Can a Hong Kong Company Report in USD or RMB Instead of HKD?

Functional versus presentation currency. The functional currency is the currency of the company's primary economic environment and is used to measure transactions. The presentation currency is the one in which the statements are shown. They can differ, in which case the results and financial position are translated.

What the standards say. HKAS 21 (para 38) and HKFRS for Private Entities (s.30.17) both state that an entity may present its financial statements in any currency (or currencies). If that differs from the functional currency, income, expenses and financial position are translated into the presentation currency. The SME-FRS makes no distinction between reporting and presentation currency: a company using it has one reporting currency, that of its primary economic environment.

What the law says. Section 380 requires financial statements to comply with the applicable accounting standards. Nothing in the Companies Ordinance requires them to be in Hong Kong dollars.

Points to check before choosing

• Auditor's view: agree the presentation currency with your auditor before year end.
• Users: investors, lenders, a parent company and banks may prefer a particular currency.
• Tax: the IRD assesses profits in Hong Kong dollars. Ask your tax adviser how foreign-currency accounts are converted for the profits tax computation.
• Consistency: changing currency later needs restated comparatives.

For most Hong Kong SMEs trading locally, HKD is the simple default. For companies mainly transacting in USD or RMB, discuss the options with your accountant early.