Hong Kong Council for Accreditation of Academic and Vocational Qualifications (the "Council") is a body corporate established under the Hong Kong Council for Accreditation of Academic and Vocational Qualifications Ordinance. Under the Accreditation of Academic and Vocational Qualifications Ordinance (Cap. 592) (the "Ordinance") the Council assumes its statutory role as the Accreditation Authority and QR Authority under the Qualifications Framework ("QF"). As the Accreditation Authority, the Council is responsible for developing and implementing the standards and mechanisms for accreditation of academic and vocational qualifications to underpin the QF and for organising the accreditation exercises for the purposes as specified in the Ordinance. The Council's also provides advice to the Government of the Hong Kong Special Administrative Region on the registration of non-local academic and professional courses, the assessment on non-local qualifications and also on educational standards and qualifications generally.
Since the Council is not profit-oriented and is not subject to any externally imposed capital requirements, its primary financial and capital management objectives are to maintain a balance between annual income and expenditure, so that it has the ability to operate as a going concern and perform its statutory roles and functions.
The Council is primarily financed through the charging of fees for academic and vocational accreditation services rendered which include validations, revalidations, institutional reviews, qualifications assessments and advisory/consultancy services. Any operating surplus shall be carried forward to the following financial year to meet future expenditure required for the operations of the Council.
2
Significant accounting policies
(a)
Statement of compliance
These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs"), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and accounting principles generally accepted in Hong Kong. A summary of the significant accounting policies adopted by the Council is set out below.
The HKICPA has issued a number of new Interpretations and an amendment to HKFRSs that are effective or available for early adoption for the current accounting period of the Council. As a result of the amendment to HKAS 39 "Financial Instruments: Recognition and Measurement" and HKFRS 7 "Financial Instruments: Disclosures", which permit an entity to reclassify non-derivative financial assets other than those designated at fair value through profit or loss upon initial recognition, out of the trading category in certain circumstances. The impact on the adoption of these amendments on the net deficit for the year is set out in note 9, such adoption has no effect on the net assets for the years presented.
The Council has not applied any new standard or interpretation that is not yet effective for the current accounting period (note 19).
(b)
Basis of preparation of the financial statements
The measurement basis used in the preparation of the financial statements is the historical cost basis except that the investments in securities are stated at fair value as explained in the accounting policies set out below.
The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
(c)
Investments in securities
The Council's policies for investments in securities are as follows:
(i)
Investments in securities held for trading are classified as current assets and are initially stated at fair value. At each balance sheet date the fair value is remeasured, with any resultant gain or loss being recognised in the income and expenditure statement.
(ii)
Dated debt securities that the Council have the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held-to-maturity securities are initially recognised in the balance sheet at fair value plus transaction costs. Subsequently, they are stated in the balance sheet at amortised cost less impairment losses (see note 2(e)).
(iii)
Other investments in equity securities are classified as available-for-sale securities and are initially recognised at fair value plus transaction costs. At each balance sheet date the fair value of the securities is remeasured, with any resultant gain or loss being recognised directly in investment revaluation reserve, except for impairment losses (see note 2(e)). When these investments are derecognised, the cumulative gain or loss previously recognised directly in investment revaluation reserve is recognised in the income and expenditure statement.
(iv)
Investments are recognised/derecognised on the date the Council commits to purchase/sell the investments or they expire.
(d)
Fixed assets
Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 2(e)).
Depreciation is calculated to write off the cost of items of fixed assets, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:
-
Leasehold improvements
Over the remaining term of the lease
-
Furniture and equipment
5 years
Both the useful life of an asset and its residual value, if any, are reviewed annually.
Gains or losses arising from the retirement or disposal of an item of fixed assets are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in the income and expenditure statement on the date of retirement or disposal.
(e)
Impairment of assets
(i)
Impairment of investments in debt and equity securities and receivables
Investments in debt and equity securities and receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, any impairment loss is determined and recognised as follows:
-
For receivables that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for receivables are reversed if in a subsequent period the amount of the impairment loss decreases.
-
For held-to-maturity debt securities carried at amortised cost, the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material.
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the income and expenditure statement. A reversal of an impairment loss shall not result in the asset's carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.
-
For available-for-sale equity securities, the cumulative loss that had been recognised directly in investment revaluation reserve is transferred to the income and expenditure statement. The amount of the cumulative loss that is transferred to in the income and expenditure statement is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in the income and expenditure statement.
Impairment losses recognised in the income and expenditure statement in respect of available-for-sale equity securities are not reversed through the income and expenditure statement. Any subsequent increase in the fair value of such assets is recognised directly in investment revaluation reserve.
