash and bank). All incomes and expenses actually received in the current accounting period shall be recorded, regardless of whether they belong to the current accounting period or not.
Accrual-Based Accounting:
Revenue and expenses in the current accounting period are recorded based on accrual rather than actual receipt. All revenue and expenses that belong to the current accounting period shall be recorded and recognized regardless of actual receipt. Conversely, any revenue and expenses that do not belong to the current accounting period should not be recorded as such, even if they have been received.

The Limitations of Cash-Based Accounting

Although accrual-based accounting is more complex, it provides a significantly better view of a company’s profits and losses. Below are some limitations of a cash-based system:

Lack of Reflection on Fixed Assets
In cash-based accounting, expenses incurred when purchasing fixed assets are listed in the corresponding expenditure accounts in the period they are paid for. This means they are not capitalized (i.e., they do not appear in the balance sheet after purchase), and no depreciation is recognized. As a result, the financial statements may only reflect the original value of the assets, leading to distorted accounting information.
Failure to Accurately Reflect Liabilities
Under cash-based accounting, liabilities are recorded when the payment occurs, rather than at the time the obligation arises. This can lead to imbalances in expenditure across accounting periods, unreflected payables, and potential cash flow or budgeting issues.
Difficulty in Conducting Cost and Expense Accounting
Because cash-based systems record only simple transactions, they cannot provide the level of detail needed for robust decision-making, supervision, and budget preparation.
Incomplete Accounting Information
Financial statements prepared under cash-based accounting do not fully reflect a company’s assets, liabilities, financial results, or cash flow. This can hinder accurate decision-making and risk management.

The Hong Kong Accounting Standards

The purpose of accounting is to provide information for sound economic decision-making. Accrual-based accounting is considered crucial for accurately reflecting a company’s financial situation and operating results. For this reason, Hong Kong Accounting Standards stipulate that “accounting should be based on an accrual basis” for for-profit enterprises.

On the other hand, cash-based accounting has the advantage of presenting an accurate picture of actual cash on hand.

In Hong Kong, cash-based accounting is more commonly applicable to certain public or administrative institutions. It is interesting to note, however, that Representative Offices (ROs) do not function in the same way they do in some other jurisdictions. Should such structures exist or be recognized in Hong Kong, they might also be required to follow a cash-based approach if they are purely administrative and barred from commercial activities. In those circumstances, taxable income could be calculated based on actual expenses, which is consistent with a cash-based system.

Our Take

Although accrual-based accounting is widely accepted as a means to reflect a company’s business performance, it too has limitations when assessing financial health. For instance, a profitable enterprise might face financial difficulties if receivables have not yet turned into actual cash. Accrual-based statements record revenues and expenses regardless of actual payment, so additional statements (like a cash flow statement) may be necessary to compensate for the inherent gap.

It is important for companies to be aware of these limitations and to consider supplementing accrual-based reports with cash-based management reports, especially if liquidity is a primary concern.

Manage your Hong Kong Accounting, with MSA

If you require more information or need support with the Hong Kong Accounting Standards, or if you need advice on your company’s financial reporting, contact us. Our local team of Hong Kong professionals, under the guidance of European management, ensures that your business is compliant with the most recent Hong Kong laws and regulations.

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