Close & reporting
Lease accounting (ASC 842 / IFRS 16)
Office, retail and equipment leases brought onto a Hong Kong company's balance sheet as a right-of-use asset and a lease liability under HKFRS 16, the local standard that mirrors IFRS 16, with monthly amortisation and interest tracked through the lease term for statutory reporting purposes.
Management report
Illustrative client · August 2026
HKD
| Line | Aug | Jul | |
|---|---|---|---|
| Revenue | 142,380 | 131,904 | +10,476 |
| Cost of sales | (51,260) | (48,115) | (3,145) |
| Gross profit | 91,120 | 83,789 | +7,331 |
| Payroll | (46,300) | (45,900) | (400) |
| SoftwareNoted | (6,480) | (5,490) | (990) |
| Rent | (8,000) | (8,000) | 0 |
| Other operating | (9,215) | (9,870) | +655 |
| Net income | 21,125 | 14,529 | +6,596 |
Reviewer's note
Software is up on last month after two seats were added mid-month. Revenue includes one milestone invoice that will not repeat next month.
Illustrative. An example of the document, not a client's figures.
Why this matters for a Hong Kong lease
Hong Kong commercial rents run high relative to most markets, and HKFRS 16 requires most leases, including the typical multi-year office or retail lease common here, to sit on the balance sheet as a right-of-use asset and a matching lease liability rather than as a simple rent expense.
What the schedule does
A lease inventory built from your existing lease agreements, the right-of-use asset and lease liability calculated at an agreed discount rate, and monthly amortisation and interest expense scheduled through the lease term, with each lease classified and documented.
Short leases get an easier path
A practical expedient in HKFRS 16 allows short-term leases, generally twelve months or less, to be kept off the balance sheet and expensed as they are paid, which matters for a Hong Kong company running short renewable leases on smaller premises or storage space.
The discount rate question
Where your lease agreement does not state an implicit rate, we use your incremental borrowing rate where it is known, or a reasonable documented estimate where it is not, and record the basis for that choice in the schedule.
Renewal and break clauses
Hong Kong commercial leases often carry a break clause or a renewal option a few years into a longer term. Whether that option is included in the lease liability calculation depends on how likely you are to exercise it, a judgment call that gets documented at the outset rather than revisited informally each time the topic comes up.
Where this lands
Lease schedules feed directly into the month-end close each month and into the disclosure notes that support your annual audited financial statements, prepared for review by your practising Hong Kong CPA.
Questions
Frequently asked questions: Lease accounting (ASC 842 / IFRS 16)
Do short Hong Kong office leases need to go on the balance sheet?
Often not. A short-term lease, generally twelve months or less, can be kept off the balance sheet under a practical expedient in HKFRS 16 and simply expensed as paid.
What discount rate is used for the lease liability?
Your incremental borrowing rate where it is known, or a reasonable estimate agreed with you and documented in the schedule where it is not.
How is HKFRS 16 different from IFRS 16?
They are not different in substance. HKFRS 16 is Hong Kong's own issuance of the same standard, applying the same right-of-use model as IFRS 16.
Does the lease schedule affect our annual audit?
Yes. It supports the right-of-use asset, lease liability and disclosure notes in your audited financial statements, which the practising Hong Kong CPA reviews as part of the statutory audit.
How do you treat a lease that includes an option to renew?
The renewal is included in the lease term, and therefore in the right-of-use asset and liability, only when you are reasonably certain to exercise it; that judgement is documented and reviewed with you, not assumed automatically.
Do month-to-month leases need to be on the balance sheet?
Short-term leases can often be excluded under a practical expedient available in both standards; we confirm this lease by lease.
What discount rate do you use for the lease liability?
We use your incremental borrowing rate where it is known, or a reasonable estimate agreed with you where it is not, and document the basis in the schedule.
What if our records for lease accounting (ASC 842 / IFRS 16) are not up to date?
If your records are behind, we scope a catch-up first so lease accounting (ASC 842 / IFRS 16) starts from a clean, reconciled base. That catch-up is priced and timed separately from the ongoing engagement, so you always know what each part costs.
Who reviews the work before it reaches us?
Every deliverable under lease accounting (ASC 842 / IFRS 16) is reviewed by a senior reviewer before it reaches you. You keep access to the underlying file at every stage, so nothing about the work happens somewhere you cannot see it.
Next step
Talk to the team that would run your books
A short call covers your setup, your software and what a first month would look like. You get a written scope and price after it.