STANDARDSETTINGFinancial reportingconsiderations for closing outFEBRUARY 2026CONTENTSIntroductionI.Amended HKFRS Accounting Standard mandatorily effective on1 January 2025II.Topical and emerging issues
1.Financial reporting implications of evolving tariffs and othermacroeconomic uncertainties
2.Digital assets – stablecoins
3.Climate-related reporting and connectivityIII. IFRS Interpretations Committee Agenda Decision relevant to Hong Kong 25IV. HKFRS Accounting Standards issued but not yet effective as of1 January 2025Appendix – New and amended HKFRS Accounting Standards as well asAgenda Decisions issued by the IFRS Interpretations CommitteeIntroductionThis publication highlights key financial reporting reminders and topical areas that are relevantto entities preparing annual financial statements with December 2025 year-end under HKFRSAccounting Standards. The insights may also be applicable to future reporting periods.The publication is structured into four sections. The first section outlines the amendments toHKFRS Accounting Standards that become mandatorily effective for annual reporting periodsbeginning on or after 1 January 2025. The second and third sections address topical andemerging topics in relation to evolving tariffs, stablecoins, and IFRS Interpretations Committee(IFRS IC)’s agenda decision that may affect the preparation of financial statements for 2025and future years. The final section summarizes updates on major new and amended HKFRSAccounting Standards that have been issued but are not yet effective as of 1 January 2025.While this publication highlights key considerations for current and upcoming financialreporting periods, it does not cover all potential issues that may arise in preparing financialstatements. Entities should undertake a thorough and holistic approach when preparing andreviewing their financial statements and related reports, such as sustainability reports, toensure that disclosures are clear, consistent and reflect up-to-date material information.Entities should exercise judgement and refer to HKFRS Accounting Standards in theHKICPA’s Members’ Handbook for further guidance relevant to their circumstances.I.Amended HKFRS Accounting Standard mandatorilyeffective on 1 January 2025Amendments to HKAS 21 The Effects of Changes in Foreign Exchange Rates – Lack ofExchangeabilityThe HKFRS update cycle for 2025 is relatively light, with only one mandatory amendmentbecoming effective and no major changes for entities to adopt this year. This amendmentrelates to the amendments to IAS 21 The Effects of Changes in Foreign Exchange Ratesissued by the International Accounting Standards Board (IASB) in August 2023.Following the IASB’s issuance, the HKICPA issued equivalent amendments to HKAS 21 inSeptember 2023. The amendments require an entity to apply a consistent approach toassessing whether a currency is exchangeable into another currency and, when it is not, toestimating the spot exchange rate to use and determining the disclosures to provide.Comparative information shall not be restated when initially applying the amendments1.A currency is considered to be exchangeable into another currency when an entity can obtainthe other currency within a time frame that allows for a normal administrative delay andthrough a market or exchange mechanism in which an exchange transaction would createenforceable rights and obligations 2 . Assessing exchangeability between two currenciesrequires an analysis of different factors3. The assessment is based on the entity’s ability toobtain the other currency, not its intention or decision to do so4. HKAS 21 does not specifyhow an entity estimates the spot exchange rate to meet the objective in HKAS 21.19A. Anentity can use an observable exchange rate without adjustments (see HKAS 21.A12-A16) oranother estimation technique (see HKAS 21.A17)5.Who is affectedThe amendments affect only entities exposed to currencies with exchangeability issues, forexample, those operating in jurisdictions where government-imposed foreign exchangecontrols that prohibit exchange of a currency or limit the volume of foreign currencytransactions, or those conducting transactions that involve a foreign currency that is notexchangeable into another currency at a measurement date for a specified purpose. Whileentities in Hong Kong that deal primarily with freely exchangeable currencies are likely toexperience minimal impacts, they should still carefully assess whether they have any exposurethat could bring them within the scope of the amendments. These include considering whetherthe entities and their subsidiaries, joint ventures, joint operations, associates or branches:
•Operate in jurisdictions with foreign exchange restrictions;
•Hold monetary items denominated in currencies that cannot be freely converted; and•Operate in jurisdictions subject to government capital controls.1 See HKAS 21.60M for details of transition requirements.2 HKAS 21.8.3 HKAS 21.8, 8A-8B and A2-A10.4 HKAS 21.A4 and BC45.5 HKAS 21.A11.Action and disclosureEntities should follow the specific guidance in the amendments to assess the exchangeabilityof the currency. If a currency is not exchangeable into another currency, entities shall estimatethe spot exchange rate at the measurement date by applying techniques that meet theobjective to reflect the rate at which an orderly exchange transaction would take place at themeasurement date between market participants under prevailing economic conditions inHKAS 21.19A.When an entity estimates a spot exchange rate because a currency is not exchangeable, itshall provide disclosures6 that help users assess the nature, financial effects and risks towhich the entity is exposed because of the currency not being exchangeable into othercurrency, as well as the spot exchange rate(s) used and the estimation process. They shouldalso disclose information required by paragraph 28 of HKAS 8 Accounting Policies, Changesin Accounting Estimates and Errors7 on initial application.For further understanding, entities can refer to the application guidance in Appendix A to theamendments, the accompanying illustrative examples and the IASB technical staff webcaston the IASB website.II. Topical and emerging issuesWhile the topics8 covered in Closing Out 2024 remain pertinent for 2025 year-end reporting,two emerging areas have gained increased attention this year: global evolution of tariffs anddevelopment of digital assets, particularly stablecoins. This section highlights financialreporting considerations associated with the impacts of these two areas.
1.Financial reporting implications of evolving tariffs and other macroeconomicuncertaintiesGeopolitical risks remain a significant source of uncertainty for global business operations. In2025, evolving tariffs and reciprocal measures have heightened these uncertainties. Tariffsare imposed by governments as a percentage of the value of imported goods, aiming toincrease the cost of foreign products, thereby reducing their competitiveness against domesticalternatives. They can create ripple effects across supply chains, sales and customerrelationships, all of which require careful consideration in financial reporting.While Hong Kong does not impose tariffs on imports, local entities may still be impacted bytariff measures imposed in other jurisdictions. The diagram below sets out the key HKFRSAccounting Standards typically applicable to entities reporting in Hong Kong. This list is notexhaustive. Entities should refer to HKFRS Accounting Standards relevant to theircircumstances.6 HKAS 21.57A-57B and A18-A20.7 From 1 January 2027, HKAS 8 will be retitled to Basis of Preparation of Financial Statements.8 Refer to Closing Out 2024, Section II (P.9-18) for local topics on financial implications of tax deductions for lease reinstatementcosts, Hong Kong land lease extensions, long service payment subsidies and Pillar Two global minimum tax.Diagram 1 – Financial reporting impacts of tariffs under HKFRS Accounting StandardsNote 1: Refer to Example 1 in Section II.3A ‘Disclosures about Uncertainties in the Financial Statements’ for further details.Practical considerations in the above areas are further explained below:
A. Basis of preparation of financial statements – Going concern (HKAS 19)
Tariffs can lead to higher costs, supply chain disruptions, diminished market competitivenessand broader economic uncertainties. These factors may undermine an entity’s ability tocontinue as a going concern and have a substantial impact on its going concern assessment.Clear and transparent disclosure is crucial. HKAS 1 Presentation of Financial Statements(HKAS 8 from 1 January 2027) sets out disclosure requirements regarding going concern.Entities can also refer to the updated educational material published by IASB in May 2025‘Going concern – A focus on disclosure’ for preparing their disclosures based on theircircumstances. The guidance includes a diagram illustrating four scenarios. Notably, wherethere are material uncertainties related to events or conditions that may cast significant doubtupon the entity’s ability to continue as a going concern (i.e. Scenario 3 in the IASB’seducational material), disclosures of those material uncertainties 10 and the significantjudgements applied11 to support the going concern basis are required.9 Refer to HKAS 8 retitled as Basis of Preparation of Financial Statements and HKFRS 18 Presentation and Disclosure inFinancial Statements as appropriate, from 1 January 2027.10 HKAS 1.25 (HKAS 8.6K from 1 January 2027).11 HKAS 1.122 (HKAS 8.27G from 1 January 2027).Financialimplicationsof TariffsGoingconcern(HKAS 1)
AssetImpairment(HKAS 2,HKAS 36,HKFRS 9)
Onerouscontracts(HKAS 37)
Deferred tax(HKAS 12)
Revenuerecognition(HKFRS 15)
Events afterthe reportingperiod(HKAS 10)
Fair valuemeasurement(HKFRS 13)
Important notes:
•Think broadly how importtariffs may affect financialreporting and identify theareas for which measurementand disclosures may apply.•Provide clear, consistent,robust and updated entity-specific disclosures about keyassumptions and judgementsmade as circumstanceschange.• Include material informationeven if it has no immediateimpact today [Note 1].• Monitor ongoingdevelopments and effectivedates of tariffs and reciprocalmeasures.•Ensure alignment andconnectivity with otherinformation presented (e.g.sustainability disclosures,management commentary).Management should consider all available information about the future for at least twelvemonths from the reporting date12 and the events occurring up to the date of authorization forissue of financial statements13. For example, if circumstances deteriorate before authorization,making cessation of trading unavoidable, the financial statements shall not be prepared on agoing concern basis. Management should continuously monitor tariff developments to ensurethe appropriateness of the going concern assumption.B. Other areas of financial reporting(i) Asset impairmenta.Inventory valuation (HKAS 2 Inventories)
Inventories shall be measured at the lower of cost14 and net realizable value15 (NRV). Wheninventory cost exceeds NRV, an NRV provision is recognized. Common scenarios related totariffs that may lead to NRV provisions include:
•Importers: Tariffs are capitalized as part of inventory costs16, resulting in higher overallcosts.•Exporters: Tariff implementation by importing countries may reduce export demand,leading to excess inventory. Decreases in export prices to clear accumulated inventoriesmay lower NRV.•Manufacturers or suppliers: Increased tariffs on raw materials raise inventory costs. Forwork-in-progress inventories, future tariffs may affect estimated cost of completion andhence inventory valuation.Entities that produce and sell products locally should not underestimate the impact of tariffs.They may be indirectly affected by associated macroeconomic changes, such as reduction incustomer demand for their products.b.Impairment of non-financial assets (HKAS 36 Impairment of Assets)
Tariffs can significantly affect impairment testing under HKAS 36 by introducing changes anduncertainties in the timing and amount of expected future cash flows. Key impact onimpairment assessment of assets17 under HKAS 36 include the following:
Timing of impairment testsThe following table sets out when an impairment test shall be performed under HKAS 36:
12 HKAS 1.25-26 (HKAS 8.6K-6L from 1 January 2027).13 Paragraph 14 of HKAS 10 Events after the Reporting Period.14 HKAS 2.10.15 HKAS 2.6-7 and 28-33.16 HKAS 2.10-11.17 HKAS 36 applies to most assets (e.g. property, plant and equipment, right-of-use assets, intangible assets, and goodwill),except for those specified in other HKFRS Accounting Standards. See HKAS 36.2 for assets that are not within the scope ofHKAS 36.Diagram 2 – Timing of impairment testsGeneral requirement for all assets within the scope of HKAS 3618At each reporting date, an entity assesses whether there is any indication that an asset may beimpaired. If yes, the recoverable amount of the asset shall be estimated.Annual impairment test for specific assets19Intangible assets with anindefinite useful lifeIntangible assets that arenot yet available for useGoodwill acquired in a businesscombinationThese assets shall be tested for impairment annually and whenever there is an indication ofimpairment. Such tests may therefore be needed more than once a year if indications arise.The annual test can be conducted at any time during an annual period, provided it is performedat the same time every year. Different intangible assets may be tested at different times.Similarly, different cash-generating units to which goodwill is allocated may also be tested atdifferent times. For newly recognized intangible assets or goodwill acquired in a businesscombination during the year, the test shall be performed before the end of that reporting period.Tariffs may change market conditions and an entity’s expectations of future performance.Newly imposed or adjusted tariffs may constitute an impairment indicator, particularly whenthey undermine an entity’s profitability through higher costs, diminished sales, or necessitatesignificant adjustments to operational strategies. For example, an entity may be compelled tomodify its pricing strategy to sustain customer demand, which may compress profit marginsor shift expected cash flows. These considerations align with those discussed in Part (a) oninventory valuation. Furthermore, if tariffs negatively affect market participants’ view of thevalue of an entity or an investment (e.g. market capitalization falls below carrying amount ofnet assets), an impairment assessment is warranted20.Impact on recoverable amount calculationsAn impairment loss is recognized when the carrying amount of an asset or a cash-generatingunit (CGU) exceeds its recoverable amount. Recoverable amount is defined as the higher ofan asset’s or CGU’s fair value less costs of disposal and its value in use21. HKAS 36 providesguidance on the following two approaches22, 23 for estimating value in use.Diagram 3 – Present value techniques for value in use estimation18 HKAS 36.9.19 HKAS 36.10, 90 and 96. These assets require impairment testing at least annually regardless of indicators of impairment.20 HKAS 36.12(d).21 HKAS 36.6.22 HKAS 36 Appendix A.A4-A6 for the traditional approach.23 HKAS 36.Appendix A.A7-A14 for the expected cash flow approach.•a single most likely cash flow projection•a single discount rate incorporating all the expectations about the future cashflows and the approriate risk premiium•emphasis on selection of an appropriate discount rateTraditional approach•probability-weighted cash flow projections•expected cash flows are risk adjusted•assign probabilities to each of all possible cash flow scenarios•focus on a direct analysis of the cash flows in question and on more explicitstatements of the assumptions used in the measurementExpected cash flow (ECF) approachAlthough the traditional approach may be more common, it relies heavily on discount rateassumptions, which may be more subjective. In contrast, the ECF approach may better reflectuncertainties introduced by tariffs by incorporating a range of possible outcomes in derivingthe best estimate of recoverable amount. Entities may need to revisit their approach accordingto their circumstances.Management’s budgets and forecasts, typically the starting point for estimating future cashflows, should incorporate the impacts of tariffs on strategy, operations and financialperformance. Key assumptions (e.g. sales volume, growth rates, inflation and profit margins)
should be updated based on reasonable and supportable information24.Cash flow projection should reflect conditions known at the reporting date, including:
•tariffs enacted during the reporting period;
•announced tariffs expected to be enacted; and•proposed tariffs with reasonable and supportable information.Whichever approach is used for measuring value in use, discount rates should not double-count risks already reflected in the estimated future cash flows25.Impact on disclosureEntities should ensure disclosures are up to date and tailored to reflect their specificcircumstances. For goodwill or intangible assets with indefinite useful lives, HKAS 36 requiresspecific disclosures including key assumptions used to measure the recoverable amount ofthe CGU and management’s approach used to determine the value assigned to eachassumption26. Tariff measures may necessitate sensitivity analysis disclosures, showing howa reasonably possible change in a key assumption could affect impairment assessments27.Entities should consider disclosing key sources of estimation uncertainty and significantjudgements arising from the uncertainties introduced by tariffs, in accordance with theoverarching requirements of HKAS 1.122 and HKAS 1.125. For example, this may includemanagement’s expectations regarding the duration and magnitude of tariff-related impactswhen determining the recoverable amounts. These disclosure requirements apply to allimpairment assessments and are not limited to goodwill and intangible assets with indefiniteuseful lives. They help enhance users’ understanding of the impairment assessmentsperformed by an entity on its assets.24 HKAS 36.33(a) requires cash flow projections to be based on reasonable and supportable assumptions that representmanagement’s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset.25 HKAS 36.56, Appendix A.A3 and A15.26 HKAS 36.134(d).27 HKAS 36.134(f) and 135(e).c.Impairment of financial assets (HKFRS 9 Financial Instruments)
HKFRS 9 provides guidance on measuring expected credit loss (ECL) for financial assetsmeasured at amortized cost (e.g. trade and other receivables), financial assets measured atfair value through other comprehensive income, lease receivables, contract assets or loancommitments and financial guarantee contracts28. The following table sets out the key impactsof tariffs on ECL measurement under HKFRS 9.HKFRS 9 requirementsTariff implicationsActions to takeGeneral approach – Stage 1 (12-month ECL), Stage 2 and 3 (lifetimeECL)29:
If the asset has experienced asignificant increase in credit risksince initial recognition or creditimpairment, the ECL measurementshall fall into Stage 2 or 3respectively, requiring recognition oflifetime ECL.Tariffs may weaken debtors’ability to repay, increasing creditrisk.Significant increase in credit riskor credit impairment moves afinancial asset from Stage 1 toStage 2 or 3 respectively,requiring lifetime ECL.Entities should closely monitorchanges in credit riskattributable to tariff impacts toensure appropriate staging andmeasurement.Rebuttable presumption30:
Credit risk has significantlyincreased since initial recognition ifcontractual payments are more than30 days past due.When an entity determines thatthere has been a significantincrease in credit risk beforecontractual payments are more than30 past due, the rebuttableassumption does not apply. In suchcases, lifetime ECL are requiredeven though contractual paymentsare less than 30 days past due.Tariff impacts may cause creditdeterioration, even if contractualpayments are less than 30 dayspast due.Debtors significantly affected bytariffs may exhibit signs ofincreased credit risk or creditimpairment, triggering recognitionof lifetime ECL under Stage 2 orStage 3, despite contractualpayments being less than 30 dayspast due.Entities should not solely rely onpast due status but also monitorwhether tariff-relateddevelopments have significantlyincreased credit risk for affecteddebtors and adjust the stagingand ECL measurementaccordingly.Entities use all reasonable andsupportable information withoutundue cost or effort at reportingdate31 (past events, currentconditions and forecasts of futureeconomic conditions) in measuringECL.Tariff implementation andexpectations at reporting dateaffect ECL measurement. If, at thereporting date, tariff impacts arereasonably expected, uncertaintyrelated to these impacts should becarefully assessed and reflectedin ECL measurement at thereporting date.Entities should incorporateforward-looking informationincluding tariff impacts into ECLmeasurement. However, tariffswhich are not reasonablyexpected but announced afterreporting date do not affect theECL measurement.Entities factor in guarantees integralto contractual terms of loanarrangements in measuring ECL32.Guarantees such as those overtrade receivables or standbyletters of credit may not coveradditional costs arising from tariffsor other government-imposedmeasures. As a result, ECL onrelevant receivable balancescannot be mitigated through suchguarantees.Entities should revisit their loanarrangements, particularly theterms of guarantees, and watchout for exclusions (e.g. importtaxes or specific governmentmeasures), and evaluatewhether any effects of theguarantee on ECLmeasurement remainappropriate.28 HKFRS 9.5.5.1.29 HKFRS 9.5.5.1 – 5.5.8.30 HKFRS 9.5.5.11.31 HKFRS 9.5.5.17(c).32 HKFRS 9 Appendix A – definition of ‘credit loss’.Impact on disclosureEntities should update financial instrument risk disclosures under HKFRS 7 FinancialInstruments: Disclosures to reflect the impact of tariff measures, particularly regarding creditrisk exposures. This may involve revising sensitivity analyses and risk management strategiesto show how an entity is actively monitoring and managing risks in response to evolving tarifflandscape. For example, management may adjust its credit assessment processes andcollateral arrangements to mitigate heightened credit risk. For further examples of howmacroeconomic changes impact financial risk exposures, entities can refer to Closing Out
202433.(ii) Onerous contracts (HKAS 37 Provisions, Contingent Liabilities and ContingentAssets)
An ‘onerous contract’ is defined as one where the unavoidable costs of meeting the obligationsunder the contract exceed the expected economic benefits to be received34. ‘Unavoidablecosts’ reflect the least net cost of exiting from the contract, determined as the lower of:
•the cost of fulfilling the contract and•any compensation or penalties arising from failure to fulfill it35 .The following diagram shows examples of contracts that may become onerous due to tariffmeasures:
Diagram 4 – Examples of circumstances that may lead to onerous contractsWhen evaluating whether an onerous provision is needed, entities should carefully review theterms and conditions of their existing contracts. An important step is to determine whether thecontract can be terminated without penalties (e.g. enforceable force majeure clauses). Ifobligation can be avoided, no onerous provision is required.33 Closing Out 2024, Section II.1 (P.7-9)
34 HKAS 37.10.35 HKAS 37.68-68A. HKAS 37.68A further explains the ‘cost of fulfilling a contract’.Purchase contractMinimum purchaserequirements forcontracts ofpurchase of importedgoods subject totariffsPurchase contractAutomatic priceadjustments if thecosts incurred bysuppliers areincreasedRevenue contractFixed price minimumvolume salescontracts, wheretariff costs cannot bepassed to customersOnerous contract exists when:
Unavoidable costs of meeting the obligation > Expected benefits to be receivedAny onerousprovisionrequired?Onerous contracts fall within the scope of HKAS 3736. If an entity has a contract that is onerous,the present obligation under the contract shall be recognized and measured as a provision.Key considerations include:
• Impairment losses: Before establishing a provision for an onerous contract, entities arerequired to first recognize any impairment loss on assets used to fulfill the contract37.• Measurement basis: Entities measure provisions at the best estimate to settle the presentobligation at the reporting date38. Obligations arise only when it is virtually certain that newtariff-related legislation will be enacted39. The effect of possible new legislation is taken intoconsideration in measuring an existing obligation when sufficient objective evidence existsthat the legislation is virtually certain to be enacted40. However, in practice, it is oftenimpossible to be virtually certain until the law is officially enacted. Similarly, in-processrenegotiations with suppliers or customers, or agreements reached after year end, shouldnot be reflected in the provision. Future events can be considered if there is sufficientobjective evidence they will occur41.• Judgement: Significant judgement may be required when assessing whether a contract isonerous and in measuring any resulting provision. For example, estimating expectedbenefits often involve forward-looking assessments related to fluctuations in sales pricesor volume driven by market conditions and customer demand. Judgement may also berequired in determining the lower of cost of fulfilling the contract and the cost of exiting fromthe contract, especially when alternative fulfilment options or termination costs areuncertain or subject to negotiation. Judgements should be applied consistently andsupported by a robust assessment, with clear rationale for key assumptions, sensitivityanalysis and relevant evidence considered.• Disclosures: Entities should provide disclosures required by HKAS 37 42 , including adescription of the nature of the obligations, the expected timing of outflows of economicbenefits and uncertainties about the amount or timing of those outflows. Where appropriate,entities should also consider providing disclosures in accordance with the overarchingrequirements under HKAS 1.122 and HKAS 1.125 regarding key sources of estimationuncertainty and significant judgement applied in determining the provisions.(iii) Deferred tax (HKAS 12 Income Tax)
a.Deferred tax assetsTariffs may lower current income or create losses. Such reductions may underminemanagement’s expectations for future profitability, leading to a downward revision of theirforecasts of future taxable profits. This downward revision often arises from a more cautious36 HKAS 37.66-67.37 HKAS 37.65 and 69.38 HKAS 37.14 and 36.39 HKAS 37.22 and Example 2A appending to HKAS 37 related to consideration of legislation in measuring a provision.40 HKAS 37.50.41 HKAS 37.48.42 HKAS 37.84-85.outlook on future sales growth due to decreased consumer spending and changing marketdynamics under the impact of tariffs. Consequently, the recognition and recoverability ofdeferred tax assets based on estimates of future taxable profits may be affected, similar toother assets discussed in Part B(i) on ‘Asset impairment’.Under HKAS 12, for a deferred tax asset to be recognized, entities should assess whetherthere are sufficient taxable temporary differences relating to the same taxation authority andthe same taxable entity. These differences should be expected to reverse in the same periodas the expected reversal of the deductible temporary difference, or in future periods which atax loss arising from the deferred tax asset can be carried forward43. Where taxable temporarydifferences are insufficient, deferred tax assets may still be recognized if it is probable thatfuture taxable profit will be sufficient to support their recovery. These estimations should bewell-supported by thorough assessments of tariff impacts and entities’ future operations.Entities should also ensure that the assumptions used in forecasting future taxable profits areconsistent with those applied in impairment testing, although the forecasts for future taxableprofits are made on an undiscounted basis44.b.Deferred tax liabilitiesHKAS 12.39 requires an entity to recognize a deferred tax liability for all taxable temporarydifferences associated with investments in subsidiaries, branches and associates, andinterests in joint arrangements, except where both of the conditions in HKAS 12.39 are met:
(a) the parent, investor, joint venturer or joint operator is able to control the timing of thereversal of the temporary difference, and (b) it is probable that the temporary difference willnot reverse in the foreseeable future.In the past, some investors might not have recognized deferred tax liabilities for withholdingtax on undistributed profits of their investees, typically, subsidiaries, based on the rationalethat they could control when the temporary differences would reverse, and the differenceswould not reverse in the future, as profits were intended to be retained within the subsidiariesfor capital reinvestments.Tariffs may change the above assessment. For instance, tariffs could weaken an investor’sfinancial position, prompting the need to access investees’ funds and recover the carryingamount of investments through profits distribution. In such cases, deferred tax liabilities shouldbe recognized for taxable temporary differences related to withholding tax on undistributedprofits, even if investors can still control the timing of reversal of those differences. Thisrecognition may increase profit or loss volatility of investors.43 HKAS 12.28.44 HKAS 12.53.(iv) Revenue recognition (HKFRS 15 Revenue from Contracts with Customers)
Tariffs may affect how entities assess and apply the revenue recognition requirements underHKFRS 15 across various areas. It is therefore important for entities to ensure that theirrevenue recognition practices continue to comply with HKFRS 15. The following two areas areparticularly noteworthy in situations involving tariff-driven price changes:
a. Variable consideration versus contract modificationEntities may determine if tariff costs can be transferred to customers through priceadjustments and whether such adjustments are variable consideration 45 or contractmodifications46.•If the contract includes enforceable terms that allow the importer to automatically passincreased tariff costs to customers, the resulting change in transaction price is a changein the estimate of variable consideration, generally allocated to performance obligationson the same basis as their initial allocation at contract inception47.•A contract modification is a change in the scope or price (or both) of a contract that isapproved by the parties to the contract. If a tariff-related price change is separatelynegotiated and agreed upon with the customer, contract modification requirements apply.Depending on facts and circumstances, contract modification is accounted for as aseparate new contract, a termination of the existing contract and creation of a new one,or as a part of the existing contract48.b. Measuring the progress of completion – input methodTariff measures can significantly affect entities that use input method to measure progress ofperformance obligations satisfied over time 49 and hence their revenue recognition. Theuncertainty regarding the timing and duration of tariff measures adds complexity to theapplication of this method. Entities may find it challenging to accurately estimate costs anddetermine the appropriate percentage of completion for ongoing projects.One of the primary effects of tariffs on the input method is that higher total estimated costs,resulting from tariffs, may decrease the percentage of completion. This potentially decreasescumulative amount of revenue recognized for a financial year. Therefore, entities should watchout for such impacts when preparing their financial statements.45 HKFRS 15.50-59 and 84-85.46 HKFRS 15.18-21 and 90.47 HKFRS 15.88.48 HKFRS 15.20-21.49 HKFRS 15.41-43 and B18-B19.(v) HKAS 10 Events after the Reporting PeriodEntities should refer to the applicable HKFRS Accounting Standards (e.g. HKFRS 9, HKFRS13, HKAS 36 and HKAS 37 as discussed in this section) to assess whether, and how, expectedtariffs should be considered in measuring an item at the reporting date. Generally, suchmeasurements would not be affected by subsequent changes in the entity’s expectations orby actual tariffs announced after the year end that differ from initial expectations. However,these post-balance sheet developments may still have implications for the going concernassessment (see Part A). They may also provide additional evidence about risks anduncertainties that existed at the reporting date, which could be relevant to impairmentassessments (refer to Part B for further discussions on how tariffs may impact impairmentassessments).Entities should disclose all material subsequent events in accordance with HKAS 10, updatingdisclosures to inform users about conditions at the end of the reporting period, and how theseconditions have evolved due to new information received after the reporting date. Disclosuresshould be clear and highlight the uncertainties arising from tariff-related developments, andexplain management’s assessment of those uncertainties, thereby enhancing users’understanding of the impact of subsequent events on the entities50.(vi) HKFRS 13 Fair Value MeasurementHKFRS 13 applies when another HKFRS Accounting Standard requires or permits fair valuemeasurements or disclosures about fair value measurement, except for specific exclusionsset out in HKFRS 13.6-7. Therefore, HKFRS 13 has broad applicability, covering both financialand non-financial assets and liabilities within its scope.Tariffs can have a direct and material impact on fair value measurement when they affect theassumptions that market participants would use at the measurement date. They impact itemsmeasured at fair value, whether recurring or non-recurring, across various Standards. Tariffscan also affect estimates of fair value less costs of disposal in impairment assessments underHKAS 36. When determining fair value under HKFRS 13, entities should consider the followingareas that are impacted by tariffs:
• Market participants’ view:
HKFRS 13 defines fair value as ‘the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants at the measurementdate’. If tariffs are in place or expected by market participants at the measurement date,their effects should be incorporated in the fair value measurement, to the extent that wouldbe considered by market participants, rather than based on an entity’s intentions. Forexample, changes in business models in response to tariff measures or management’sbeliefs that tariffs are temporary are irrelevant unless these views align with those of marketassumptions. The longer a tariff remains in effect, the more likely it is that it will be factored50 Refer to HKAS 10.19-21 for details of requirements.into future cash flow expectations and risk assessments (e.g. expectations of reduced salesvolume and persistently higher costs) when determining fair value.For impairment assessments, the presence of tariffs may trigger the need for suchassessments depending on their impacts on an entity’s specific operations. However, fairvalue estimates under HKFRS 13 remain non-entity-specific. The assumptions used in themeasurement must be consistent with those that would be used by market participants (notmanagement) in pricing the assets.• Valuation techniquesTariffs may require adjustments to the valuation techniques and key assumptions used inthose techniques51, including:
-Income approach: updating cash flow projections to incorporate changes in pricing,demand, costs, discount rate and expected duration of tariffs due to tariff effects.-Market approach: revising estimates based on new or adjusted comparable transactiondata affected by tariffs.-Cost approach: adjusting replacement cost estimates to account for increased importduties.All adjustments should be consistent with the assumptions and views of market participants.• Fair value inputs and disclosure implicationsHKFRS 13 requires maximizing the use of observable inputs and minimizing unobservableinputs in fair value measurements. Tariffs may reduce the availability or reliability ofobservable market data and increase the level of uncertainty around inputs. For instance:
-Comparable market transaction volumes may decline if tariffs disrupt trading volumes.-Inputs previously classified as Level 2 (i.e. observable inputs other than quoted pricesincluded within Level 1) 52 may become unobservable or may require significantadjustments.In such cases, entities may need to use Level 3 unobservable inputs and develop internalmodels using the best information available in the circumstances53, while ensuring that theeffects of tariffs are incorporated in a manner that is consistent with market participantperspectives. Additional Level 3 disclosures 54 should be provided when fair valuemeasurements move to Level 3 of the fair value hierarchy. These include:
-A narrative description of sensitivity for all assets and liabilities categorized within Level3 of the fair value hierarchy to changes in significant unobservable inputs and adescription of any interrelationships between those unobservable inputs; and-A quantitative sensitivity analysis for financial instruments measured at fair value andcategorized within Level 3 of the fair value hierarchy55.51 HKFRS 13.62 and B5-B11.52 HKFRS 13.81.53 HKFRS 13.89.54 HKFRS 13.93(e), (f), (g) and (h) for additional Level 3 disclosure requirements.55 HKFRS 13.93(h)(i)-(ii), BC206-209, BC244(i) and Example 19 in IE66.It is crucial for entities to provide clear and transparent disclosures so that users canunderstand how tariffs have been considered in the valuation and how sensitive thevaluations are to the assumptions and inputs.C. Other considerationsTariffs represent a significant source of global macroeconomic uncertainty, but othermacroeconomic uncertainties, such as inflation and changing interest rates, highlighted inClosing Out 2024 and earlier publications56, will likewise continue to affect 2025 financialreporting. Entities should exercise judgement and make best estimates to ensure thatuncertainties to which they are exposed are properly identified, considered and reflected intheir financial reporting if material.Given the complexities and risks involved, regulators have emphasized the need to manageaudit risks arising from evolving tariffs effectively. Auditors should remain vigilant, proactivelyassess and respond to those risks, and ensure compliance with all relevant standards andmeeting regulatory expectations57.
