Introduction

Section 436 of the new Companies Ordinance (Chapter 622 of the Laws of Hong Kong) (the “NCO”) introduces new requirements in connection with the publication of “non-statutory accounts” by Hong Kong incorporated companies.

In essence, section 436 stipulates that when a Hong Kong incorporated company circulates, publishes, issues or otherwise makes available for public inspection any “non-statutory accounts”, such accounts:

  • must be accompanied by a statement that includes the information required by section 436(3); and
  • must not be accompanied by the auditor's report on the company’s statutory financial statements for the same financial year.

What constitutes “non-statutory accounts”?

The term “non-statutory accounts” refers to any statement of financial position or statement of comprehensive income or accounts in any form purporting to be a statement of financial position or statement of comprehensive income of a company or group relating to, or purporting to deal with, a financial year of the company, otherwise than as part of the specified financial statements of the company or the group.  “Specified financial statements” refer to the annual audited financial statements prepared for the statutory purpose of reporting to its members.

If the accounts only include financial information covering part of a company’s financial year, they do not constitute “non-statutory accounts”.  However, if the accounts also include, as comparative information, financial information purporting to be a statement of financial position or statement of comprehensive income covering a full financial year of the company, such accounts would constitute “non-statutory accounts”.  

Does financial information provided in listed companies’ preliminary announcements of results for a financial year constitute “non-statutory accounts”?

If a preliminary announcement of results for a financial year contains only such financial information as required under Appendix 16, paragraph 45(1) to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), such financial information will constitute “non-statutory accounts” for both the current and comparative financial years.

However, if the full audited statutory financial statements for the current year (which include the financial statements for the preceding financial year as comparatives) are provided in the preliminary announcement of results for the current financial year, they would not constitute “non-statutory accounts”.  Instead, they would constitute “specified financial statements”, which must be accompanied by the full auditor’s report on those statements.

Do summary financial reports constitute “non-statutory accounts”?

The Companies (Summary Financial Reports) Regulation (Chapter 622E of the Laws of Hong Kong) specifies that a company's or group's summary financial report must contain all the information and particulars included in the company's or group's statement of comprehensive income for the financial year and statement of financial position as at the end of that financial year.  It would appear that summary financial reports fall within the definition of “non-statutory accounts”.  However, according to a Frequently Asked Question published on the Companies Registry’s website, the Companies Registry clarified that section 436 is not intended to cover summary financial reports.

Does financial information provided in interim financial reports constitute “non-statutory accounts”?

Interim financial reports prepared in accordance with Hong Kong Accounting Standard (HKAS) 34 Interim Financial Reporting contain a statement of financial position as of the end of the preceding financial year, and therefore constitute “non-statutory accounts”.

What other documents or publications may contain financial information that constitutes “non-statutory accounts”?

Other examples of documents or publications which may contain financial information that constitutes “non-statutory accounts” include:

  • prospectuses or listing documents;
  • circulars that are required to be issued under the Listing Rules;
  • interim results announcements; and
  • other company communication documents (e.g. materials provided to analysts, road show materials, etc).

What are the requirements that a Hong Kong incorporated company should comply with when circulating, publishing, issuing or otherwise making available for public inspection any “non-statutory accounts”?

When a Hong Kong incorporated company circulates, publishes, issues or otherwise makes available for public inspection any “non-statutory accounts”, it is required to comply with the following two requirements:

  1. The “non-statutory accounts” must be accompanied by a statement that includes the following information specified in section 436(3):
    1. that those accounts are not specified financial statements in relation to the company;
    2. whether the specified financial statements for the financial year with which those accounts purport to deal have been delivered to the Registrar of Companies;
    3. whether an auditor’s report has been prepared on the specified financial statements for the financial year; and
    4. whether the auditor’s report –
      1. was qualified or otherwise modified;
      2. referred to any matter which the auditor drew attention by way of emphasis of matter without qualifying the report; or
      3. contained a statement under section 406(2) or 407(2) or (3).

Accounting Bulletin 6 - Guidance on theRequirements of Section 436 of the Hong Kong Companies Ordinance Cap.622” published by the Hong Kong Institute of Certified Public Accountants in June 2015 provides sample statements for various forms of non-statutory accounts and other helpful guidance on the requirements under section 436.  The document can be downloaded from:http://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeII/ab6.pdf

  1. The “non-statutory accounts” must not be accompanied by the auditor's report on the company’s specified financial statements.

According to a Frequently Asked Question published on the Companies Registry’s website, the Companies Registry clarified that:

  • if the “non-statutory accounts” are included in the same document containing the specified financial statements but it is clear that the auditor’s report on those financial statements only relates to the specified financial statements and not to the ‘non-statutory accounts’ included in the same document, the prohibition on auditor’s report accompanying non-statutory accounts is not contravened; and
  • the “non-statutory accounts” may be accompanied by a separate report from the auditor on the non-statutory accounts if it is clear that the report is not the auditor’s report that was issued on the company’s “specified financial statements”

When do the requirements under section 436 take effect?

Section 436 applies in relation to financial statements for financial years beginning on or after 3 March 2014.  

What are the consequences if the requirements under section 436 are contravened?

If the requirements under section 436 are contravened, the Hong Kong incorporated company and every responsible person of the company (e.g. directors and company secretary) commit an offence, and each is liable to a fine of HK$150,000.