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Study on impact of converging to IFRSs in Hong Kong

15 May 2008

The Hong Kong Institute of Certified Public Accountants has published Consultancy on the Impact of HKFRS Convergence Project: A Review of the Hang Seng Index Constituent Stocks.

The Hang Seng Index (HSI) is an index currently reflecting 43 leading stocks listed on the Stock Exchange of Hong Kong. Hong Kong Financial Reporting Standards (HKFRSs) were fully converged with IFRSs effective 1 January 2005. The HKICPA commissioned this research to assess the impact on HSI constituent companies of adopting the converged HKFRSs in 2005 and to identify the resulting changes in operating performance and financial position. The study also identified specific standards that contributed the most to those changes. The study focussed on the 32 HSI companies that adopted HKFRSs in 2005 (others had elected earlier adoption). The study is copyright HKICPA, and we are grateful to them for giving us permission to post it on IAS Plus. Click to Download the HKICPA Study (PDF 1,472k). Selected findings:

Impact on profit:
  • Average increase in net income was 53.63% (median increase 2.59%) – hence wide disparity in impact.
  • The five standards that had the greatest effect on profit were:
    • HKAS 32 HKAS 39 (Financial Instruments),
    • HKFRS 2 (Share-based Payment),
    • HKAS 40 (Investment Property) and Int 21 (Income Taxes – Recovery of Revalued Non-Depreciable Assets),
    • HKAS 17 (Leases), and
    • HKFRS 3 (Business Combinations) and HKAS 36 (Impairment of Assets)
  • On average, HKFRS 2 and HKAS 17 reduced profit, while the others increased it.
  • The study did not find any discernible relationships between the magnitude of profit change and company characteristics such as size, debt level, profitability level, or change before the new standards.
Impact on opening equity:
  • On average, the new standards decreased opening equity by 2.00% (median decrease 0.92%).
  • The five standards that had the greatest effect on opening equity were:
    • HKAS 32 and HKAS 39 (Financial Instruments),
    • HKAS 40 (Investment Property) and Int 21 (Income Taxes – Recovery of Revalued Non-Depreciable Assets),
    • HKAS 17 (Leases),
    • HKAS 16 (Property, Plant and Equipment), and
    • HKFRS 3 (Business Combinations) and HKAS 36 (Impairment of Assets)
  • On average, HKAS 32/HKAS 39 and HKFRS 3/HKAS 36 reduced equity, while the others increased it.
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