2.Digital assets – stablecoinsAs digital assets, including stablecoins, gain global popularity, the Hong Kong SARGovernment has responded by enacting the Stablecoins Ordinance (Cap. 656). Gazetted on30 May 2025 and effective from 1 August 2025, the Ordinance establishes a new regulatoryframework for stablecoin activities, empowering the Hong Kong Monetary Authority to regulatefiat-referenced stablecoins and related operations, thereby enhancing protection for theinterests of general public and investors.This development raises important financial reporting questions: How should entities accountfor stablecoins held and what are the key considerations in determining the appropriateaccounting treatment?In June 2019, IFRS IC published an agenda decision on Holding of Cryptocurrencies,explaining how IFRS Accounting Standards apply to holdings of cryptocurrencies. While bothcryptocurrencies and stablecoins are subsets of digital assets, their accounting treatmentsmay differ. The 2019 agenda decision focused on cryptocurrencies that meet the specificscoping criteria58 . According to the agenda decision, these cryptocurrencies are accountedfor under IAS 2 Inventories (HKAS 2 equivalent) if they are held for sale in the ordinary courseof business. If IAS 2 is not applicable, entities apply IAS 38 Intangible Assets (HKAS 38Intangible Assets equivalent) to account for holdings of these cryptocurrencies.56 Closing Out 2024 Section II.1 (P.6-9).57 See the publication ‘How should auditors consider tariff disruptions in audits?’ issued by the Accounting and Financial ReportingCouncil in 2025.58 The agenda decision applies to cryptocurrencies that meet all these characteristics: a) a digital or virtual currency recorded ona distributed ledger that uses cryptography for security; b) not issued by a jurisdictional authority or other party; and c) does notgive rise to a contract between the holder and another party.However, fiat-backed stablecoins may not meet those scoping criteria due to the existence ofan issuer and contractual relationships and therefore fall outside the scope of the 2019 agendadecision. To address this, the HKICPA published guidance in January 2026 on distinguishingcryptocurrencies and stablecoins and determining applicable HKFRS Accounting Standard(s)
for fiat-backed stablecoins from a holder’s perspective.The guidance sets out a decision tree, accompanied by detailed considerations for itsapplication.Diagram 5: Determining the applicable HKFRS Accounting Standards for stablecoinsThe guidance primarily focuses on the left side of the diagram in relation to the application ofHKAS 32, HKAS 7 and HKFRS 9. For considerations relating to HKAS 2 and HKAS 38, asrepresented on the right side of the diagram, entities can refer to the 2019 agenda decision59.The table below highlights the applicable accounting requirements, financial reportingimplications and relevant key factors for considerations when determining whether stablecoinsshould be classified as cash and cash equivalents or other financial assets:
The following table is presented on the assumption that a stablecoin meets the definition of ‘financialasset’ under HKAS 32:
Definition of a financial asset:
Any asset that is:
•Cash;
•An equity instrument of another entity;
•A contractual right to receive cash or another financial asset from another entity;
•A contractual right to exchange financial assets or financial liabilities with another entity under certainconditions; or•A contract that will or may be settled in the entity’s own equity instruments and that meets certainconditions.59 Refer to Section 2 ‘Stablecoins’, P.2-3 of the guidance for relevant considerations or thought process in determining whetherthe stablecoin falls within or outside the scope of the 2019 agenda decision.If a stablecoin qualifies as ‘cash’If a stablecoin is ‘non-cash’ financialassetApplicableaccountingrequirements1) HKAS 32 – Characteristics of cash•Is used as a medium of exchange forsettling transactions for goods orservices.•Acts as a monetary unit in pricinggoods or services.•Serves as a basis for measuring andrecognizing transactions in financialstatements. [HKAS 32.AG3, 2019agenda decision]2) HKAS 7 – components of cash•Cash comprises cash on hand anddemand deposits. [HKAS 7.6].Refer to the definition of a ‘financial asset’,excluding assets that qualify as ‘cash’, todetermine if the stablecoin is ‘non-cash’financial asset.Financial reportingimplications•Assess whether a stablecoinpossesses the characteristics ofcurrency (cash) or demand depositunder HKAS 7 and HKAS 32 asappropriate.•Present and disclose informationrequired by HKAS 7.•Disclose significant judgementsapplied [HKAS 1.122].•Assess whether the entity (holder) hasa contractual right to redeem thestablecoin for cash or another financialasset (rather than non-financial asset).•Apply the recognition andmeasurement requirements of HKFRS9 and disclosure requirements ofHKFRS 7.•Disclose significant judgementsapplied. [HKAS 1.122]Relevant keyfactors forconsiderations•May require judgement and legalopinions to determine whether thestablecoin qualifies as cash in therelevant jurisdictions under applicablelaws and regulations.•Analyze contractual terms, legal rightsand obligations, and relevant facts andcircumstances, to ascertain if theholder has a present contractual rightthat supports classification of thestablecoin as a financial asset.•Factors to consider include:
-Whether redemption rights areconditional and if so, the nature ofthose conditions.-Whether the conditions reflectcharacteristics of stablecoin itself,the holder or the issuer.-Whether the issuer can refuse orsuspend redemptions underspecific circumstances.-Whether any redemption rightsshould be accounted for separatelyunder relevant accountingstandards.•Exercise significant judgement whereredemption rights for stablecoins arecomplex or unclear.•Consider legal or professional adviceto fully understand the entity’s rightsand obligations arising from itsstablecoin holdings.If a stablecoin does not qualify as cash, an entity should assess if it meets the definition of‘cash equivalents’ under HKAS 7.6 for presentation in the statement of financial position andthe statement of cash flows. According to HKAS 7.6 and HKAS 7.7, cash equivalents areshort-term, highly liquid investments that are readily convertible to a known amount of cashand subject to insignificant risks of changes in value, and held to meet short-term cashcommitments rather than for investment or other purposes. They typically have a shortmaturity, generally three months or less from the date of acquisition. When assessing whetherstablecoins could be classified as cash equivalents, entities should consider factors such aswhether the redemption mechanism allows holders to redeem the stablecoins for cash, withoutundue notice, fees or penalties.The guidance emphasizes the need for a careful assessment of the characteristics andcontractual terms of stablecoins, including related legal rights and obligations, to understandtheir nature and economic substance rather than merely legal form. Given the complexity andvariations in contractual arrangements, entities may need to seek legal and professionaladvice to assist their assessment.With rapid global evolution of digital assets, entities should closely monitor regulatorydevelopments and emerging guidance to ensure compliance. In financial reporting, the IASBhas prioritized cryptoassets within its Intangible Assets project, which addresses intangibleassets held for investment. Entities should stay updated on this project and related IASBmaterials, as any future IASB guidance shall prevail over the guidance .
3.Climate-related reporting and connectivityThis year, we highlight two climate-related financial reporting updates that help improveconnectivity across reporting and address climate-related financial reporting issues.A. Disclosures about Uncertainties in the Financial Statements – Amendments toIllustrative Examples on IFRS 7, IFRS 18, IAS 1, IAS 8, IAS 36 and IAS 3760In November 2025, the IASB released Disclosures about Uncertainties in the FinancialStatements, which adds six new illustrative examples to several IFRS Accounting Standards.These examples illustrate how an entity applies existing disclosure requirements in IFRSAccounting Standards to report the effects of uncertainties in its financial statements. Althoughthe examples do not change the requirements of existing IFRS Accounting Standards, theyprovide valuable guidance for effectively addressing climate-related risks and otheruncertainties in financial reporting, as well as enhance the connectivity, consistency andcomparability of information disclosed within and outside the financial statements.Overview of the illustrative examplesThe following table provides a high-level summary of these examples to help entitiesunderstand how to implement the guidance in their own situations.60 Equivalent amendments to respective HKFRS Accounting Standards are issued in February 2026.Important notes:
•Although the examples focus on climate-related scenarios, the principles and requirements illustrated arealso relevant to other types of uncertainties.•No effective date or transition requirements are provided, as the examples are not an integral part of theIFRS Accounting Standards. They are intended to provide additional insights into existing disclosurerequirements and should be implemented in a timely manner.•Although the examples are illustrative, entities should carefully assess how the demonstrated principles mayimpact their disclosures.ExamplesWhat is illustrated?RelatedStandardsMateriality judgements in relation to additional disclosuresExample 1This example explains how an entity assesses materiality of climate-relatedrisks when there appears to be a disconnect between information in financialstatements and information provided elsewhere (e.g. accompanying general-purpose financial reports).It demonstrates two scenarios – both of which have no effect on therecognition or measurement of assets and liabilities and for which nospecific disclosures are required under IFRS Accounting Standards. Itexplains:
•how materiality judgements are applied under IAS 1.31 (IFRS 18.20),aligning with the four-step materiality process set out in paragraphs 33-65of IFRS Practice Statement 2: Making Materiality Judgement, to determinewhether additional disclosures are necessary for users’ understanding.•how qualitative factors may or may not result in disclosures beyond explicitIFRS requirements.•the need to consider both quantitative and qualitative factors whenevaluating whether additional disclosures are material61.IAS 1.31IFRS 18.20IFRSPracticeStatement 2Example 1:
Scenario 1– Materialityjudgementsleading toadditionaldisclosuresBackground:
An entity in a capital-intensive industry is exposed to significant climate-related transition risks. It discloses its climate-related transition plan toreduce greenhouse gas in its general-purpose financial report accompanyingthe financial statements. This plan is strategically important and expected tosignificantly affect its future operations.In preparing its financial statements, the entity considers that the transitionplan does not materially affect its financial position and financialperformance.Applying the Standards:
No specific IFRS Accounting Standard requires disclosure of the financialeffects of the transition plan. The entity therefore considers the requirementsin IAS 1.31 (IFRS 18.20), which requires additional disclosures to meet thecommon information needs of primary users62.The entity considers quantitative and qualitative factors63 specific to itscircumstances. It also performs a ‘step back’ review to evaluate whether,without additional disclosures, the financial statements might appearinconsistent with the information in the accompanying general-purposefinancial reports64. For example, information about changes in manufacturingmethods and investment in more energy-efficient technology might suggestpotential asset impairments; however, no impairment loss has beenrecognized.The entity determines that additional disclosures under IAS 1.31 (IFRS
18.20) – explaining the lack of effect of its transition plan on its financialIAS 1.31IFRS 18.20IFRSPracticeStatement 261 See IAS 1.BC120 (IFRS 18.BC441) for the IASB’s rationale for considering qualitative factors and for the development ofScenarios 1 and 2.62 IAS 1.BC122 (IFRS 18.BC443) explains that an entity focuses on the common information needs of primary users and is notexpected to anticipate the information needs of individual users.63 For entity-specific and external qualitative factors, refer to IAS 1.IG21 (IFRS 18.IE27).64 IAS 1.IG18 (IFRS 18.IE24).ExamplesWhat is illustrated?RelatedStandardsposition and financial performance for the current reporting period – wouldprovide material information and thus include these disclosures in itsfinancial statements65.Example 1:
Scenario 2– Materialjudgementsnot leading toadditionaldisclosuresBackground:
A service provider operating in a low-emission industry discloses itsgreenhouse gas emission policy in a general-purpose financial reportaccompanying its financial statements. It concludes that this policy does notmaterially impact its financial performance nor future operations.Applying the Standards:
In assessing if additional information would provide material information, theentity considers both quantitative and qualitative factors. It determines that 1)
its greenhouse gas emission policy is not expected to significantly affect theentity’s future operations, and 2) the relevant industry has low greenhousegas emissions with limited climate-related transition risks66.In contrast with Scenario 1, the entity determines that no additionaldisclosures are warranted under IAS 1.31 (IFRS 18.20), as explaining thelack of effect of its greenhouse gas emission policy, would not providematerial information in the context of financial statements taken as a whole67.IAS 1.31IFRS 18.20IFRSPracticeStatement 2Assumptions and other sources of estimation uncertaintyExample 2– Disclosure ofassumptions:
specificrequirements:
This example illustrates how an entity discloses key assumptions andsensitivity analysis for goodwill impairment, even if no impairment isrecognized.Background:
An entity with high greenhouse gas emissions operates in somejurisdictions subject to greenhouse gas emission regulations. It determinesthat a CGU’s recoverable amount, which includes significant goodwill,exceeds its carrying amount. However, the CGU’s recoverable amount ismost sensitive to key assumptions about future emission allowance costs.Applying the Standard:
Considering its circumstances, the entity provides tailored, entity-specificdisclosure under IAS 36.134(d)(i)-(ii) relating to determination of the CGU’svalue in use. The disclosure explains all material assumptions used inimpairment assessment, not only the discount rate or growth rate.The entity therefore discloses:
1) The key assumptions, including those related to future emissionallowance costs assumptions and future emission regulations.2) Its approach to determining the values assigned to the key assumptions:
e.g. whether its assumptions about the future price of emissionallowances and future emission regulations are consistent with externalinformation sources; and explain if not.Other disclosure consideration:
Applying IAS 36.134(f), the entity considers providing sensitivityinformation. If a reasonably possible change in assumptions about thefuture price of emission allowances could result in an impairment loss, itdiscloses additional information, e.g. the amount by which the CGU’srecoverable amount exceeds its carrying amount68.IAS
36.134(d)(i)-(ii) and134(f)
Example 3– Disclosure ofassumptions:
generalrequirementsThis example explains that an entity may need to disclose assumptionsabout the future under IAS 1 (IAS 8), even if no specific disclosure isrequired by other IFRS Accounting Standards. It illustrates how an entityidentifies and discloses assumptions that pose a significant risk of materialIAS 1.125and 129IAS 8.31Aand 31E65 IAS 1.IG23 (IFRS 18.IE29).66 IAS 1.IG29 (IFRS 18.IE35).67 IAS 1.IG30 (IFRS 18.IE36).68 IAS 36.IE95.ExamplesWhat is illustrated?RelatedStandardsadjustments to the carrying amount of assets and liabilities within the nextfinancial year.Background:
An entity operating in capital-intensive industry is exposed to climate-related transition risks, with indication of impairment for a CGU. Although theimpairment test concludes that the CGU’s recoverable amount exceeds itscarrying amount, the test involves the use of assumptions related to climate-related transition risks which include future legal and regulatorydevelopments.Applying the Standards:
As the CGU contains no goodwill or indefinite-life intangible asset and noimpairment loss is recognized, IAS 36 does not specifically require disclosureof assumptions used in the impairment assessment. The entity thereforeconsiders the requirements in IAS 1.125 (IAS 8.31A) which requiresdisclosure of sources of estimation uncertainties.The entity evaluates its circumstances (see below) and determines thatdisclosure of key assumptions and details of the nature and carrying amountof the CGU’s non-current assets at the reporting date is necessary under IAS
1.125 (IAS 8.31A) 69:
1) The CGU’s carrying amount represents a large portion of the entity’stotal assets and is highly sensitive to the assumptions.2) The assumptions involve highly uncertain events, increasing the risk ofchanging the assumptions due to new information or developments.3) Frequent climate-related market, economic, regulatory and legaldevelopments may revise the assumptions in the next reporting period.Other disclosure consideration:
Applying IAS 1.129 (IAS 8.31E), the entity considers disclosing qualitativeand quantitative information about the nature of assumptions, the sensitivityof non-current assets’ carrying amount to these assumptions and thereasons for the sensitivity, if such information allows users to betterunderstand management’s judgements.Example 4– Disclosureabout creditriskThis example illustrates the disclosure of information about the effects ofclimate-related risks on an entity’s credit risk exposures and credit riskmanagement practices, and factors relevant to assessing materiality ofinformation.Background:
A financial institution considers the effects of various risks on its credit riskexposures, including climate-related risks. It identifies two portfolios ofloans (i.e. loans to agricultural customers and corporate real estatecustomers) for which climate-related risks have a significant effect on creditrisks.Applying the Standard:
The entity considers the factors below and determines that information aboutthe effects of climate-related risks on its credit risk exposure is material. Ittherefore considers what information to disclose under IFRS 7.35A-36 basedon its circumstances70.Factors considered in assessing materiality:
1) The two portfolios represent a large portion of the entity’s overalllending portfolio.2) Climate-related risks have significant effects on credit risk exposure,compared to other factors, taking into account loan maturities and thenature, likelihood and magnitude of climate-related risks.IFRS 7.35A-69 See IAS 1.IG36 (Guidance on Implementing IAS 8, paragraph 6.6) for details of factors for consideration in applying IAS 1.125(IAS 8.31A).70 See IFRS 7.IG22A for examples of information for disclosures in applying IFRS 7.35A-36.ExamplesWhat is illustrated?RelatedStandards3) External climate-related qualitative factors such as market, economic,regulatory and legal environment and climate-related developments maymake information more likely to influence users’ decisions.Example 5– Disclosureaboutdecommission-ing and site-restorationprovisionsThis example illustrates how IAS 37.85 applies to disclosure of informationabout plant decommissioning and site-restoration obligations, even iftheir effect on the carrying amount of the related provision is immaterial.Background:
A manufacturer has plant decommissioning and site-restoration obligationsin relation to its facilities but expects to maintain and operate some of itsfacilities for a very long time. Therefore, the provision determined based onthe present value of such obligations is not material.Applying the Standard:
The entity considers the factors below and determines that information aboutthe above obligations is material and therefore discloses the informationabout the obligations for each class of provision recognized applying IAS
37.8571.Factors considered in assessing materiality:
1) The costs of settling the obligations are high in nominal terms (i.e.before discounting).2) The risk of early settling the obligations is significant and increasing.3) External climate-related qualitative factors such as market, economic,regulatory and legal environment and climate-related developments maymake information more likely to influence users’ decisions.IAS 37.85Aggregation and DisaggregationExample 6– Disclosure ofdisaggregatedinformationThis example illustrates the principles of disaggregation in IFRS 18.41-42and B110, particularly how an entity might disaggregate information in notesfor a class of property, plant and equipment (PPE) on the basis of dissimilarrisk characteristics to provide material information.Background:
The entity operates PPE that produces high greenhouse gas emissions. Italso invests in alternative, lower-emission PPE within the same class,while continuing to operate the high-emission PPE.Applying the Standard:
Based on its circumstances, the entity concludes that the two types of PPEhave sufficiently dissimilar risk characteristics. As a result, disaggregatinginformation about them in the notes would provide material information toprimary users.Factors considered in assessing materiality72:
1) The two types of PPE represent a large portion of the entity’s totalassets.2) The relevant industry has a high exposure to climate-relatedtransition risks, which may significantly affect how each type of PPE isused and how its carrying amount is recovered.3) External climate-related qualitative factors such as market, economic,regulatory and legal environment and climate-related developments maymake information more likely to influence users’ decisions.IFRS 18.41-42 and B110While the IASB expects entities to have sufficient time to implement disclosure changes, timelyimplementation73 remains crucial to uphold compliance and transparency. The examples71 See Guidance on Implementing IAS 37, Section D – Example 2A Decommissioning and site-restoration obligations, forinformation that the entity discloses applying IAS 37.85. For example, applying IAS 37.85(b), the entity may disclose majorassumptions made concerning future events, such as expected timing of facility closure.72 IFRS 18.IE41.73 IAS 1.BC130 (IFRS 18.BC451).provide further insights into the practical application of the relevant Standards and so someadjustments in existing practices may be required. Notably, even if a climate-related policydoes not affect the recognition or measurement of assets and liabilities (as illustrated inExamples 1 and 5), or specific disclosures are not explicitly required under the existingStandards, additional disclosures may still be warranted. Although the financial impacts ofclimate-related policy are considered not material in both Examples 1 and 5, both entitiesrecognize that climate-related and other uncertainties may still represent material informationfor primary users of financial statements, necessitating additional disclosures.In light of the ever-changing macroeconomic and climate-related environment, and theuncertainties and risks arising from those developments, entities should proactively review theexamples and assess whether any actions are required while maintaining consistency acrossfinancial statements and other reports.B. Recognition of intangible assets from climate-related expenditure (IAS 38Intangible Assets)
In April 2025, the IFRS IC released an agenda decision regarding Recognition of IntangibleAssets from Climate-related Expenditure (IAS 38). The agenda decision addresses a scenariowhere an entity committed to reducing its carbon emissions by 2030 and took various actionsthat resulted in the creation of intellectual capital and establishment of a constructive or legalobligation at the end of the reporting period. The submission questioned whether (1) acquiringcarbon credits and (2) spending on research and development (R&D) activities that resultedin intellectual capital qualify as intangible assets under IAS 38.The IFRS IC focused only on question (2), noting the IASB’s research on pollutant pricingmechanisms (PPMs) and potential future projects that may address question (1). The IFRS ICidentified that there is no significant diversity in accounting for R&D expenditures, nor did thescenario have widespread implications. Therefore, it decided not to add a standard-settingproject to the work plan.Although the IFRS IC did not pursue any further actions, we highlight below some relatedconsiderations and insights that derived from the agenda decision related to climate-relatedfinancial reporting:
TopicsAreas for considerationsIntangible asset recognition– research and developmentexpenditure•Entities should ensure that the recognition criteria74 for intangibleassets in HKAS 38 are applied consistently.Assets and liabilitiesrecognition – carbon credits•Entities acquiring carbon credits should monitor the IASBdevelopments on PPMs and potential future projects and guidancewhich could significantly affect recognition and measurement ofrelated assets and liabilities.74 See HKAS 38.8 for the definition of intangible asset and HKAS 38.51-67 for the accounting requirements of internally generatedintangible assets.TopicsAreas for considerationsConstructive or legalobligations•Entities should evaluate whether commitments (e.g. carbonemission reductions) constitute constructive or legal obligationsunder HKAS 3775 and determine if a provision is required.•For provision recognition, entities may refer to another IFRS ICagenda decision published in April 202476.Disclosures•Entities should provide sufficient disclosures77 for R&D expenditureand provisions as well as significant judgements made in applyingthe related accounting policies if they are material information.Internal controls andprocesses•Entities should ensure robust internal processes and control in placeto track commitments, expenditures and obligations for accuratereporting and compliance.III. IFRS Interpretations Committee Agenda Decisionrelevant to Hong KongThe IFRS IC supports consistent application of IFRS Accounting Standards by issuing agendadecisions that clarify their application to specific situations. These decisions provide the IFRSIC’s rationale and interpretative guidance that entities are expected to apply on a timely basis.As HKFRS Accounting Standards are fully converged with IFRS Accounting Standards, IFRSIC agenda decisions apply equally to entities reporting under HKFRS Accounting Standards.In 2025, the IFRS IC finalized and published five agenda decisions78. Section II discusses theagenda decision on Recognition of Intangible Assets Resulting from Climate-relatedExpenditure (IAS 38). This section highlights another agenda decision concerning issuedguarantees, which is considered particularly relevant for entities reporting in Hong Kong.Guarantees Issued on Obligations of Other Entities – issuer accounting79Entities often issue guarantees on obligations of other entities for various purposes. The IFRSIC received a request on how an entity should account for guarantees that it issues onobligations of its joint venture across three fact patterns involving guarantees that makepayments to a bank, a customer, or another third party if the joint venture fails to meet itsobligations. The question was which IFRS Accounting Standard applies in each scenario.Given the specificity of the fact patterns and the potential for small differences to change theconclusion, the IFRS IC determined not to conclude on the accounting for the individualscenarios. Instead, it provided a framework for assessing the scoping requirements to help75 See HKAS 37.10 for definition of ‘legal obligation’ and ‘constructive obligation’.76 In April 2024, the IFRS IC published an agenda decision on Climate-related Commitments (IAS 37) on whether a company’scommitment to reduce or offset its greenhouse gas emissions creates a constructive obligation and, if so, whether thatconstructive obligation meets the criteria in IAS 37 for recognizing a provision.77 See HKAS 38.118-128 and HKAS 37.84-92 for the applicable disclosure requirements.78 See Appendix of this publication for the complete list of the agenda decisions published in 2025.79 For details, see the IFRS IC agenda decision published in April 2025.determine the applicable IFRS Accounting Standard. The sequence of assessment, adaptedto reflect HKFRS terminology, is presented below:
Diagram 6: Guarantees issued on obligations of other entitiesNote 1: HKFRS 9 defines FGC as ‘a contract that requires the issuer to make specified payments to reimburse theholder for a loss it incurs because a specified debtor fails to make payment when due in accordance with theoriginal or modified terms of a debt instrument’. However, the term ‘debt instrument’ is not defined in HKFRSAccounting Standards. The IFRS IC concluded that an entity applies judgement in interpreting the meaning of thisterm in determining if a guarantee is an FGC.Note 2: HKFRS 17 defines an ‘insurance contract’ as ‘a contract under which one party (the issuer) acceptssignificant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if aspecified uncertain future event (the insured event) adversely affects the policyholder’.Note 3: Once an entity has determined that it issues insurance contracts, it considers if it must account for thesecontracts under HKFRS 17. Meeting the definition of insurance contract does not automatically require accountingunder HKFRS 17, as HKFRS 17 has specific scope exclusions (HKFRS 17.7), and permits entities to choose toapply other HKFRS Accounting Standards (HKFRS 17.8-8A) in certain cases. Specifically,•Fixed-fee service contracts: If a contract’s primary purpose is to provide services for a fixed fee and specifiedconditions are met, an entity may elect to apply either HKFRS 15 or HKFRS 17 on a contract-by-contract basis,and the choice for each contract is irrevocable.•Contracts with limited insurance compensation: If a contract limits compensation for insured events to theamount otherwise required to settle the policyholder’s obligation created by the contract, an entity may opt toapply either HKFRS 9 or HKFRS 17 (unless excluded under HKFRS 17.7). The entity shall make that choicefor each portfolio of insurance contracts, and the choice for each portfolio is irrevocable.Note 4: HKFRS 9 might be applicable if the guarantee is a loan commitment (HKFRS 9.2.3) or a derivative (HKFRS9 Appendix A), or otherwise meets the definition of a financial liability as defined in HKAS 32.Note 5: HKFRS 15 might be applicable if the counterparty to the guarantee is a customer, and the guarantee is notwithin the scope of other HKFRS Accounting Standards (HKFRS 15.5-8).Note 6: HKAS 37 is applicable only if the guarantee gives rise to a provision, contingent liability or contingent assetthat is not within the scope of other HKFRS Accounting Standards (HKAS 37.5).An entity should assess which HKFRS Accounting Standard applies to a guarantee bythoroughly reviewing the contract’s terms, as this assessment can significantly affect theaccounting outcomes. For example, under HKFRS 9, unless the contract is designated asmeasured at fair value through profit or loss at initial recognition, an FGC is initially recognizedat fair value and subsequently measured at the higher of the loss allowance under HKFRS 9and the amount initially recognized, less cumulative amortization of income recognized inaccordance with the principles of HKFRS 1580. In contrast, HKFRS 17 would require an FGCto be measured at the total of the fulfilment cash flows and any contractual service margin(unearned profit), unless the simplified measurement model (i.e. premium allocation approach)
is applied.Judgement may be necessary, for instance, in determining whether a guarantee is an FGCunder HKFRS 9. Entities should disclose the significant judgements made in applying theiraccounting policies for issued guarantees, as required by HKAS 1.12281.IV. HKFRS Accounting Standards issued but not yeteffective as of 1 January 20252025 is relatively a quiet year, with no new major HKFRS Accounting Standards issued.Among the amendments and new HKFRS Accounting Standards issued but not yet effective,Amendments to HKFRS 9 and HKFRS 7 on classification and measurement of financialInstruments, as well as HKFRS 18 on presentation and disclosure of financial statements, areexpected to have more widespread and significant impact on entities reporting in Hong Kong.For key requirements and implications of HKFRS 18 and the amendments to HKFRS 9 andHKFRS 7, please refer to Closing Out 202482 published in 2025. This section is a high-levelrecap of key reminders and developments.80 See HKFRS 9.5.1.1 for initial measurement requirements, and HKFRS 9.4.2.1(c) and B2.5 for requirements on subsequentmeasurement.81 HKAS 8.27G from 1 January 2027.82 Closing Out 2024, Section III, P.21-28.
1.Amendments to HKFRS 9 and HKFRS 7 – mandatorily effective in 2026The amendments address the requirements for the initial recognition or derecognition offinancial assets and liabilities, classification of financial assets and related disclosures. Whiletheir impact will vary among entities, the amendments may change certain common practicesin Hong Kong, such as derecognition of financial liabilities upon issuance of cheques.As highlighted in Closing Out 2024, it is common for entities in Hong Kong to derecognize atrade payable when a cheque is issued to a creditor. Entities then perform bank reconciliationprocedures to reconcile any differences in the closing balance between their bank ledger andbank statements. The amendments will change this practice, requiring an entity to derecognizea trade payable only when the creditor receives the cash. Similarly, a trade receivable shouldbe derecognized when the entity receives cash from the bank following cheque clearance, notat the time when the cheque is received.Entities should also assess whether other aspects of the amendments apply to theircircumstances. For instance, if they hold financial assets with contingent features orinvestments in equity instruments designated at fair value through other comprehensiveincome, the amendments provide additional application guidance concerning classificationand disclosure.By now, we expect most entities to have completed their initial impact assessments, with thoseaffected progressing with necessary system and process changes for a smooth transition uponinitial adoption in 2026. Those that have not yet begun this process should act without delay.Although the amendments take effect in 2026, entities are expected to provide disclosures intheir 2025 financial statements as required by HKAS 8.30-31, including the known orreasonably estimable information about the possible impact of the amendments on theirfinancial statements in the period of initial application.
2.HKFRS 18 – mandatorily effective in 2027HKFRS 18, which aims to improve transparency and comparability of information aboutentities’ financial performance, will replace HKAS 1. Although HKFRS 18 is effective for annualreporting periods beginning on or after 1 January 2027, it shall be applied retrospectively. Thismeans that 2026 comparatives in the 2027 financial statements will be restated. Furthermore,as required by HKAS 8.30-31, entities should disclose in their December 2025 financialstatements the possible impacts of initial application of new or amended HKFRS AccountingStandards. Entities that have not yet begun preparations should act promptly to ensure thatnecessary changes are in place for preparing 2026 comparatives.HKFRS 18 is expected to have broad implications across industries due to new presentationand disclosure requirements. Key changes include the requirements to classify all income andexpenses into five categories – operating, investing, financing, discontinued operations andincome taxes – in the statement of profit or loss, and to present new subtotals for operatingprofit or loss and profit or loss before financing and income taxes. HKFRS 18 also strengthensguidance on aggregation and disaggregation of information, introduces new disclosures formanagement-defined performance measures and removes classification options for interestsand dividends in the statement of cash flows.To gain a deeper understanding of HKFRS 18, entities may refer to the dedicated webpagedeveloped by the HKICPA, which provides a comprehensive collection of technical resourcesand guidance on HKFRS 18. Additional implementation support and resources will be addedto the webpage throughout 2026, so entities are encouraged to visit the webpage regularly forthe latest updates.Recent developments of IFRS 18As the effective date of IFRS 18 approaches, entities are identifying practical applicationquestions in the course of implementation. At its November 2025 meeting, the IFRS ICdiscussed submissions concerning the application of IFRS 18 and published several tentativeagenda decisions (TADs) on 8 December 2025 for public comment until 6 February 2026. TheTADs cover the following topics:
TopicsIssues raised in the submissionsClassification of Gains andLosses on a DerivativeManaging a ForeignCurrency Exposure•How an entity applies IFRS 18 to classify gains or losses arising froma derivative that is used to manage the foreign currency risk of a netliability exposure, but is not designated as a hedging instrumentapplying IFRS 9, in its consolidated statement of profit or loss.Presentation of Taxes orOther Charges that are NotIncome Taxes within theScope of IAS 12 IncomeTaxes•Whether an entity applying IFRS 18 is permitted to present taxes orother charges that are not income taxes within the scope of IAS 12 inthe ‘income tax expense or income’ line item of the statement of profitor loss required by IFRS 18.75(a)(iv) or in the income taxes categoryof the statement of profit or loss.•In this context, the IC proposed further updates to two IFRS IC'sagenda decisions for IFRS 18 [November 2025] which it hadpreviously proposed updates: (1) Presentation of payments on non-income taxes (IAS 1); and (2) Classification of tonnage taxes (IAS 12).The IFRS IC is seeking feedback only on the proposed updates, noton other aspects of these two agenda decisions.Scope of the Requirementto Disclose Expenses byNature•Whether the requirements in IFRS 18.83 apply (1) only when an entitypresents operating expenses listed in IFRS 18.75(a)(ii) by function inthe operating category of the statement of profit or loss; or (2) whenan entity presents any expense by function in the operating categoryof the statement of profit or loss, including expenses listed in IFRS
18.75(b)-(c).Assessment of a SpecifiedMain Business Activity forthe purposes of theSeparate FinancialStatements of a Parent•How a parent applies IFRS 18 to assess, for the purpose of itsseparate financial statements, whether it has a specified mainbusiness activity of investing in unconsolidated subsidiaries.Entities can explore the detailed fact patterns, the IFRS IC’s analyses and the TADs via theprovided hyperlinks. The IASB’s website also provides live and on-demand meetingrecordings and related meeting papers for further reference.Why these developments matter?The issues raised with the IFRS IC underscore the practical challenges and wide-rangingimplications of IFRS 18’s new presentation and disclosure requirements. By reviewing theTADs, entities can identify whether similar scenarios exist in their own operations and assessthe potential impacts on future financial statements. This review also helps pinpoint areaswhere updates to accounting policies, systems, or processes may be needed.These developments reinforce the importance of proactive implementation planning. Earlyidentification of potential issues allows entities to address them adequately through internalanalysis, discussions with auditors or consultation with professional advisors before HKFRS18 becomes effective. Entities should also closely monitor the release of final agendadecisions, as these may have direct implications for their reporting and compliance.Appendix – New and amended HKFRS AccountingStandards as well as Agenda Decisions issued by the IFRSICThe following amended HKFRS Accounting Standard became effective as of 1 January 2025:
StandardDescriptionAmendments to HKAS 21 TheEffects of Changes in ForeignExchange Rates – Lack ofExchangeabilityThe amendments require an entity to apply a consistentapproach to assessing whether a currency is exchangeableinto another currency and, when it is not, to estimating thespot exchange rate to use and determining the disclosures toprovide.The following new and amended HKFRS Accounting Standards and Hong Kong Interpretationhave been issued but are not yet effective as of 1 January 2025. They are available for earlyadoption.Effective from annualperiods beginning on orafter (in chronologicalorder):
New and amended HKFRS Accounting Standards andInterpretation1 January 2026Amendments to HKFRS 9 Financial Instruments and HKFRS 7Financial Instruments: Disclosures – Amendments to the Classificationand Measurement of Financial Instruments1 January 2026Annual Improvements to HKFRS Accounting Standards — Volume 11:
•Amendments to HKFRS 1 First-time Adoption of Hong KongFinancial Reporting Standards•Amendments to HKFRS 7 Financial Instruments: Disclosures andGuidance on Implementing HKFRS 7•Amendments to HKFRS 9 Financial Instruments•Amendments to HKFRS 10 Consolidated Financial Statements•Amendments to HKAS 7 Statement of Cash Flows1 January 2026Amendments to HKFRS 9 Financial Instruments and HKFRS 7Financial Instruments: Disclosures – Contracts Referencing Nature-dependent Electricity1 January 2027HKFRS 18 Presentation and Disclosure in Financial Statements1 January 2027HKFRS 19 Subsidiaries without Public Accountability: Disclosures1 January 2027Amendments to HKFRS 19 Subsidiaries without Public Accountability:
DisclosuresEffective from annualperiods beginning on orafter (in chronologicalorder):
New and amended HKFRS Accounting Standards andInterpretation1 January 2027Amendments to Hong Kong Interpretation 5 Presentation of FinancialStatements – Classification by the Borrower of a Term Loan thatContains a Repayment on Demand ClauseA date to be determinedby the IASBAmendments to HKFRS 10 Consolidated Financial Statements andHKAS 28 Investments in Associates and Joint Ventures – Sale orContribution of Assets between an Investor and its Associate or JointVentureThe following agenda decisions were published by the IFRS IC in 2025:
Publication monthAgenda DecisionsFebruary 2025•Classification of Cash Flows related to Variation Margin Calls on‘Collateralised-to-Market’ Contracts – IAS 7 Statement of CashFlowsApril 2025•Recognition of Revenue from Tuition Fees – IFRS 15 Revenuefrom Contracts with Customers•Recognition of Intangible Assets from Climate-related Expenditure– IAS 38 Intangible Assets•Guarantees Issued on Obligations of Other EntitiesJuly 2025•Assessing Indicators of Hyperinflationary Economies – IAS 29Financial Reporting in Hyperinflationary EconomiesAbout the Standard Setting DepartmentThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only body authorizedby law to set and promulgate standards relating to financial reporting, auditing, ethics andsustainability disclosures for professional accountants in Hong Kong. The due processdocuments of the Standard Setting Department (SSD) explain the processes and proceduresfor developing local standards and adopting international standards.To find out more about how SSD contributes to international standard-setting, please visit:
https://www.hkicpa.org.hk/en/Standards-setting/Standards/How-we-set-standards-and-contribute-to-international-standardsTo access SSD’s latest publications and webcasts, please visit:
https://www.hkicpa.org.hk/en/Standards-setting/Standards/Whats-News/2026Connect with us on social media:
HKICPA Standard Setting Department@hkicpa.officialHong Kong Institute of Certified Public AccountantsThis publication is developed by the SSD of the HKICPA and is for general reference only.The HKICPA, its staff, Council and its committees do not accept any responsibility or liabilityin respect of the publication or any consequence that may arise from any person acting orrefraining from acting as a result of any materials in the publication. Members of the HKICPAand other users of this publication should also read the full HKFRS Accounting Standards, asfound in the HKICPA Members’ Handbook for further reference and seek professional advicewhere necessary when applying the references contained in this publication. The SSDwelcomesyourcommentsonthispublication.Theycanbesenttocommentletters@hkicpa.org.hk.2642_20260225AuthorCarrie LauAssociate Director,Standard Setting,HKICPAThe author thanks members of the Financial Reporting Standards Committee of the HKICPA for theirinput in reviewing this publication.Hong Kong Institute of Certified Public Accountants37th Floor, Wu Chung House213 Queen’s Road East, Wanchai, Hong KongTel: (852) 2287 7228Fax: (852) 2865 6603Email: hkicpa@hkicpa.org.hkWebsite: www.hkicpa.org.hk
Financial reporting considerations for closing out 2025
下载原件STANDARDSETTINGFinancial reportingconsiderations for closing outFEBRUARY 2026CONTENTSIntroductionI.Amended HKFRS Accounting Standard mandatorily effective on1 January 2025II.Topical and emerging issues
1.Financial reporting implications of evolving tariffs and othermacroeconomic uncertainties
2.Digital assets – stablecoins
3.Climate-related reporting and connectivityIII. IFRS Interpretations Committee Agenda Decision relevant to Hong Kong 25IV. HKFRS Accounting Standards issued but not yet effective as of1 January 2025Appendix – New and amended HKFRS Accounting Standards as well asAgenda Decisions issued by the IFRS Interpretations CommitteeIntroductionThis publication highlights key financial reporting reminders and topical areas that are relevantto entities preparing annual financial statements with December 2025 year-end under HKFRSAccounting Standards. The insights may also be applicable to future reporting periods.The publication is structured into four sections. The first section outlines the amendments toHKFRS Accounting Standards that become mandatorily effective for annual reporting periodsbeginning on or after 1 January 2025. The second and third sections address topical andemerging topics in relation to evolving tariffs, stablecoins, and IFRS Interpretations Committee(IFRS IC)’s agenda decision that may affect the preparation of financial statements for 2025and future years. The final section summarizes updates on major new and amended HKFRSAccounting Standards that have been issued but are not yet effective as of 1 January 2025.While this publication highlights key considerations for current and upcoming financialreporting periods, it does not cover all potential issues that may arise in preparing financialstatements. Entities should undertake a thorough and holistic approach when preparing andreviewing their financial statements and related reports, such as sustainability reports, toensure that disclosures are clear, consistent and reflect up-to-date material information.Entities should exercise judgement and refer to HKFRS Accounting Standards in theHKICPA’s Members’ Handbook for further guidance relevant to their circumstances.I.Amended HKFRS Accounting Standard mandatorilyeffective on 1 January 2025Amendments to HKAS 21 The Effects of Changes in Foreign Exchange Rates – Lack ofExchangeabilityThe HKFRS update cycle for 2025 is relatively light, with only one mandatory amendmentbecoming effective and no major changes for entities to adopt this year. This amendmentrelates to the amendments to IAS 21 The Effects of Changes in Foreign Exchange Ratesissued by the International Accounting Standards Board (IASB) in August 2023.Following the IASB’s issuance, the HKICPA issued equivalent amendments to HKAS 21 inSeptember 2023. The amendments require an entity to apply a consistent approach toassessing whether a currency is exchangeable into another currency and, when it is not, toestimating the spot exchange rate to use and determining the disclosures to provide.Comparative information shall not be restated when initially applying the amendments1.A currency is considered to be exchangeable into another currency when an entity can obtainthe other currency within a time frame that allows for a normal administrative delay andthrough a market or exchange mechanism in which an exchange transaction would createenforceable rights and obligations 2 . Assessing exchangeability between two currenciesrequires an analysis of different factors3. The assessment is based on the entity’s ability toobtain the other currency, not its intention or decision to do so4. HKAS 21 does not specifyhow an entity estimates the spot exchange rate to meet the objective in HKAS 21.19A. Anentity can use an observable exchange rate without adjustments (see HKAS 21.A12-A16) oranother estimation technique (see HKAS 21.A17)5.Who is affectedThe amendments affect only entities exposed to currencies with exchangeability issues, forexample, those operating in jurisdictions where government-imposed foreign exchangecontrols that prohibit exchange of a currency or limit the volume of foreign currencytransactions, or those conducting transactions that involve a foreign currency that is notexchangeable into another currency at a measurement date for a specified purpose. Whileentities in Hong Kong that deal primarily with freely exchangeable currencies are likely toexperience minimal impacts, they should still carefully assess whether they have any exposurethat could bring them within the scope of the amendments. These include considering whetherthe entities and their subsidiaries, joint ventures, joint operations, associates or branches:
•Operate in jurisdictions with foreign exchange restrictions;
•Hold monetary items denominated in currencies that cannot be freely converted; and•Operate in jurisdictions subject to government capital controls.1 See HKAS 21.60M for details of transition requirements.2 HKAS 21.8.3 HKAS 21.8, 8A-8B and A2-A10.4 HKAS 21.A4 and BC45.5 HKAS 21.A11.Action and disclosureEntities should follow the specific guidance in the amendments to assess the exchangeabilityof the currency. If a currency is not exchangeable into another currency, entities shall estimatethe spot exchange rate at the measurement date by applying techniques that meet theobjective to reflect the rate at which an orderly exchange transaction would take place at themeasurement date between market participants under prevailing economic conditions inHKAS 21.19A.When an entity estimates a spot exchange rate because a currency is not exchangeable, itshall provide disclosures6 that help users assess the nature, financial effects and risks towhich the entity is exposed because of the currency not being exchangeable into othercurrency, as well as the spot exchange rate(s) used and the estimation process. They shouldalso disclose information required by paragraph 28 of HKAS 8 Accounting Policies, Changesin Accounting Estimates and Errors7 on initial application.For further understanding, entities can refer to the application guidance in Appendix A to theamendments, the accompanying illustrative examples and the IASB technical staff webcaston the IASB website.II. Topical and emerging issuesWhile the topics8 covered in Closing Out 2024 remain pertinent for 2025 year-end reporting,two emerging areas have gained increased attention this year: global evolution of tariffs anddevelopment of digital assets, particularly stablecoins. This section highlights financialreporting considerations associated with the impacts of these two areas.
1.Financial reporting implications of evolving tariffs and other macroeconomicuncertaintiesGeopolitical risks remain a significant source of uncertainty for global business operations. In2025, evolving tariffs and reciprocal measures have heightened these uncertainties. Tariffsare imposed by governments as a percentage of the value of imported goods, aiming toincrease the cost of foreign products, thereby reducing their competitiveness against domesticalternatives. They can create ripple effects across supply chains, sales and customerrelationships, all of which require careful consideration in financial reporting.While Hong Kong does not impose tariffs on imports, local entities may still be impacted bytariff measures imposed in other jurisdictions. The diagram below sets out the key HKFRSAccounting Standards typically applicable to entities reporting in Hong Kong. This list is notexhaustive. Entities should refer to HKFRS Accounting Standards relevant to theircircumstances.6 HKAS 21.57A-57B and A18-A20.7 From 1 January 2027, HKAS 8 will be retitled to Basis of Preparation of Financial Statements.8 Refer to Closing Out 2024, Section II (P.9-18) for local topics on financial implications of tax deductions for lease reinstatementcosts, Hong Kong land lease extensions, long service payment subsidies and Pillar Two global minimum tax.Diagram 1 – Financial reporting impacts of tariffs under HKFRS Accounting StandardsNote 1: Refer to Example 1 in Section II.3A ‘Disclosures about Uncertainties in the Financial Statements’ for further details.Practical considerations in the above areas are further explained below:
A. Basis of preparation of financial statements – Going concern (HKAS 19)
Tariffs can lead to higher costs, supply chain disruptions, diminished market competitivenessand broader economic uncertainties. These factors may undermine an entity’s ability tocontinue as a going concern and have a substantial impact on its going concern assessment.Clear and transparent disclosure is crucial. HKAS 1 Presentation of Financial Statements(HKAS 8 from 1 January 2027) sets out disclosure requirements regarding going concern.Entities can also refer to the updated educational material published by IASB in May 2025‘Going concern – A focus on disclosure’ for preparing their disclosures based on theircircumstances. The guidance includes a diagram illustrating four scenarios. Notably, wherethere are material uncertainties related to events or conditions that may cast significant doubtupon the entity’s ability to continue as a going concern (i.e. Scenario 3 in the IASB’seducational material), disclosures of those material uncertainties 10 and the significantjudgements applied11 to support the going concern basis are required.9 Refer to HKAS 8 retitled as Basis of Preparation of Financial Statements and HKFRS 18 Presentation and Disclosure inFinancial Statements as appropriate, from 1 January 2027.10 HKAS 1.25 (HKAS 8.6K from 1 January 2027).11 HKAS 1.122 (HKAS 8.27G from 1 January 2027).Financialimplicationsof TariffsGoingconcern(HKAS 1)
AssetImpairment(HKAS 2,HKAS 36,HKFRS 9)
Onerouscontracts(HKAS 37)
Deferred tax(HKAS 12)
Revenuerecognition(HKFRS 15)
Events afterthe reportingperiod(HKAS 10)
Fair valuemeasurement(HKFRS 13)
Important notes:
•Think broadly how importtariffs may affect financialreporting and identify theareas for which measurementand disclosures may apply.•Provide clear, consistent,robust and updated entity-specific disclosures about keyassumptions and judgementsmade as circumstanceschange.• Include material informationeven if it has no immediateimpact today [Note 1].• Monitor ongoingdevelopments and effectivedates of tariffs and reciprocalmeasures.•Ensure alignment andconnectivity with otherinformation presented (e.g.sustainability disclosures,management commentary).Management should consider all available information about the future for at least twelvemonths from the reporting date12 and the events occurring up to the date of authorization forissue of financial statements13. For example, if circumstances deteriorate before authorization,making cessation of trading unavoidable, the financial statements shall not be prepared on agoing concern basis. Management should continuously monitor tariff developments to ensurethe appropriateness of the going concern assumption.B. Other areas of financial reporting(i) Asset impairmenta.Inventory valuation (HKAS 2 Inventories)
Inventories shall be measured at the lower of cost14 and net realizable value15 (NRV). Wheninventory cost exceeds NRV, an NRV provision is recognized. Common scenarios related totariffs that may lead to NRV provisions include:
•Importers: Tariffs are capitalized as part of inventory costs16, resulting in higher overallcosts.•Exporters: Tariff implementation by importing countries may reduce export demand,leading to excess inventory. Decreases in export prices to clear accumulated inventoriesmay lower NRV.•Manufacturers or suppliers: Increased tariffs on raw materials raise inventory costs. Forwork-in-progress inventories, future tariffs may affect estimated cost of completion andhence inventory valuation.Entities that produce and sell products locally should not underestimate the impact of tariffs.They may be indirectly affected by associated macroeconomic changes, such as reduction incustomer demand for their products.b.Impairment of non-financial assets (HKAS 36 Impairment of Assets)
Tariffs can significantly affect impairment testing under HKAS 36 by introducing changes anduncertainties in the timing and amount of expected future cash flows. Key impact onimpairment assessment of assets17 under HKAS 36 include the following:
Timing of impairment testsThe following table sets out when an impairment test shall be performed under HKAS 36:
12 HKAS 1.25-26 (HKAS 8.6K-6L from 1 January 2027).13 Paragraph 14 of HKAS 10 Events after the Reporting Period.14 HKAS 2.10.15 HKAS 2.6-7 and 28-33.16 HKAS 2.10-11.17 HKAS 36 applies to most assets (e.g. property, plant and equipment, right-of-use assets, intangible assets, and goodwill),except for those specified in other HKFRS Accounting Standards. See HKAS 36.2 for assets that are not within the scope ofHKAS 36.Diagram 2 – Timing of impairment testsGeneral requirement for all assets within the scope of HKAS 3618At each reporting date, an entity assesses whether there is any indication that an asset may beimpaired. If yes, the recoverable amount of the asset shall be estimated.Annual impairment test for specific assets19Intangible assets with anindefinite useful lifeIntangible assets that arenot yet available for useGoodwill acquired in a businesscombinationThese assets shall be tested for impairment annually and whenever there is an indication ofimpairment. Such tests may therefore be needed more than once a year if indications arise.The annual test can be conducted at any time during an annual period, provided it is performedat the same time every year. Different intangible assets may be tested at different times.Similarly, different cash-generating units to which goodwill is allocated may also be tested atdifferent times. For newly recognized intangible assets or goodwill acquired in a businesscombination during the year, the test shall be performed before the end of that reporting period.Tariffs may change market conditions and an entity’s expectations of future performance.Newly imposed or adjusted tariffs may constitute an impairment indicator, particularly whenthey undermine an entity’s profitability through higher costs, diminished sales, or necessitatesignificant adjustments to operational strategies. For example, an entity may be compelled tomodify its pricing strategy to sustain customer demand, which may compress profit marginsor shift expected cash flows. These considerations align with those discussed in Part (a) oninventory valuation. Furthermore, if tariffs negatively affect market participants’ view of thevalue of an entity or an investment (e.g. market capitalization falls below carrying amount ofnet assets), an impairment assessment is warranted20.Impact on recoverable amount calculationsAn impairment loss is recognized when the carrying amount of an asset or a cash-generatingunit (CGU) exceeds its recoverable amount. Recoverable amount is defined as the higher ofan asset’s or CGU’s fair value less costs of disposal and its value in use21. HKAS 36 providesguidance on the following two approaches22, 23 for estimating value in use.Diagram 3 – Present value techniques for value in use estimation18 HKAS 36.9.19 HKAS 36.10, 90 and 96. These assets require impairment testing at least annually regardless of indicators of impairment.20 HKAS 36.12(d).21 HKAS 36.6.22 HKAS 36 Appendix A.A4-A6 for the traditional approach.23 HKAS 36.Appendix A.A7-A14 for the expected cash flow approach.•a single most likely cash flow projection•a single discount rate incorporating all the expectations about the future cashflows and the approriate risk premiium•emphasis on selection of an appropriate discount rateTraditional approach•probability-weighted cash flow projections•expected cash flows are risk adjusted•assign probabilities to each of all possible cash flow scenarios•focus on a direct analysis of the cash flows in question and on more explicitstatements of the assumptions used in the measurementExpected cash flow (ECF) approachAlthough the traditional approach may be more common, it relies heavily on discount rateassumptions, which may be more subjective. In contrast, the ECF approach may better reflectuncertainties introduced by tariffs by incorporating a range of possible outcomes in derivingthe best estimate of recoverable amount. Entities may need to revisit their approach accordingto their circumstances.Management’s budgets and forecasts, typically the starting point for estimating future cashflows, should incorporate the impacts of tariffs on strategy, operations and financialperformance. Key assumptions (e.g. sales volume, growth rates, inflation and profit margins)
should be updated based on reasonable and supportable information24.Cash flow projection should reflect conditions known at the reporting date, including:
•tariffs enacted during the reporting period;
•announced tariffs expected to be enacted; and•proposed tariffs with reasonable and supportable information.Whichever approach is used for measuring value in use, discount rates should not double-count risks already reflected in the estimated future cash flows25.Impact on disclosureEntities should ensure disclosures are up to date and tailored to reflect their specificcircumstances. For goodwill or intangible assets with indefinite useful lives, HKAS 36 requiresspecific disclosures including key assumptions used to measure the recoverable amount ofthe CGU and management’s approach used to determine the value assigned to eachassumption26. Tariff measures may necessitate sensitivity analysis disclosures, showing howa reasonably possible change in a key assumption could affect impairment assessments27.Entities should consider disclosing key sources of estimation uncertainty and significantjudgements arising from the uncertainties introduced by tariffs, in accordance with theoverarching requirements of HKAS 1.122 and HKAS 1.125. For example, this may includemanagement’s expectations regarding the duration and magnitude of tariff-related impactswhen determining the recoverable amounts. These disclosure requirements apply to allimpairment assessments and are not limited to goodwill and intangible assets with indefiniteuseful lives. They help enhance users’ understanding of the impairment assessmentsperformed by an entity on its assets.24 HKAS 36.33(a) requires cash flow projections to be based on reasonable and supportable assumptions that representmanagement’s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset.25 HKAS 36.56, Appendix A.A3 and A15.26 HKAS 36.134(d).27 HKAS 36.134(f) and 135(e).c.Impairment of financial assets (HKFRS 9 Financial Instruments)