(ii)
Impairment of fixed assets
Internal and external sources of information are reviewed at each balance sheet date to identify indications that fixed assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased.
If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised in the income and expenditure statement whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.
A reversal of impairment losses is limited to the asset's carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income and expenditure statement in the year in which the reversals are recognised.
(f)
Leased assets
Where the Council has the use of assets under operating leases, payments made under the leases are charged to the income and expenditure statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in the income and expenditure statement as an integral part of the aggregate net lease payment made. Contingent rentals are charged to the income and expenditure statement in the accounting period in which they are incurred.
(g)
Trade and other receivables
Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 2(e)), except where the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.
(h)
Trade and other payables
Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.
(i)
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.
(j)
Employee benefits
Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.
(k)
Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount when the Council has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
(l)
Income recognition
Provided it is probable that the economic benefits will flow to the Council and the income and costs, if applicable, can be measured reliably, income is recognised in the income and expenditure statement as follows:
(i)
fees for rendering of accreditation services to institutions are recognised in the period to the extent the accreditation work is completed;
(ii)
advisory fees and consultancy fees are recognised in the period in which such services are rendered;
(iii)
fees for rendering of qualifications assessment services are recognised in the period in which such assessment work is completed;
(iv)
qualifications registry fees are recognised in the period in which such services are rendered;
(v)
government grants are recognised in the balance sheet initially as deferred income when there is reasonable assurance that they will be received and that the Council will comply with conditions attached to them. Grants that compensate the Council for expenses incurred are recognised as income in the income and expenditure statement on a systematic basis in the same periods in which the expenses are incurred;
(vi)
interest income is recognised as it accrues using the effective interest method; and
(vii)
dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.
(m)
Related parties
For the purposes of these financial statements, a party is considered to be related to the Council if:
(i)
the party has the ability, directly or indirectly through one or more intermediaries, to control the Council or exercise significant influence over the Council in making financial and operating policy decisions, or has joint control over the Council;
(ii)
the Council and the party is subject to common control;
(iii)
the party is an associate of the Council or a joint venture in which the Council is a venturer;
(iv)
the party is a member of key management personnel of the Council, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v)
the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi)
the party is a post-employment benefit plan which is for the benefit of employees of the Council or of any entity that is a related party of the Council.
Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.
3
Investment (loss)/income
(Expressed in Hong Kong dollars)
2009
2008
$
$
Interest income
931,732
1,315,180
Dividend income
511,316
506,785
Unrealised (loss)/gain on trading securities
(859,762
)
277,200
Transfer from investment revaluation reserve on disposal of
available-for-sale securities
(841,890
)
1,008,416
(258,604
)
3,107,581
4
(Deficit)/surplus for the year
(Deficit)/surplus for the year is arrived at after charging:
(Expressed in Hong Kong dollars)
2009
2008
$
$
(a) Staff costs
Salaries, wages and other benefits
23,316,771
21,570,196
Contributions to Mandatory Provident Funds
502,142
417,833
23,818,913
21,988,029
The above staff costs do not include salaries, wages and other benefits of $6,705,518 (2008: $7,581,794) and contributions to Mandatory Provident Funds of $111,383 (2008: $153,326) relating to the Qualifications Framework project which are included in direct accreditation/consultancy costs in the income and expenditure statement.
(Expressed in Hong Kong dollars)
2009
2008
$
$
(b) Other items
Auditor's remuneration
90,750
90,625
Depreciation
1,321,477
1,338,483
Imputed finance charge on office reinstatement cost
64,237
49,413
Operating lease charges in respect of properties
4,265,001
3,270,587
5
Taxation
No provision for Hong Kong profits tax is required to be made in these financial statements as the Council is exempted from taxation pursuant to section 87 of the Inland Revenue Ordinance.
6
Fixed assets
(Expressed in Hong Kong dollars)
Leasehold
improvements
Furniture and
equipment
Total
$
$
$
Cost:
At 1 April 2008
4,146,403
3,314,851
7,461,254
Additions
-
294,668
294,668
At 31 March 2009
4,146,403
3,609,519
7,755,922
Accumulated depreciation:
At 1 April 2008
1,897,376
2,107,342
4,004,718
Charge for the year
778,518
542,959
1,321,477
At 31 March 2009
2,675,894
2,650,301
5,326,195
Net book value:
At 31 March 2009
1,470,509
959,218
2,429,727
Leasehold
improvements
Furniture and
equipment
Total
$
$
$
Cost:
At 1 April 2007
4,136,453
3,074,127
7,210,580
Additions
9,950
240,724
250,674
At 31 March 2008
4,146,403
3,314,851
7,461,254
Accumulated depreciation:
At 1 April 2007
1,118,972
1,547,263
2,666,235
Charge for the year
778,404
560,079
1,338,483
At 31 March 2008
1,897,376
2,107,342
4,004,718
Net book value:
At 31 March 2008
2,249,027
1,207,509
3,456,536
Included within the cost of leasehold improvements is estimated cost of $1,176,485 (2008: $1,176,485) relating to office reinstatement.
