Capital, which is illegal.
The alternative seems to be an attempt to relegate this disclosure to the Notes on the Accounts, as paragraph 30 also states that the changes in policy may be applied only to the current and future financial statements, in which case, it would be necessary to show in the
financial statements or a note thereto :
(a) The effect on the results of prior accounting periods had
assets been depreciated from the time of acquisition; and,
(b) The effect on the results of current and future accounting
periods.
The significant departures in accounting standards made by directors in preparing accounts will have to be referred in the Auditors' Report, irrespective of whether or not they are disclosed in the Notes to the
Accounts.
Many public companies in Hongkong, therefore, whose Financial Year ends after April 1978, will have to consider whether or not they want to accept a qualification on their accounts or whether they want to reduce their profits in accordance with Statement 123.
If they reduce their profits, it might not be fair to shareholders whose dividend payments will have to be cut, since dividends may only be paid out of profits.
U
It has been suggested to TARGET that, possibly, a' sinking fund should be started this year to guard against the expiry of leases as
an alternative to Statement 123.
But the complexities of such a concept might be almost as difficult to swallow as Statement 123.
-8-