HKFRS 9 provides guidance on measuring expected credit loss (ECL) for financial assetsmeasured at amortized cost (e.g. trade and other receivables), financial assets measured atfair value through other comprehensive income, lease receivables, contract assets or loancommitments and financial guarantee contracts28. The following table sets out the key impactsof tariffs on ECL measurement under HKFRS 9.HKFRS 9 requirementsTariff implicationsActions to takeGeneral approach – Stage 1 (12-month ECL), Stage 2 and 3 (lifetimeECL)29:
If the asset has experienced asignificant increase in credit risksince initial recognition or creditimpairment, the ECL measurementshall fall into Stage 2 or 3respectively, requiring recognition oflifetime ECL.Tariffs may weaken debtors’ability to repay, increasing creditrisk.Significant increase in credit riskor credit impairment moves afinancial asset from Stage 1 toStage 2 or 3 respectively,requiring lifetime ECL.Entities should closely monitorchanges in credit riskattributable to tariff impacts toensure appropriate staging andmeasurement.Rebuttable presumption30:
Credit risk has significantlyincreased since initial recognition ifcontractual payments are more than30 days past due.When an entity determines thatthere has been a significantincrease in credit risk beforecontractual payments are more than30 past due, the rebuttableassumption does not apply. In suchcases, lifetime ECL are requiredeven though contractual paymentsare less than 30 days past due.Tariff impacts may cause creditdeterioration, even if contractualpayments are less than 30 dayspast due.Debtors significantly affected bytariffs may exhibit signs ofincreased credit risk or creditimpairment, triggering recognitionof lifetime ECL under Stage 2 orStage 3, despite contractualpayments being less than 30 dayspast due.Entities should not solely rely onpast due status but also monitorwhether tariff-relateddevelopments have significantlyincreased credit risk for affecteddebtors and adjust the stagingand ECL measurementaccordingly.Entities use all reasonable andsupportable information withoutundue cost or effort at reportingdate31 (past events, currentconditions and forecasts of futureeconomic conditions) in measuringECL.Tariff implementation andexpectations at reporting dateaffect ECL measurement. If, at thereporting date, tariff impacts arereasonably expected, uncertaintyrelated to these impacts should becarefully assessed and reflectedin ECL measurement at thereporting date.Entities should incorporateforward-looking informationincluding tariff impacts into ECLmeasurement. However, tariffswhich are not reasonablyexpected but announced afterreporting date do not affect theECL measurement.Entities factor in guarantees integralto contractual terms of loanarrangements in measuring ECL32.Guarantees such as those overtrade receivables or standbyletters of credit may not coveradditional costs arising from tariffsor other government-imposedmeasures. As a result, ECL onrelevant receivable balancescannot be mitigated through suchguarantees.Entities should revisit their loanarrangements, particularly theterms of guarantees, and watchout for exclusions (e.g. importtaxes or specific governmentmeasures), and evaluatewhether any effects of theguarantee on ECLmeasurement remainappropriate.28 HKFRS 9.5.5.1.29 HKFRS 9.5.5.1 – 5.5.8.30 HKFRS 9.5.5.11.31 HKFRS 9.5.5.17(c).32 HKFRS 9 Appendix A – definition of ‘credit loss’.Impact on disclosureEntities should update financial instrument risk disclosures under HKFRS 7 FinancialInstruments: Disclosures to reflect the impact of tariff measures, particularly regarding creditrisk exposures. This may involve revising sensitivity analyses and risk management strategiesto show how an entity is actively monitoring and managing risks in response to evolving tarifflandscape. For example, management may adjust its credit assessment processes andcollateral arrangements to mitigate heightened credit risk. For further examples of howmacroeconomic changes impact financial risk exposures, entities can refer to Closing Out
202433.(ii) Onerous contracts (HKAS 37 Provisions, Contingent Liabilities and ContingentAssets)
An ‘onerous contract’ is defined as one where the unavoidable costs of meeting the obligationsunder the contract exceed the expected economic benefits to be received34. ‘Unavoidablecosts’ reflect the least net cost of exiting from the contract, determined as the lower of:
•the cost of fulfilling the contract and•any compensation or penalties arising from failure to fulfill it35 .The following diagram shows examples of contracts that may become onerous due to tariffmeasures:
Diagram 4 – Examples of circumstances that may lead to onerous contractsWhen evaluating whether an onerous provision is needed, entities should carefully review theterms and conditions of their existing contracts. An important step is to determine whether thecontract can be terminated without penalties (e.g. enforceable force majeure clauses). Ifobligation can be avoided, no onerous provision is required.33 Closing Out 2024, Section II.1 (P.7-9)
34 HKAS 37.10.35 HKAS 37.68-68A. HKAS 37.68A further explains the ‘cost of fulfilling a contract’.Purchase contractMinimum purchaserequirements forcontracts ofpurchase of importedgoods subject totariffsPurchase contractAutomatic priceadjustments if thecosts incurred bysuppliers areincreasedRevenue contractFixed price minimumvolume salescontracts, wheretariff costs cannot bepassed to customersOnerous contract exists when:
Unavoidable costs of meeting the obligation > Expected benefits to be receivedAny onerousprovisionrequired?Onerous contracts fall within the scope of HKAS 3736. If an entity has a contract that is onerous,the present obligation under the contract shall be recognized and measured as a provision.Key considerations include:
• Impairment losses: Before establishing a provision for an onerous contract, entities arerequired to first recognize any impairment loss on assets used to fulfill the contract37.• Measurement basis: Entities measure provisions at the best estimate to settle the presentobligation at the reporting date38. Obligations arise only when it is virtually certain that newtariff-related legislation will be enacted39. The effect of possible new legislation is taken intoconsideration in measuring an existing obligation when sufficient objective evidence existsthat the legislation is virtually certain to be enacted40. However, in practice, it is oftenimpossible to be virtually certain until the law is officially enacted. Similarly, in-processrenegotiations with suppliers or customers, or agreements reached after year end, shouldnot be reflected in the provision. Future events can be considered if there is sufficientobjective evidence they will occur41.• Judgement: Significant judgement may be required when assessing whether a contract isonerous and in measuring any resulting provision. For example, estimating expectedbenefits often involve forward-looking assessments related to fluctuations in sales pricesor volume driven by market conditions and customer demand. Judgement may also berequired in determining the lower of cost of fulfilling the contract and the cost of exiting fromthe contract, especially when alternative fulfilment options or termination costs areuncertain or subject to negotiation. Judgements should be applied consistently andsupported by a robust assessment, with clear rationale for key assumptions, sensitivityanalysis and relevant evidence considered.• Disclosures: Entities should provide disclosures required by HKAS 37 42 , including adescription of the nature of the obligations, the expected timing of outflows of economicbenefits and uncertainties about the amount or timing of those outflows. Where appropriate,entities should also consider providing disclosures in accordance with the overarchingrequirements under HKAS 1.122 and HKAS 1.125 regarding key sources of estimationuncertainty and significant judgement applied in determining the provisions.(iii) Deferred tax (HKAS 12 Income Tax)
a.Deferred tax assetsTariffs may lower current income or create losses. Such reductions may underminemanagement’s expectations for future profitability, leading to a downward revision of theirforecasts of future taxable profits. This downward revision often arises from a more cautious36 HKAS 37.66-67.37 HKAS 37.65 and 69.38 HKAS 37.14 and 36.39 HKAS 37.22 and Example 2A appending to HKAS 37 related to consideration of legislation in measuring a provision.40 HKAS 37.50.41 HKAS 37.48.42 HKAS 37.84-85.outlook on future sales growth due to decreased consumer spending and changing marketdynamics under the impact of tariffs. Consequently, the recognition and recoverability ofdeferred tax assets based on estimates of future taxable profits may be affected, similar toother assets discussed in Part B(i) on ‘Asset impairment’.Under HKAS 12, for a deferred tax asset to be recognized, entities should assess whetherthere are sufficient taxable temporary differences relating to the same taxation authority andthe same taxable entity. These differences should be expected to reverse in the same periodas the expected reversal of the deductible temporary difference, or in future periods which atax loss arising from the deferred tax asset can be carried forward43. Where taxable temporarydifferences are insufficient, deferred tax assets may still be recognized if it is probable thatfuture taxable profit will be sufficient to support their recovery. These estimations should bewell-supported by thorough assessments of tariff impacts and entities’ future operations.Entities should also ensure that the assumptions used in forecasting future taxable profits areconsistent with those applied in impairment testing, although the forecasts for future taxableprofits are made on an undiscounted basis44.b.Deferred tax liabilitiesHKAS 12.39 requires an entity to recognize a deferred tax liability for all taxable temporarydifferences associated with investments in subsidiaries, branches and associates, andinterests in joint arrangements, except where both of the conditions in HKAS 12.39 are met:
(a) the parent, investor, joint venturer or joint operator is able to control the timing of thereversal of the temporary difference, and (b) it is probable that the temporary difference willnot reverse in the foreseeable future.In the past, some investors might not have recognized deferred tax liabilities for withholdingtax on undistributed profits of their investees, typically, subsidiaries, based on the rationalethat they could control when the temporary differences would reverse, and the differenceswould not reverse in the future, as profits were intended to be retained within the subsidiariesfor capital reinvestments.Tariffs may change the above assessment. For instance, tariffs could weaken an investor’sfinancial position, prompting the need to access investees’ funds and recover the carryingamount of investments through profits distribution. In such cases, deferred tax liabilities shouldbe recognized for taxable temporary differences related to withholding tax on undistributedprofits, even if investors can still control the timing of reversal of those differences. Thisrecognition may increase profit or loss volatility of investors.43 HKAS 12.28.44 HKAS 12.53.(iv) Revenue recognition (HKFRS 15 Revenue from Contracts with Customers)
Tariffs may affect how entities assess and apply the revenue recognition requirements underHKFRS 15 across various areas. It is therefore important for entities to ensure that theirrevenue recognition practices continue to comply with HKFRS 15. The following two areas areparticularly noteworthy in situations involving tariff-driven price changes:
a. Variable consideration versus contract modificationEntities may determine if tariff costs can be transferred to customers through priceadjustments and whether such adjustments are variable consideration 45 or contractmodifications46.•If the contract includes enforceable terms that allow the importer to automatically passincreased tariff costs to customers, the resulting change in transaction price is a changein the estimate of variable consideration, generally allocated to performance obligationson the same basis as their initial allocation at contract inception47.•A contract modification is a change in the scope or price (or both) of a contract that isapproved by the parties to the contract. If a tariff-related price change is separatelynegotiated and agreed upon with the customer, contract modification requirements apply.Depending on facts and circumstances, contract modification is accounted for as aseparate new contract, a termination of the existing contract and creation of a new one,or as a part of the existing contract48.b. Measuring the progress of completion – input methodTariff measures can significantly affect entities that use input method to measure progress ofperformance obligations satisfied over time 49 and hence their revenue recognition. Theuncertainty regarding the timing and duration of tariff measures adds complexity to theapplication of this method. Entities may find it challenging to accurately estimate costs anddetermine the appropriate percentage of completion for ongoing projects.One of the primary effects of tariffs on the input method is that higher total estimated costs,resulting from tariffs, may decrease the percentage of completion. This potentially decreasescumulative amount of revenue recognized for a financial year. Therefore, entities should watchout for such impacts when preparing their financial statements.45 HKFRS 15.50-59 and 84-85.46 HKFRS 15.18-21 and 90.47 HKFRS 15.88.48 HKFRS 15.20-21.49 HKFRS 15.41-43 and B18-B19.(v) HKAS 10 Events after the Reporting PeriodEntities should refer to the applicable HKFRS Accounting Standards (e.g. HKFRS 9, HKFRS13, HKAS 36 and HKAS 37 as discussed in this section) to assess whether, and how, expectedtariffs should be considered in measuring an item at the reporting date. Generally, suchmeasurements would not be affected by subsequent changes in the entity’s expectations orby actual tariffs announced after the year end that differ from initial expectations. However,these post-balance sheet developments may still have implications for the going concernassessment (see Part A). They may also provide additional evidence about risks anduncertainties that existed at the reporting date, which could be relevant to impairmentassessments (refer to Part B for further discussions on how tariffs may impact impairmentassessments).Entities should disclose all material subsequent events in accordance with HKAS 10, updatingdisclosures to inform users about conditions at the end of the reporting period, and how theseconditions have evolved due to new information received after the reporting date. Disclosuresshould be clear and highlight the uncertainties arising from tariff-related developments, andexplain management’s assessment of those uncertainties, thereby enhancing users’understanding of the impact of subsequent events on the entities50.(vi) HKFRS 13 Fair Value MeasurementHKFRS 13 applies when another HKFRS Accounting Standard requires or permits fair valuemeasurements or disclosures about fair value measurement, except for specific exclusionsset out in HKFRS 13.6-7. Therefore, HKFRS 13 has broad applicability, covering both financialand non-financial assets and liabilities within its scope.Tariffs can have a direct and material impact on fair value measurement when they affect theassumptions that market participants would use at the measurement date. They impact itemsmeasured at fair value, whether recurring or non-recurring, across various Standards. Tariffscan also affect estimates of fair value less costs of disposal in impairment assessments underHKAS 36. When determining fair value under HKFRS 13, entities should consider the followingareas that are impacted by tariffs:
• Market participants’ view:
HKFRS 13 defines fair value as ‘the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants at the measurementdate’. If tariffs are in place or expected by market participants at the measurement date,their effects should be incorporated in the fair value measurement, to the extent that wouldbe considered by market participants, rather than based on an entity’s intentions. Forexample, changes in business models in response to tariff measures or management’sbeliefs that tariffs are temporary are irrelevant unless these views align with those of marketassumptions. The longer a tariff remains in effect, the more likely it is that it will be factored50 Refer to HKAS 10.19-21 for details of requirements.into future cash flow expectations and risk assessments (e.g. expectations of reduced salesvolume and persistently higher costs) when determining fair value.For impairment assessments, the presence of tariffs may trigger the need for suchassessments depending on their impacts on an entity’s specific operations. However, fairvalue estimates under HKFRS 13 remain non-entity-specific. The assumptions used in themeasurement must be consistent with those that would be used by market participants (notmanagement) in pricing the assets.• Valuation techniquesTariffs may require adjustments to the valuation techniques and key assumptions used inthose techniques51, including:
-Income approach: updating cash flow projections to incorporate changes in pricing,demand, costs, discount rate and expected duration of tariffs due to tariff effects.-Market approach: revising estimates based on new or adjusted comparable transactiondata affected by tariffs.-Cost approach: adjusting replacement cost estimates to account for increased importduties.All adjustments should be consistent with the assumptions and views of market participants.• Fair value inputs and disclosure implicationsHKFRS 13 requires maximizing the use of observable inputs and minimizing unobservableinputs in fair value measurements. Tariffs may reduce the availability or reliability ofobservable market data and increase the level of uncertainty around inputs. For instance:
-Comparable market transaction volumes may decline if tariffs disrupt trading volumes.-Inputs previously classified as Level 2 (i.e. observable inputs other than quoted pricesincluded within Level 1) 52 may become unobservable or may require significantadjustments.In such cases, entities may need to use Level 3 unobservable inputs and develop internalmodels using the best information available in the circumstances53, while ensuring that theeffects of tariffs are incorporated in a manner that is consistent with market participantperspectives. Additional Level 3 disclosures 54 should be provided when fair valuemeasurements move to Level 3 of the fair value hierarchy. These include:
-A narrative description of sensitivity for all assets and liabilities categorized within Level3 of the fair value hierarchy to changes in significant unobservable inputs and adescription of any interrelationships between those unobservable inputs; and-A quantitative sensitivity analysis for financial instruments measured at fair value andcategorized within Level 3 of the fair value hierarchy55.51 HKFRS 13.62 and B5-B11.52 HKFRS 13.81.53 HKFRS 13.89.54 HKFRS 13.93(e), (f), (g) and (h) for additional Level 3 disclosure requirements.55 HKFRS 13.93(h)(i)-(ii), BC206-209, BC244(i) and Example 19 in IE66.It is crucial for entities to provide clear and transparent disclosures so that users canunderstand how tariffs have been considered in the valuation and how sensitive thevaluations are to the assumptions and inputs.C. Other considerationsTariffs represent a significant source of global macroeconomic uncertainty, but othermacroeconomic uncertainties, such as inflation and changing interest rates, highlighted inClosing Out 2024 and earlier publications56, will likewise continue to affect 2025 financialreporting. Entities should exercise judgement and make best estimates to ensure thatuncertainties to which they are exposed are properly identified, considered and reflected intheir financial reporting if material.Given the complexities and risks involved, regulators have emphasized the need to manageaudit risks arising from evolving tariffs effectively. Auditors should remain vigilant, proactivelyassess and respond to those risks, and ensure compliance with all relevant standards andmeeting regulatory expectations57.