7
Non-current investments
(Expressed in Hong Kong dollars)
2009
2008
$
$
Unlisted held-to-maturity debt securities, at amortised cost
13,860,728
13,856,968
Available-for-sale equity securities listed in Hong Kong, at market value
5,743,254
13,263,152
19,603,982
27,120,120
Fair value of held-to-maturity debt securities
14,065,920
13,890,000
During the year, trading securities at market value $1,177,438 was reclassified into available-for-sale securities as the securities were intended to be held instead of trading (see note 9). The carrying amount and fair value of these securities as at 31 March 2009 are $1,214,400 (2008: $2,037,200 (classified as trading securities under current investments)).
8
Accounts receivable and deposits
(Expressed in Hong Kong dollars)
2009
2008
$
$
Accounts receivable
1,900,904
3,720,190
Deposits and other receivables
1,552,897
1,250,469
Interest receivable
233,711
252,335
3,687,512
5,222,994
All of the accounts receivable and deposits, apart from rental and utility deposits of $1,502,896 (2008: $1,241,014), are expected to be recovered within one year.
The Council's credit policy is set out in note 15(a).
The ageing analysis of accounts receivable is as follows:
(Expressed in Hong Kong dollars)
2009
2008
$
$
Current
1,278,831
2,366,340
Less than 1 month past due
606,473
1,321,350
More than 1 month past due
15,600
32,500
622,073
1,353,850
1,900,904
3,720,190
All of the Council's accounts receivable are not impaired as at 31 March 2009 and 2008. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there was no recent history of default and there has not been a significant change in credit quality of the customers. The Council does not hold any collateral over these balances.
9
Current investments
(Expressed in Hong Kong dollars)
2009
2008
$
$
Trading equity securities listed in Hong Kong, at market value
-
2,037,200
As at 16 January 2009, the Council applied the amendments to HKAS 39 "Financial Instruments: Recognition and Measurement" and HKFRS 7 "Financial Instruments: Disclosures" due to the rare circumstances of the deterioration of the world's financial market and reclassified equity securities listed in Hong Kong at market value of $1,177,438 out of trading securities into available-for-sale securities as the securities were intended to be held instead of trading. A loss of $859,762 is recognised as unrealised loss on trading securities in income and expenditure statement.
10
Cash and cash equivalents
(Expressed in Hong Kong dollars)
2009
2008
$
$
Deposits with banks
29,613,346
25,503,680
Cash at bank and in hand
4,536,846
1,803,886
Cash and cash equivalents in the balance sheet and cash flow statement
34,150,192
27,307,566
11
Deferred government grants
The grants are for meeting development costs of the Qualifications Framework project.
(Expressed in Hong Kong dollars)
2009
2008
$
$
Balance as at 1 April
8,602,024
2,260,000
Grants received and receivable
9,900,000
15,578,619
Interest thereon
156,451
441,638
Recognised as income in the year
(8,656,379
)
(9,678,233
)
Balance as at 31 March
10,002,096
8,602,024
12
Receipts in advance
Receipts in advance represent amounts received for programme accreditation, advice on the registration of non-local courses and qualifications assessment, less amounts recognised as income during the year.
13
Provision for staff gratuities
(Expressed in Hong Kong dollars)
2009
2008
$
$
At 1 April
1,286,731
1,741,633
Provision made
2,296,992
2,339,082
Provision utilised
(1,533,835
)
(2,793,984
)
At 31 March
2,049,888
1,286,731
Less: Amount included in "current liabilities"
853,112
1,133,502
Amount included in "non-current liabilities"
1,196,776
153,229
14
Investment revaluation reserve
(Expressed in Hong Kong dollars)
2009
2008
$
$
At 1 April
2,179,123
2,506,645
Revaluation (deficit)/surplus of available-for-sale equity securities
(6,132,803
)
680,894
Transfer to income and expenditure statement
841,890
(1,008,416
)
At 31 March
(3,111,790
)
2,179,123
15
Financial instruments
Exposure to credit risk arises in the normal course of the Council's operations. The Council is also exposed to market risk arising from its equity investments in other entities.
These risks are limited by the Council's financial management policies and practices described below.
