What are management accounts, and does a Hong Kong SME need them?

What they are. Internal reports prepared more often than the annual statements, for decision-making rather than statutory filing. Typical contents:

• profit and loss against budget or last year;
• balance sheet summary;
• cash position and a short cash-flow forecast;
• ageing of receivables and payables;
• key ratios such as gross margin and days of sales outstanding.

Legal position. Hong Kong law does not require management accounts. It does require accounting records that disclose the company's financial position and performance with reasonable accuracy at any time (s.373). If records are kept outside Hong Kong, accounts and returns must show the position at intervals of not more than 6 months (s.374(3)). Management accounts are a practical way to prove you can meet that standard.

When they help

• lenders or investors ask for recent figures;
• you are growing and need to watch cash;
• you are preparing for sale, fundraising or an audit.

Keep it simple. One page of numbers and three comments (what changed, why, what to do) is better than a long pack nobody reads.

They are unaudited. They cannot replace the statutory audit.