2.Digital assets – stablecoinsAs digital assets, including stablecoins, gain global popularity, the Hong Kong SARGovernment has responded by enacting the Stablecoins Ordinance (Cap. 656). Gazetted on30 May 2025 and effective from 1 August 2025, the Ordinance establishes a new regulatoryframework for stablecoin activities, empowering the Hong Kong Monetary Authority to regulatefiat-referenced stablecoins and related operations, thereby enhancing protection for theinterests of general public and investors.This development raises important financial reporting questions: How should entities accountfor stablecoins held and what are the key considerations in determining the appropriateaccounting treatment?In June 2019, IFRS IC published an agenda decision on Holding of Cryptocurrencies,explaining how IFRS Accounting Standards apply to holdings of cryptocurrencies. While bothcryptocurrencies and stablecoins are subsets of digital assets, their accounting treatmentsmay differ. The 2019 agenda decision focused on cryptocurrencies that meet the specificscoping criteria58 . According to the agenda decision, these cryptocurrencies are accountedfor under IAS 2 Inventories (HKAS 2 equivalent) if they are held for sale in the ordinary courseof business. If IAS 2 is not applicable, entities apply IAS 38 Intangible Assets (HKAS 38Intangible Assets equivalent) to account for holdings of these cryptocurrencies.56 Closing Out 2024 Section II.1 (P.6-9).57 See the publication ‘How should auditors consider tariff disruptions in audits?’ issued by the Accounting and Financial ReportingCouncil in 2025.58 The agenda decision applies to cryptocurrencies that meet all these characteristics: a) a digital or virtual currency recorded ona distributed ledger that uses cryptography for security; b) not issued by a jurisdictional authority or other party; and c) does notgive rise to a contract between the holder and another party.However, fiat-backed stablecoins may not meet those scoping criteria due to the existence ofan issuer and contractual relationships and therefore fall outside the scope of the 2019 agendadecision. To address this, the HKICPA published guidance in January 2026 on distinguishingcryptocurrencies and stablecoins and determining applicable HKFRS Accounting Standard(s)
for fiat-backed stablecoins from a holder’s perspective.The guidance sets out a decision tree, accompanied by detailed considerations for itsapplication.Diagram 5: Determining the applicable HKFRS Accounting Standards for stablecoinsThe guidance primarily focuses on the left side of the diagram in relation to the application ofHKAS 32, HKAS 7 and HKFRS 9. For considerations relating to HKAS 2 and HKAS 38, asrepresented on the right side of the diagram, entities can refer to the 2019 agenda decision59.The table below highlights the applicable accounting requirements, financial reportingimplications and relevant key factors for considerations when determining whether stablecoinsshould be classified as cash and cash equivalents or other financial assets:
The following table is presented on the assumption that a stablecoin meets the definition of ‘financialasset’ under HKAS 32:
Definition of a financial asset:
Any asset that is:
•Cash;
•An equity instrument of another entity;
•A contractual right to receive cash or another financial asset from another entity;
•A contractual right to exchange financial assets or financial liabilities with another entity under certainconditions; or•A contract that will or may be settled in the entity’s own equity instruments and that meets certainconditions.59 Refer to Section 2 ‘Stablecoins’, P.2-3 of the guidance for relevant considerations or thought process in determining whetherthe stablecoin falls within or outside the scope of the 2019 agenda decision.If a stablecoin qualifies as ‘cash’If a stablecoin is ‘non-cash’ financialassetApplicableaccountingrequirements1) HKAS 32 – Characteristics of cash•Is used as a medium of exchange forsettling transactions for goods orservices.•Acts as a monetary unit in pricinggoods or services.•Serves as a basis for measuring andrecognizing transactions in financialstatements. [HKAS 32.AG3, 2019agenda decision]2) HKAS 7 – components of cash•Cash comprises cash on hand anddemand deposits. [HKAS 7.6].Refer to the definition of a ‘financial asset’,excluding assets that qualify as ‘cash’, todetermine if the stablecoin is ‘non-cash’financial asset.Financial reportingimplications•Assess whether a stablecoinpossesses the characteristics ofcurrency (cash) or demand depositunder HKAS 7 and HKAS 32 asappropriate.•Present and disclose informationrequired by HKAS 7.•Disclose significant judgementsapplied [HKAS 1.122].•Assess whether the entity (holder) hasa contractual right to redeem thestablecoin for cash or another financialasset (rather than non-financial asset).•Apply the recognition andmeasurement requirements of HKFRS9 and disclosure requirements ofHKFRS 7.•Disclose significant judgementsapplied. [HKAS 1.122]Relevant keyfactors forconsiderations•May require judgement and legalopinions to determine whether thestablecoin qualifies as cash in therelevant jurisdictions under applicablelaws and regulations.•Analyze contractual terms, legal rightsand obligations, and relevant facts andcircumstances, to ascertain if theholder has a present contractual rightthat supports classification of thestablecoin as a financial asset.•Factors to consider include:
-Whether redemption rights areconditional and if so, the nature ofthose conditions.-Whether the conditions reflectcharacteristics of stablecoin itself,the holder or the issuer.-Whether the issuer can refuse orsuspend redemptions underspecific circumstances.-Whether any redemption rightsshould be accounted for separatelyunder relevant accountingstandards.•Exercise significant judgement whereredemption rights for stablecoins arecomplex or unclear.•Consider legal or professional adviceto fully understand the entity’s rightsand obligations arising from itsstablecoin holdings.If a stablecoin does not qualify as cash, an entity should assess if it meets the definition of‘cash equivalents’ under HKAS 7.6 for presentation in the statement of financial position andthe statement of cash flows. According to HKAS 7.6 and HKAS 7.7, cash equivalents areshort-term, highly liquid investments that are readily convertible to a known amount of cashand subject to insignificant risks of changes in value, and held to meet short-term cashcommitments rather than for investment or other purposes. They typically have a shortmaturity, generally three months or less from the date of acquisition. When assessing whetherstablecoins could be classified as cash equivalents, entities should consider factors such aswhether the redemption mechanism allows holders to redeem the stablecoins for cash, withoutundue notice, fees or penalties.The guidance emphasizes the need for a careful assessment of the characteristics andcontractual terms of stablecoins, including related legal rights and obligations, to understandtheir nature and economic substance rather than merely legal form. Given the complexity andvariations in contractual arrangements, entities may need to seek legal and professionaladvice to assist their assessment.With rapid global evolution of digital assets, entities should closely monitor regulatorydevelopments and emerging guidance to ensure compliance. In financial reporting, the IASBhas prioritized cryptoassets within its Intangible Assets project, which addresses intangibleassets held for investment. Entities should stay updated on this project and related IASBmaterials, as any future IASB guidance shall prevail over the guidance .
3.Climate-related reporting and connectivityThis year, we highlight two climate-related financial reporting updates that help improveconnectivity across reporting and address climate-related financial reporting issues.A. Disclosures about Uncertainties in the Financial Statements – Amendments toIllustrative Examples on IFRS 7, IFRS 18, IAS 1, IAS 8, IAS 36 and IAS 3760In November 2025, the IASB released Disclosures about Uncertainties in the FinancialStatements, which adds six new illustrative examples to several IFRS Accounting Standards.These examples illustrate how an entity applies existing disclosure requirements in IFRSAccounting Standards to report the effects of uncertainties in its financial statements. Althoughthe examples do not change the requirements of existing IFRS Accounting Standards, theyprovide valuable guidance for effectively addressing climate-related risks and otheruncertainties in financial reporting, as well as enhance the connectivity, consistency andcomparability of information disclosed within and outside the financial statements.Overview of the illustrative examplesThe following table provides a high-level summary of these examples to help entitiesunderstand how to implement the guidance in their own situations.60 Equivalent amendments to respective HKFRS Accounting Standards are issued in February 2026.Important notes:
•Although the examples focus on climate-related scenarios, the principles and requirements illustrated arealso relevant to other types of uncertainties.•No effective date or transition requirements are provided, as the examples are not an integral part of theIFRS Accounting Standards. They are intended to provide additional insights into existing disclosurerequirements and should be implemented in a timely manner.•Although the examples are illustrative, entities should carefully assess how the demonstrated principles mayimpact their disclosures.ExamplesWhat is illustrated?RelatedStandardsMateriality judgements in relation to additional disclosuresExample 1This example explains how an entity assesses materiality of climate-relatedrisks when there appears to be a disconnect between information in financialstatements and information provided elsewhere (e.g. accompanying general-purpose financial reports).It demonstrates two scenarios – both of which have no effect on therecognition or measurement of assets and liabilities and for which nospecific disclosures are required under IFRS Accounting Standards. Itexplains:
•how materiality judgements are applied under IAS 1.31 (IFRS 18.20),aligning with the four-step materiality process set out in paragraphs 33-65of IFRS Practice Statement 2: Making Materiality Judgement, to determinewhether additional disclosures are necessary for users’ understanding.•how qualitative factors may or may not result in disclosures beyond explicitIFRS requirements.•the need to consider both quantitative and qualitative factors whenevaluating whether additional disclosures are material61.IAS 1.31IFRS 18.20IFRSPracticeStatement 2Example 1:
Scenario 1– Materialityjudgementsleading toadditionaldisclosuresBackground:
An entity in a capital-intensive industry is exposed to significant climate-related transition risks. It discloses its climate-related transition plan toreduce greenhouse gas in its general-purpose financial report accompanyingthe financial statements. This plan is strategically important and expected tosignificantly affect its future operations.In preparing its financial statements, the entity considers that the transitionplan does not materially affect its financial position and financialperformance.Applying the Standards:
No specific IFRS Accounting Standard requires disclosure of the financialeffects of the transition plan. The entity therefore considers the requirementsin IAS 1.31 (IFRS 18.20), which requires additional disclosures to meet thecommon information needs of primary users62.The entity considers quantitative and qualitative factors63 specific to itscircumstances. It also performs a ‘step back’ review to evaluate whether,without additional disclosures, the financial statements might appearinconsistent with the information in the accompanying general-purposefinancial reports64. For example, information about changes in manufacturingmethods and investment in more energy-efficient technology might suggestpotential asset impairments; however, no impairment loss has beenrecognized.The entity determines that additional disclosures under IAS 1.31 (IFRS
18.20) – explaining the lack of effect of its transition plan on its financialIAS 1.31IFRS 18.20IFRSPracticeStatement 261 See IAS 1.BC120 (IFRS 18.BC441) for the IASB’s rationale for considering qualitative factors and for the development ofScenarios 1 and 2.62 IAS 1.BC122 (IFRS 18.BC443) explains that an entity focuses on the common information needs of primary users and is notexpected to anticipate the information needs of individual users.63 For entity-specific and external qualitative factors, refer to IAS 1.IG21 (IFRS 18.IE27).64 IAS 1.IG18 (IFRS 18.IE24).ExamplesWhat is illustrated?RelatedStandardsposition and financial performance for the current reporting period – wouldprovide material information and thus include these disclosures in itsfinancial statements65.Example 1:
Scenario 2– Materialjudgementsnot leading toadditionaldisclosuresBackground:
A service provider operating in a low-emission industry discloses itsgreenhouse gas emission policy in a general-purpose financial reportaccompanying its financial statements. It concludes that this policy does notmaterially impact its financial performance nor future operations.Applying the Standards:
In assessing if additional information would provide material information, theentity considers both quantitative and qualitative factors. It determines that 1)
its greenhouse gas emission policy is not expected to significantly affect theentity’s future operations, and 2) the relevant industry has low greenhousegas emissions with limited climate-related transition risks66.In contrast with Scenario 1, the entity determines that no additionaldisclosures are warranted under IAS 1.31 (IFRS 18.20), as explaining thelack of effect of its greenhouse gas emission policy, would not providematerial information in the context of financial statements taken as a whole67.IAS 1.31IFRS 18.20IFRSPracticeStatement 2Assumptions and other sources of estimation uncertaintyExample 2– Disclosure ofassumptions:
specificrequirements:
This example illustrates how an entity discloses key assumptions andsensitivity analysis for goodwill impairment, even if no impairment isrecognized.Background:
An entity with high greenhouse gas emissions operates in somejurisdictions subject to greenhouse gas emission regulations. It determinesthat a CGU’s recoverable amount, which includes significant goodwill,exceeds its carrying amount. However, the CGU’s recoverable amount ismost sensitive to key assumptions about future emission allowance costs.Applying the Standard:
Considering its circumstances, the entity provides tailored, entity-specificdisclosure under IAS 36.134(d)(i)-(ii) relating to determination of the CGU’svalue in use. The disclosure explains all material assumptions used inimpairment assessment, not only the discount rate or growth rate.The entity therefore discloses:
1) The key assumptions, including those related to future emissionallowance costs assumptions and future emission regulations.2) Its approach to determining the values assigned to the key assumptions:
e.g. whether its assumptions about the future price of emissionallowances and future emission regulations are consistent with externalinformation sources; and explain if not.Other disclosure consideration:
Applying IAS 36.134(f), the entity considers providing sensitivityinformation. If a reasonably possible change in assumptions about thefuture price of emission allowances could result in an impairment loss, itdiscloses additional information, e.g. the amount by which the CGU’srecoverable amount exceeds its carrying amount68.IAS
36.134(d)(i)-(ii) and134(f)
Example 3– Disclosure ofassumptions:
generalrequirementsThis example explains that an entity may need to disclose assumptionsabout the future under IAS 1 (IAS 8), even if no specific disclosure isrequired by other IFRS Accounting Standards. It illustrates how an entityidentifies and discloses assumptions that pose a significant risk of materialIAS 1.125and 129IAS 8.31Aand 31E65 IAS 1.IG23 (IFRS 18.IE29).66 IAS 1.IG29 (IFRS 18.IE35).67 IAS 1.IG30 (IFRS 18.IE36).68 IAS 36.IE95.ExamplesWhat is illustrated?RelatedStandardsadjustments to the carrying amount of assets and liabilities within the nextfinancial year.Background:
An entity operating in capital-intensive industry is exposed to climate-related transition risks, with indication of impairment for a CGU. Although theimpairment test concludes that the CGU’s recoverable amount exceeds itscarrying amount, the test involves the use of assumptions related to climate-related transition risks which include future legal and regulatorydevelopments.Applying the Standards:
As the CGU contains no goodwill or indefinite-life intangible asset and noimpairment loss is recognized, IAS 36 does not specifically require disclosureof assumptions used in the impairment assessment. The entity thereforeconsiders the requirements in IAS 1.125 (IAS 8.31A) which requiresdisclosure of sources of estimation uncertainties.The entity evaluates its circumstances (see below) and determines thatdisclosure of key assumptions and details of the nature and carrying amountof the CGU’s non-current assets at the reporting date is necessary under IAS
1.125 (IAS 8.31A) 69:
1) The CGU’s carrying amount represents a large portion of the entity’stotal assets and is highly sensitive to the assumptions.2) The assumptions involve highly uncertain events, increasing the risk ofchanging the assumptions due to new information or developments.3) Frequent climate-related market, economic, regulatory and legaldevelopments may revise the assumptions in the next reporting period.Other disclosure consideration:
Applying IAS 1.129 (IAS 8.31E), the entity considers disclosing qualitativeand quantitative information about the nature of assumptions, the sensitivityof non-current assets’ carrying amount to these assumptions and thereasons for the sensitivity, if such information allows users to betterunderstand management’s judgements.Example 4– Disclosureabout creditriskThis example illustrates the disclosure of information about the effects ofclimate-related risks on an entity’s credit risk exposures and credit riskmanagement practices, and factors relevant to assessing materiality ofinformation.Background:
A financial institution considers the effects of various risks on its credit riskexposures, including climate-related risks. It identifies two portfolios ofloans (i.e. loans to agricultural customers and corporate real estatecustomers) for which climate-related risks have a significant effect on creditrisks.Applying the Standard:
The entity considers the factors below and determines that information aboutthe effects of climate-related risks on its credit risk exposure is material. Ittherefore considers what information to disclose under IFRS 7.35A-36 basedon its circumstances70.Factors considered in assessing materiality:
1) The two portfolios represent a large portion of the entity’s overalllending portfolio.2) Climate-related risks have significant effects on credit risk exposure,compared to other factors, taking into account loan maturities and thenature, likelihood and magnitude of climate-related risks.IFRS 7.35A-69 See IAS 1.IG36 (Guidance on Implementing IAS 8, paragraph 6.6) for details of factors for consideration in applying IAS 1.125(IAS 8.31A).70 See IFRS 7.IG22A for examples of information for disclosures in applying IFRS 7.35A-36.ExamplesWhat is illustrated?RelatedStandards3) External climate-related qualitative factors such as market, economic,regulatory and legal environment and climate-related developments maymake information more likely to influence users’ decisions.Example 5– Disclosureaboutdecommission-ing and site-restorationprovisionsThis example illustrates how IAS 37.85 applies to disclosure of informationabout plant decommissioning and site-restoration obligations, even iftheir effect on the carrying amount of the related provision is immaterial.Background:
A manufacturer has plant decommissioning and site-restoration obligationsin relation to its facilities but expects to maintain and operate some of itsfacilities for a very long time. Therefore, the provision determined based onthe present value of such obligations is not material.Applying the Standard:
The entity considers the factors below and determines that information aboutthe above obligations is material and therefore discloses the informationabout the obligations for each class of provision recognized applying IAS
37.8571.Factors considered in assessing materiality:
1) The costs of settling the obligations are high in nominal terms (i.e.before discounting).2) The risk of early settling the obligations is significant and increasing.3) External climate-related qualitative factors such as market, economic,regulatory and legal environment and climate-related developments maymake information more likely to influence users’ decisions.IAS 37.85Aggregation and DisaggregationExample 6– Disclosure ofdisaggregatedinformationThis example illustrates the principles of disaggregation in IFRS 18.41-42and B110, particularly how an entity might disaggregate information in notesfor a class of property, plant and equipment (PPE) on the basis of dissimilarrisk characteristics to provide material information.Background:
The entity operates PPE that produces high greenhouse gas emissions. Italso invests in alternative, lower-emission PPE within the same class,while continuing to operate the high-emission PPE.Applying the Standard:
Based on its circumstances, the entity concludes that the two types of PPEhave sufficiently dissimilar risk characteristics. As a result, disaggregatinginformation about them in the notes would provide material information toprimary users.Factors considered in assessing materiality72:
