WHAT IS A SPECIFIED MAIN BUSINESS ACTIVITY (SMBA)?HOW TO DETERMINE THE MAIN BUSINESS ACTIVITY?Whether an entity has an SMBA is a matter of fact, not merely an assertion.The assessment requires judgement supported by evidence.The assessment is performed for the reporting entity as a whole; therefore, outcomes at theconsolidated group level and individual subsidiary level may differ.The assessment is based on the facts at the time. Any change in the outcome is appliedprospectively from the date of change and does not affect previous assessments.Key indicator of operating performance:
Use of a specific subtotal similar to gross margin as an important indicator ofoperating performance for the entity’s SMBA, as reflected in externalcommunications or internal performance monitoring.Segment information under HKFRS 8 Operating Segments:
In HKFRS 18 Navigator Issue 2, we discussed the new structure of the statement of profit or loss,including the general classification requirements for income and expenses for most entities. In thisissue, we explore the specific classification requirements for entities with a specified main businessactivity (SMBA), the assessment of SMBA and the related practical implications.HKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESAPRIL 2026 ISSUE 3An entity has an SMBA if it has one or both of the following main business activities:
SMBAExamples of entitiesInvestment entities as defined by HKFRS 10Consolidated Financial StatementsInvestment property companiesInsurersBanks and other lending institutionsEntities that provide financing to customers to enablethose customers to buy the entity’s productsLessors that provide financing to customers in financeleasesProviding financing tocustomersInvesting in particulartypes of assets(Investing in assets)
Examples of evidence include:
A reportable segment comprising a single business activity indicates that theactivity is a main business activity of the entity.An operating segment comprising a single business activity may indicate amain business activity if the segment’s performance is an important indicatorof the entity’s operating performance.HKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESIMPACT ON THE CLASSIFICATION OF SPECIFIED INCOME AND EXPENSESSpecified assetOther considerationsClassification of income and expensesEntitywithoutSMBAInvesting in assets as amain business activityCash and cashequivalents-InvestingRefer to diagramoverleafInvestments inassociates, jointventures andunconsolidatedsubsidiariesAccounted for using the equity methodInvestingInvested in as a main business activity and Notaccounted for using the equity methodOperatingNot invested in as a main business activity and Notaccounted for using the equity methodInvestingOther assets thatgenerate a returnindividually and largelyindependently of theentity’s other resourcesForming part of the entity’s main business activityOperatingNot forming part of the entity’s main business activityInvestingSpecified asset/liabilityOther considerationsClassification of income and expensesEntitywithoutSMBAProviding financing tocustomers as a mainbusiness activityCash and cashequivalents-InvestingRefer to diagramoverleafLiabilities that arisefrom transactions thatinvolve only the raisingof financeRelated to providing financing to customersFinancingOperatingNot related to providing financing to customersAccounting policychoice: Operating orfinancing (a)
Cannot distinguish between liabilities related toproviding financing to customers and those that donotOperatingOther liabilitiesInterest income and expenses and income andexpenses from changes in interest rates identified forthe purpose of applying other HKFRS AccountingStandardsFinancingOther income and expensesOperatingAPRIL 2026 ISSUE 3HKFRS 18 requires an entity with an SMBA to classify in the operating category specific income andexpenses that would otherwise be classified in the investing or financing category, so that these income andexpenses form part of the entity’s operating results.INVESTING IN ASSETSPROVIDING FINANCING TO CUSTOMERSDISCLOSURES FOR ENTITIES WITH AN SMBAAn entity with an SMBA is required to disclose:
The fact that the entity has a main business activity of investing in assets or providingfinancing to customers.If the outcome of the SMBA assessment changes:
1.the fact and the date of that change; and
2.for affected income and expenses, the amounts and classification before and afterthe change for the current and prior periods, unless impracticable. If impracticable,that fact is disclosed.Illustrative examplesHKFRS 18 IE11–IE13 provides illustrative examples of statements of profit or loss forentities with an SMBA.Does the entity invest in financial assets as a main business activity?Does the entity provide financing to customers as a main businessactivity?Does the income or expense from cash and cashequivalents relate to providing financing to customers? (b)
