Exposure Draft on Hong Kong Accounting Standard 40

Our Ref:

B1/7C

21 June 2004

The Chief Executive
All locally incorporated AIs

Dear Sir / Madam,

Exposure Draft on Hong Kong Accounting Standard 40

You should be aware that the Hong Kong Society of Accountants (HKSA) has recently issued an exposure draft (ED) Proposed Convergence of Hong Kong Accounting Standards with International Accounting Standards¹ with an aim to achieve full convergence of the existing standards and interpretations issued by the HKSA with those issued by the International Accounting Standards Board (IASB) for accounting periods beginning on or after 1 January 2005.

The ED concerns a wide range of standards, including the proposed adoption of Hong Kong Accounting Standard (HKAS) 40 Investment Property to replace the current Statements of Standard Accounting Practice (SSAP) 13 Accounting for Investment Properties. One of the major changes of HKAS 40 compared to SSAP 13 is that HKAS 40 would require all changes in the fair value of an investment property to be reported in income statement whereas SSAP 13 currently allows such changes to be taken directly to an investment property revaluation reserve account on a portfolio basis to the extent that the reserve remains in surplus.

You may wish to review the content of this ED and pass any comments to the HKSA. We will write to you separately at a later date to explain our policy intention regarding the treatment of changes in the fair value of investment properties under the capital adequacy regime if the ED were to be adopted in Hong Kong.

Yours faithfully,

Simon Topping
Executive Director (Banking Policy)

¹ Available on HKSA website: http://www.hksa.org.hk/professionaltechnical/accounting/exposuredraft/

c.c.

The Chairman, Hong Kong Association of Banks
The Chairman, The Deposit-taking Companies Association
The President, Hong Kong Society of Accountants