1) The two types of PPE represent a large portion of the entity’s totalassets.2) The relevant industry has a high exposure to climate-relatedtransition risks, which may significantly affect how each type of PPE isused and how its carrying amount is recovered.3) External climate-related qualitative factors such as market, economic,regulatory and legal environment and climate-related developments maymake information more likely to influence users’ decisions.IFRS 18.41-42 and B110While the IASB expects entities to have sufficient time to implement disclosure changes, timelyimplementation73 remains crucial to uphold compliance and transparency. The examples71 See Guidance on Implementing IAS 37, Section D – Example 2A Decommissioning and site-restoration obligations, forinformation that the entity discloses applying IAS 37.85. For example, applying IAS 37.85(b), the entity may disclose majorassumptions made concerning future events, such as expected timing of facility closure.72 IFRS 18.IE41.73 IAS 1.BC130 (IFRS 18.BC451).provide further insights into the practical application of the relevant Standards and so someadjustments in existing practices may be required. Notably, even if a climate-related policydoes not affect the recognition or measurement of assets and liabilities (as illustrated inExamples 1 and 5), or specific disclosures are not explicitly required under the existingStandards, additional disclosures may still be warranted. Although the financial impacts ofclimate-related policy are considered not material in both Examples 1 and 5, both entitiesrecognize that climate-related and other uncertainties may still represent material informationfor primary users of financial statements, necessitating additional disclosures.In light of the ever-changing macroeconomic and climate-related environment, and theuncertainties and risks arising from those developments, entities should proactively review theexamples and assess whether any actions are required while maintaining consistency acrossfinancial statements and other reports.B. Recognition of intangible assets from climate-related expenditure (IAS 38Intangible Assets)
In April 2025, the IFRS IC released an agenda decision regarding Recognition of IntangibleAssets from Climate-related Expenditure (IAS 38). The agenda decision addresses a scenariowhere an entity committed to reducing its carbon emissions by 2030 and took various actionsthat resulted in the creation of intellectual capital and establishment of a constructive or legalobligation at the end of the reporting period. The submission questioned whether (1) acquiringcarbon credits and (2) spending on research and development (R&D) activities that resultedin intellectual capital qualify as intangible assets under IAS 38.The IFRS IC focused only on question (2), noting the IASB’s research on pollutant pricingmechanisms (PPMs) and potential future projects that may address question (1). The IFRS ICidentified that there is no significant diversity in accounting for R&D expenditures, nor did thescenario have widespread implications. Therefore, it decided not to add a standard-settingproject to the work plan.Although the IFRS IC did not pursue any further actions, we highlight below some relatedconsiderations and insights that derived from the agenda decision related to climate-relatedfinancial reporting:
TopicsAreas for considerationsIntangible asset recognition– research and developmentexpenditure•Entities should ensure that the recognition criteria74 for intangibleassets in HKAS 38 are applied consistently.Assets and liabilitiesrecognition – carbon credits•Entities acquiring carbon credits should monitor the IASBdevelopments on PPMs and potential future projects and guidancewhich could significantly affect recognition and measurement ofrelated assets and liabilities.74 See HKAS 38.8 for the definition of intangible asset and HKAS 38.51-67 for the accounting requirements of internally generatedintangible assets.TopicsAreas for considerationsConstructive or legalobligations•Entities should evaluate whether commitments (e.g. carbonemission reductions) constitute constructive or legal obligationsunder HKAS 3775 and determine if a provision is required.•For provision recognition, entities may refer to another IFRS ICagenda decision published in April 202476.Disclosures•Entities should provide sufficient disclosures77 for R&D expenditureand provisions as well as significant judgements made in applyingthe related accounting policies if they are material information.Internal controls andprocesses•Entities should ensure robust internal processes and control in placeto track commitments, expenditures and obligations for accuratereporting and compliance.III. IFRS Interpretations Committee Agenda Decisionrelevant to Hong KongThe IFRS IC supports consistent application of IFRS Accounting Standards by issuing agendadecisions that clarify their application to specific situations. These decisions provide the IFRSIC’s rationale and interpretative guidance that entities are expected to apply on a timely basis.As HKFRS Accounting Standards are fully converged with IFRS Accounting Standards, IFRSIC agenda decisions apply equally to entities reporting under HKFRS Accounting Standards.In 2025, the IFRS IC finalized and published five agenda decisions78. Section II discusses theagenda decision on Recognition of Intangible Assets Resulting from Climate-relatedExpenditure (IAS 38). This section highlights another agenda decision concerning issuedguarantees, which is considered particularly relevant for entities reporting in Hong Kong.Guarantees Issued on Obligations of Other Entities – issuer accounting79Entities often issue guarantees on obligations of other entities for various purposes. The IFRSIC received a request on how an entity should account for guarantees that it issues onobligations of its joint venture across three fact patterns involving guarantees that makepayments to a bank, a customer, or another third party if the joint venture fails to meet itsobligations. The question was which IFRS Accounting Standard applies in each scenario.Given the specificity of the fact patterns and the potential for small differences to change theconclusion, the IFRS IC determined not to conclude on the accounting for the individualscenarios. Instead, it provided a framework for assessing the scoping requirements to help75 See HKAS 37.10 for definition of ‘legal obligation’ and ‘constructive obligation’.76 In April 2024, the IFRS IC published an agenda decision on Climate-related Commitments (IAS 37) on whether a company’scommitment to reduce or offset its greenhouse gas emissions creates a constructive obligation and, if so, whether thatconstructive obligation meets the criteria in IAS 37 for recognizing a provision.77 See HKAS 38.118-128 and HKAS 37.84-92 for the applicable disclosure requirements.78 See Appendix of this publication for the complete list of the agenda decisions published in 2025.79 For details, see the IFRS IC agenda decision published in April 2025.determine the applicable IFRS Accounting Standard. The sequence of assessment, adaptedto reflect HKFRS terminology, is presented below:
Diagram 6: Guarantees issued on obligations of other entitiesNote 1: HKFRS 9 defines FGC as ‘a contract that requires the issuer to make specified payments to reimburse theholder for a loss it incurs because a specified debtor fails to make payment when due in accordance with theoriginal or modified terms of a debt instrument’. However, the term ‘debt instrument’ is not defined in HKFRSAccounting Standards. The IFRS IC concluded that an entity applies judgement in interpreting the meaning of thisterm in determining if a guarantee is an FGC.Note 2: HKFRS 17 defines an ‘insurance contract’ as ‘a contract under which one party (the issuer) acceptssignificant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if aspecified uncertain future event (the insured event) adversely affects the policyholder’.Note 3: Once an entity has determined that it issues insurance contracts, it considers if it must account for thesecontracts under HKFRS 17. Meeting the definition of insurance contract does not automatically require accountingunder HKFRS 17, as HKFRS 17 has specific scope exclusions (HKFRS 17.7), and permits entities to choose toapply other HKFRS Accounting Standards (HKFRS 17.8-8A) in certain cases. Specifically,•Fixed-fee service contracts: If a contract’s primary purpose is to provide services for a fixed fee and specifiedconditions are met, an entity may elect to apply either HKFRS 15 or HKFRS 17 on a contract-by-contract basis,and the choice for each contract is irrevocable.•Contracts with limited insurance compensation: If a contract limits compensation for insured events to theamount otherwise required to settle the policyholder’s obligation created by the contract, an entity may opt toapply either HKFRS 9 or HKFRS 17 (unless excluded under HKFRS 17.7). The entity shall make that choicefor each portfolio of insurance contracts, and the choice for each portfolio is irrevocable.Note 4: HKFRS 9 might be applicable if the guarantee is a loan commitment (HKFRS 9.2.3) or a derivative (HKFRS9 Appendix A), or otherwise meets the definition of a financial liability as defined in HKAS 32.Note 5: HKFRS 15 might be applicable if the counterparty to the guarantee is a customer, and the guarantee is notwithin the scope of other HKFRS Accounting Standards (HKFRS 15.5-8).Note 6: HKAS 37 is applicable only if the guarantee gives rise to a provision, contingent liability or contingent assetthat is not within the scope of other HKFRS Accounting Standards (HKAS 37.5).An entity should assess which HKFRS Accounting Standard applies to a guarantee bythoroughly reviewing the contract’s terms, as this assessment can significantly affect theaccounting outcomes. For example, under HKFRS 9, unless the contract is designated asmeasured at fair value through profit or loss at initial recognition, an FGC is initially recognizedat fair value and subsequently measured at the higher of the loss allowance under HKFRS 9and the amount initially recognized, less cumulative amortization of income recognized inaccordance with the principles of HKFRS 1580. In contrast, HKFRS 17 would require an FGCto be measured at the total of the fulfilment cash flows and any contractual service margin(unearned profit), unless the simplified measurement model (i.e. premium allocation approach)
is applied.Judgement may be necessary, for instance, in determining whether a guarantee is an FGCunder HKFRS 9. Entities should disclose the significant judgements made in applying theiraccounting policies for issued guarantees, as required by HKAS 1.12281.IV. HKFRS Accounting Standards issued but not yeteffective as of 1 January 20252025 is relatively a quiet year, with no new major HKFRS Accounting Standards issued.Among the amendments and new HKFRS Accounting Standards issued but not yet effective,Amendments to HKFRS 9 and HKFRS 7 on classification and measurement of financialInstruments, as well as HKFRS 18 on presentation and disclosure of financial statements, areexpected to have more widespread and significant impact on entities reporting in Hong Kong.For key requirements and implications of HKFRS 18 and the amendments to HKFRS 9 andHKFRS 7, please refer to Closing Out 202482 published in 2025. This section is a high-levelrecap of key reminders and developments.80 See HKFRS 9.5.1.1 for initial measurement requirements, and HKFRS 9.4.2.1(c) and B2.5 for requirements on subsequentmeasurement.81 HKAS 8.27G from 1 January 2027.82 Closing Out 2024, Section III, P.21-28.
1.Amendments to HKFRS 9 and HKFRS 7 – mandatorily effective in 2026The amendments address the requirements for the initial recognition or derecognition offinancial assets and liabilities, classification of financial assets and related disclosures. Whiletheir impact will vary among entities, the amendments may change certain common practicesin Hong Kong, such as derecognition of financial liabilities upon issuance of cheques.As highlighted in Closing Out 2024, it is common for entities in Hong Kong to derecognize atrade payable when a cheque is issued to a creditor. Entities then perform bank reconciliationprocedures to reconcile any differences in the closing balance between their bank ledger andbank statements. The amendments will change this practice, requiring an entity to derecognizea trade payable only when the creditor receives the cash. Similarly, a trade receivable shouldbe derecognized when the entity receives cash from the bank following cheque clearance, notat the time when the cheque is received.Entities should also assess whether other aspects of the amendments apply to theircircumstances. For instance, if they hold financial assets with contingent features orinvestments in equity instruments designated at fair value through other comprehensiveincome, the amendments provide additional application guidance concerning classificationand disclosure.By now, we expect most entities to have completed their initial impact assessments, with thoseaffected progressing with necessary system and process changes for a smooth transition uponinitial adoption in 2026. Those that have not yet begun this process should act without delay.Although the amendments take effect in 2026, entities are expected to provide disclosures intheir 2025 financial statements as required by HKAS 8.30-31, including the known orreasonably estimable information about the possible impact of the amendments on theirfinancial statements in the period of initial application.
2.HKFRS 18 – mandatorily effective in 2027HKFRS 18, which aims to improve transparency and comparability of information aboutentities’ financial performance, will replace HKAS 1. Although HKFRS 18 is effective for annualreporting periods beginning on or after 1 January 2027, it shall be applied retrospectively. Thismeans that 2026 comparatives in the 2027 financial statements will be restated. Furthermore,as required by HKAS 8.30-31, entities should disclose in their December 2025 financialstatements the possible impacts of initial application of new or amended HKFRS AccountingStandards. Entities that have not yet begun preparations should act promptly to ensure thatnecessary changes are in place for preparing 2026 comparatives.HKFRS 18 is expected to have broad implications across industries due to new presentationand disclosure requirements. Key changes include the requirements to classify all income andexpenses into five categories – operating, investing, financing, discontinued operations andincome taxes – in the statement of profit or loss, and to present new subtotals for operatingprofit or loss and profit or loss before financing and income taxes. HKFRS 18 also strengthensguidance on aggregation and disaggregation of information, introduces new disclosures formanagement-defined performance measures and removes classification options for interestsand dividends in the statement of cash flows.To gain a deeper understanding of HKFRS 18, entities may refer to the dedicated webpagedeveloped by the HKICPA, which provides a comprehensive collection of technical resourcesand guidance on HKFRS 18. Additional implementation support and resources will be addedto the webpage throughout 2026, so entities are encouraged to visit the webpage regularly forthe latest updates.Recent developments of IFRS 18As the effective date of IFRS 18 approaches, entities are identifying practical applicationquestions in the course of implementation. At its November 2025 meeting, the IFRS ICdiscussed submissions concerning the application of IFRS 18 and published several tentativeagenda decisions (TADs) on 8 December 2025 for public comment until 6 February 2026. TheTADs cover the following topics:
TopicsIssues raised in the submissionsClassification of Gains andLosses on a DerivativeManaging a ForeignCurrency Exposure•How an entity applies IFRS 18 to classify gains or losses arising froma derivative that is used to manage the foreign currency risk of a netliability exposure, but is not designated as a hedging instrumentapplying IFRS 9, in its consolidated statement of profit or loss.Presentation of Taxes orOther Charges that are NotIncome Taxes within theScope of IAS 12 IncomeTaxes•Whether an entity applying IFRS 18 is permitted to present taxes orother charges that are not income taxes within the scope of IAS 12 inthe ‘income tax expense or income’ line item of the statement of profitor loss required by IFRS 18.75(a)(iv) or in the income taxes categoryof the statement of profit or loss.•In this context, the IC proposed further updates to two IFRS IC'sagenda decisions for IFRS 18 [November 2025] which it hadpreviously proposed updates: (1) Presentation of payments on non-income taxes (IAS 1); and (2) Classification of tonnage taxes (IAS 12).The IFRS IC is seeking feedback only on the proposed updates, noton other aspects of these two agenda decisions.Scope of the Requirementto Disclose Expenses byNature•Whether the requirements in IFRS 18.83 apply (1) only when an entitypresents operating expenses listed in IFRS 18.75(a)(ii) by function inthe operating category of the statement of profit or loss; or (2) whenan entity presents any expense by function in the operating categoryof the statement of profit or loss, including expenses listed in IFRS
18.75(b)-(c).Assessment of a SpecifiedMain Business Activity forthe purposes of theSeparate FinancialStatements of a Parent•How a parent applies IFRS 18 to assess, for the purpose of itsseparate financial statements, whether it has a specified mainbusiness activity of investing in unconsolidated subsidiaries.Entities can explore the detailed fact patterns, the IFRS IC’s analyses and the TADs via theprovided hyperlinks. The IASB’s website also provides live and on-demand meetingrecordings and related meeting papers for further reference.Why these developments matter?The issues raised with the IFRS IC underscore the practical challenges and wide-rangingimplications of IFRS 18’s new presentation and disclosure requirements. By reviewing theTADs, entities can identify whether similar scenarios exist in their own operations and assessthe potential impacts on future financial statements. This review also helps pinpoint areaswhere updates to accounting policies, systems, or processes may be needed.These developments reinforce the importance of proactive implementation planning. Earlyidentification of potential issues allows entities to address them adequately through internalanalysis, discussions with auditors or consultation with professional advisors before HKFRS18 becomes effective. Entities should also closely monitor the release of final agendadecisions, as these may have direct implications for their reporting and compliance.Appendix – New and amended HKFRS AccountingStandards as well as Agenda Decisions issued by the IFRSICThe following amended HKFRS Accounting Standard became effective as of 1 January 2025:
StandardDescriptionAmendments to HKAS 21 TheEffects of Changes in ForeignExchange Rates – Lack ofExchangeabilityThe amendments require an entity to apply a consistentapproach to assessing whether a currency is exchangeableinto another currency and, when it is not, to estimating thespot exchange rate to use and determining the disclosures toprovide.The following new and amended HKFRS Accounting Standards and Hong Kong Interpretationhave been issued but are not yet effective as of 1 January 2025. They are available for earlyadoption.Effective from annualperiods beginning on orafter (in chronologicalorder):
New and amended HKFRS Accounting Standards andInterpretation1 January 2026Amendments to HKFRS 9 Financial Instruments and HKFRS 7Financial Instruments: Disclosures – Amendments to the Classificationand Measurement of Financial Instruments1 January 2026Annual Improvements to HKFRS Accounting Standards — Volume 11:
•Amendments to HKFRS 1 First-time Adoption of Hong KongFinancial Reporting Standards•Amendments to HKFRS 7 Financial Instruments: Disclosures andGuidance on Implementing HKFRS 7•Amendments to HKFRS 9 Financial Instruments•Amendments to HKFRS 10 Consolidated Financial Statements•Amendments to HKAS 7 Statement of Cash Flows1 January 2026Amendments to HKFRS 9 Financial Instruments and HKFRS 7Financial Instruments: Disclosures – Contracts Referencing Nature-dependent Electricity1 January 2027HKFRS 18 Presentation and Disclosure in Financial Statements1 January 2027HKFRS 19 Subsidiaries without Public Accountability: Disclosures1 January 2027Amendments to HKFRS 19 Subsidiaries without Public Accountability:
DisclosuresEffective from annualperiods beginning on orafter (in chronologicalorder):
New and amended HKFRS Accounting Standards andInterpretation1 January 2027Amendments to Hong Kong Interpretation 5 Presentation of FinancialStatements – Classification by the Borrower of a Term Loan thatContains a Repayment on Demand ClauseA date to be determinedby the IASBAmendments to HKFRS 10 Consolidated Financial Statements andHKAS 28 Investments in Associates and Joint Ventures – Sale orContribution of Assets between an Investor and its Associate or JointVentureThe following agenda decisions were published by the IFRS IC in 2025:
Publication monthAgenda DecisionsFebruary 2025•Classification of Cash Flows related to Variation Margin Calls on‘Collateralised-to-Market’ Contracts – IAS 7 Statement of CashFlowsApril 2025•Recognition of Revenue from Tuition Fees – IFRS 15 Revenuefrom Contracts with Customers•Recognition of Intangible Assets from Climate-related Expenditure– IAS 38 Intangible Assets•Guarantees Issued on Obligations of Other EntitiesJuly 2025•Assessing Indicators of Hyperinflationary Economies – IAS 29Financial Reporting in Hyperinflationary EconomiesAbout the Standard Setting DepartmentThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only body authorizedby law to set and promulgate standards relating to financial reporting, auditing, ethics andsustainability disclosures for professional accountants in Hong Kong. The due processdocuments of the Standard Setting Department (SSD) explain the processes and proceduresfor developing local standards and adopting international standards.To find out more about how SSD contributes to international standard-setting, please visit:
https://www.hkicpa.org.hk/en/Standards-setting/Standards/How-we-set-standards-and-contribute-to-international-standardsTo access SSD’s latest publications and webcasts, please visit:
https://www.hkicpa.org.hk/en/Standards-setting/Standards/Whats-News/2026Connect with us on social media:
HKICPA Standard Setting Department@hkicpa.officialHong Kong Institute of Certified Public AccountantsThis publication is developed by the SSD of the HKICPA and is for general reference only.The HKICPA, its staff, Council and its committees do not accept any responsibility or liabilityin respect of the publication or any consequence that may arise from any person acting orrefraining from acting as a result of any materials in the publication. Members of the HKICPAand other users of this publication should also read the full HKFRS Accounting Standards, asfound in the HKICPA Members’ Handbook for further reference and seek professional advicewhere necessary when applying the references contained in this publication. The SSDwelcomesyourcommentsonthispublication.Theycanbesenttocommentletters@hkicpa.org.hk.2642_20260225AuthorCarrie LauAssociate Director,Standard Setting,HKICPAThe author thanks members of the Financial Reporting Standards Committee of the HKICPA for theirinput in reviewing this publication.Hong Kong Institute of Certified Public Accountants37th Floor, Wu Chung House213 Queen’s Road East, Wanchai, Hong KongTel: (852) 2287 7228Fax: (852) 2865 6603Email: hkicpa@hkicpa.org.hkWebsite: www.hkicpa.org.hk