OperatingcategoryAccounting policy choice: operatingcategory or investing category (a)
InvestingcategoryHKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESAPRIL 2026 ISSUE 3Classification of income and expenses from cash and cash equivalents(a)
(b)
The accounting policy choice shall be consistent (where applicable) across both circumstances.If an entity cannot distinguish which cash and cash equivalents relate to providing financing to customers,income and expenses from all cash and cash equivalents are classified in the operating category.YesYesYesNoNoNoKEY IMPLICATIONS FOR PREPARERSLOOKING AHEAD: WHAT’S NEXT IN OUR SERIESH2
6.A deep-dive into income,expenses & informationgrouping
7.Beyond the headlines:
Changes to other HKFRSAccounting Standards
8.Navigating IFRS agendadecisions on HKFRS 18
9.From theory to practiceQ2
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsQ1
1.Getting ready
2.Navigating the newstructureAPRIL 2026 ISSUE 3In the next issue, we will focus on management-defined performance measures (MPMs),including how to identify MPMs and what new disclosures are required under HKFRS 18.This publication has been prepared by staff of HKICPA for information or illustration purposes. Members of the HKICPAand other users should also read the full HKFRS Accounting Standards, as found in the HKICPA Members’ Handbook forfurther reference, and seek professional advice where necessary.HKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESThe assessment of SMBA is entity‑specific and judgmental. Conclusions should beconsistent with how management manages and monitors the business, includinginternal reporting and segment information. Entities should ensure that theassessment and judgements applied are properly documented.Entities should assess early whether they have an SMBA, as the resultingclassification may lead to significant changes in operating profit and other mandatorysubtotals, including comparative information.Changes in classification may affect key performance indicators andmanagement‑defined performance measures. Entities should consider whetherexisting measures remain appropriate and whether additional explanations ordisclosures are needed to help users understand the impact of the new presentationrequirements.
HKFRS 18 Navigator Issue 3: Defining what you do: Determination of main business activities
下载原件WHAT IS A SPECIFIED MAIN BUSINESS ACTIVITY (SMBA)?HOW TO DETERMINE THE MAIN BUSINESS ACTIVITY?Whether an entity has an SMBA is a matter of fact, not merely an assertion.The assessment requires judgement supported by evidence.The assessment is performed for the reporting entity as a whole; therefore, outcomes at theconsolidated group level and individual subsidiary level may differ.The assessment is based on the facts at the time. Any change in the outcome is appliedprospectively from the date of change and does not affect previous assessments.Key indicator of operating performance:
Use of a specific subtotal similar to gross margin as an important indicator ofoperating performance for the entity’s SMBA, as reflected in externalcommunications or internal performance monitoring.Segment information under HKFRS 8 Operating Segments:
In HKFRS 18 Navigator Issue 2, we discussed the new structure of the statement of profit or loss,including the general classification requirements for income and expenses for most entities. In thisissue, we explore the specific classification requirements for entities with a specified main businessactivity (SMBA), the assessment of SMBA and the related practical implications.HKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESAPRIL 2026 ISSUE 3An entity has an SMBA if it has one or both of the following main business activities:
SMBAExamples of entitiesInvestment entities as defined by HKFRS 10Consolidated Financial StatementsInvestment property companiesInsurersBanks and other lending institutionsEntities that provide financing to customers to enablethose customers to buy the entity’s productsLessors that provide financing to customers in financeleasesProviding financing tocustomersInvesting in particulartypes of assets(Investing in assets)
Examples of evidence include:
A reportable segment comprising a single business activity indicates that theactivity is a main business activity of the entity.An operating segment comprising a single business activity may indicate amain business activity if the segment’s performance is an important indicatorof the entity’s operating performance.HKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESIMPACT ON THE CLASSIFICATION OF SPECIFIED INCOME AND EXPENSESSpecified assetOther considerationsClassification of income and expensesEntitywithoutSMBAInvesting in assets as amain business activityCash and cashequivalents-InvestingRefer to diagramoverleafInvestments inassociates, jointventures andunconsolidatedsubsidiariesAccounted for using the equity methodInvestingInvested in as a main business activity and Notaccounted for using the equity methodOperatingNot invested in as a main business activity and Notaccounted for using the equity methodInvestingOther assets thatgenerate a returnindividually and largelyindependently of theentity’s other resourcesForming part of the entity’s main business activityOperatingNot forming part of the entity’s main business activityInvestingSpecified asset/liabilityOther considerationsClassification of income and expensesEntitywithoutSMBAProviding financing tocustomers as a mainbusiness activityCash and cashequivalents-InvestingRefer to diagramoverleafLiabilities that arisefrom transactions thatinvolve only the raisingof financeRelated to providing financing to customersFinancingOperatingNot related to providing financing to customersAccounting policychoice: Operating orfinancing (a)
Cannot distinguish between liabilities related toproviding financing to customers and those that donotOperatingOther liabilitiesInterest income and expenses and income andexpenses from changes in interest rates identified forthe purpose of applying other HKFRS AccountingStandardsFinancingOther income and expensesOperatingAPRIL 2026 ISSUE 3HKFRS 18 requires an entity with an SMBA to classify in the operating category specific income andexpenses that would otherwise be classified in the investing or financing category, so that these income andexpenses form part of the entity’s operating results.INVESTING IN ASSETSPROVIDING FINANCING TO CUSTOMERSDISCLOSURES FOR ENTITIES WITH AN SMBAAn entity with an SMBA is required to disclose:
The fact that the entity has a main business activity of investing in assets or providingfinancing to customers.If the outcome of the SMBA assessment changes:
1.the fact and the date of that change; and
2.for affected income and expenses, the amounts and classification before and afterthe change for the current and prior periods, unless impracticable. If impracticable,that fact is disclosed.Illustrative examplesHKFRS 18 IE11–IE13 provides illustrative examples of statements of profit or loss forentities with an SMBA.Does the entity invest in financial assets as a main business activity?Does the entity provide financing to customers as a main businessactivity?Does the income or expense from cash and cashequivalents relate to providing financing to customers? (b)
OperatingcategoryAccounting policy choice: operatingcategory or investing category (a)
InvestingcategoryHKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESAPRIL 2026 ISSUE 3Classification of income and expenses from cash and cash equivalents(a)
(b)
The accounting policy choice shall be consistent (where applicable) across both circumstances.If an entity cannot distinguish which cash and cash equivalents relate to providing financing to customers,income and expenses from all cash and cash equivalents are classified in the operating category.YesYesYesNoNoNoKEY IMPLICATIONS FOR PREPARERSLOOKING AHEAD: WHAT’S NEXT IN OUR SERIESH2
6.A deep-dive into income,expenses & informationgrouping
7.Beyond the headlines:
Changes to other HKFRSAccounting Standards
8.Navigating IFRS agendadecisions on HKFRS 18
9.From theory to practiceQ2
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsQ1
1.Getting ready
2.Navigating the newstructureAPRIL 2026 ISSUE 3In the next issue, we will focus on management-defined performance measures (MPMs),including how to identify MPMs and what new disclosures are required under HKFRS 18.This publication has been prepared by staff of HKICPA for information or illustration purposes. Members of the HKICPAand other users should also read the full HKFRS Accounting Standards, as found in the HKICPA Members’ Handbook forfurther reference, and seek professional advice where necessary.HKFRS 18 NAVIGATORDEFINING WHAT YOU DO:
DETERMINATION OF MAIN BUSINESS ACTIVITIESThe assessment of SMBA is entity‑specific and judgmental. Conclusions should beconsistent with how management manages and monitors the business, includinginternal reporting and segment information. Entities should ensure that theassessment and judgements applied are properly documented.Entities should assess early whether they have an SMBA, as the resultingclassification may lead to significant changes in operating profit and other mandatorysubtotals, including comparative information.Changes in classification may affect key performance indicators andmanagement‑defined performance measures. Entities should consider whetherexisting measures remain appropriate and whether additional explanations ordisclosures are needed to help users understand the impact of the new presentationrequirements.