(a)
Credit risk
The Council's credit risk is primarily attributable to bank deposits, accounts receivables and investments in debt securities. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.
In respect of accounts receivables, credit evaluations are performed on all customers requiring credit over a certain amount. These receivables are due on presentation. Normally, the Council does not obtain collateral from customers. At the balance sheet date, the Council had a certain concentration of credit risk as 49% and 98% (2008: 57% and 98%) of the total accounts receivables was due from the largest customer and the five largest customers. See note 8 for quantitative disclosures in respect of the Council's exposure to credit risk arising from accounts receivables.
Bank deposits are normally placed with financial institutions which have good credit ratings. Investments in debt securities are with counterparties of sound credit ratings. Given their high credit ratings, management does not expect any investment counterparty to fail to meet its obligations.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The Council does not provide any other guarantees which would expose it to credit risk.
(b)
Market risk
The Council is exposed to equity price changes arising from equity investments classified as available-for-sale equity securities (see note 7) and trading securities (see note 9).
The Council's equity investments are blue-chip companies listed on the Stock Exchange of Hong Kong. These equity investments have been chosen based on their longer term growth potential and are monitored regularly for performance against expectations.
The following table indicates the approximate change in the Council deficit for the year (and accumulated surpluses) and investment revaluation reserve in response to reasonably possible changes in the market price of the company's equity investments at the balance sheet date.
(Expressed in Hong Kong dollars)
2009
2008
Increase/
(decrease)
in price
of equity
securities
Effect on
deficit for
the year and
accumulated
surpluses
Effect on
investment
revaluation
reserve
Increase/
(decrease)
in price
of equity
securities
Effect on
surplus for
the year and
accumulated
surpluses
Effect on
investment
revaluation
reserve
$
$
$
$
$
$
Market price of equity investments:
-
trading securities
10%
-
-
10%
203,720
-
(10)%
-
-
(10)%
(203,720
)
-
-
available-for-sale
equity securities
10%
-
574,325
10%
-
1,326,315
(10)%
-
(574,325
)
(10)%
-
(1,326,315
)
The sensitivity analysis has been determined assuming that the reasonably possible changes in the prices of respective equity securities had occurred at the balance sheet date and had been applied to the exposure to equity price risk in existence at that date. It is also assumed that none of the Council's available-for-sale investments would be considered impaired as a result of a reasonably possible decrease in the prices of respectively equity securities and that all other variables remain constant. The analysis is performed on the same basis for 2008.
(c)
Fair values
All financial instruments are carried at amounts not materially different from their fair values at the balance sheet date.
16
Operating lease commitments
At 31 March 2009, the total future minimum lease payments under non-cancellable operating leases in respect of properties are payable as follows:
(Expressed in Hong Kong dollars)
2009
2008
$
$
Within 1 year
4,894,188
3,879,144
After 1 year but within 5 years
4,874,618
7,122,924
9,768,806
11,002,068
The Council leases its office premises under an operating lease. The lease runs for an initial period of six years, with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased periodically to reflect market rentals. The lease does not include contingent rentals.
17
Related party transactions
All transactions related to the procurement of goods and services involving organizations in which a member of the Council and key management personnel may have an interest are conducted in the normal course of business and in accordance with the Council's financial obligations and normal procurement procedures.
All transactions related to the provision of accreditation services to organizations in which a member of the Council and key management personnel may have an interest are conducted in the normal course of business and in accordance with the Council's fee charging policy and fee schedule as prescribed by the Ordinance.
In addition to the transactions and balances disclosed elsewhere in these financial statements, the Council had the following related party transactions:
Honorarium paid to Council members in the capacity of
(Expressed in Hong Kong dollars)
2009
2008
$
$
- Non-local Council members
312,000
260,000
- Panel Chair/Panel Members for accreditation exercises
10,500
4,500
322,500
264,500
Key management personnel remuneration
(Expressed in Hong Kong dollars)
2009
2008
$
$
Salaries and other emoluments
6,060,417
7,624,732
Retirement scheme contributions
43,000
38,000
6,103,417
7,662,732
The above remuneration is included in "staff costs" (see note 4(a)).
18
Critical accounting judgement
Certain critical accounting judgement in applying the Council's accounting policies is described below.
Impairment of held-to-maturity financial assets and available-for-sale financial assets
The Council follows the guidance of HKAS 39 on determining when an investment is other-than-temporarily impaired. This determination requires significant judgement. In making this judgement, the Council evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.
19
Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 March 2009
Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended 31 March 2009 and which have not been adopted in these financial statements.
The Council is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Council's results of operations and financial position.
