International 'mark-to-market' accounting rules introduced four years ago in Hong Kong have taken a huge bite out of published earnings of listed companies amid the global downturn, a study has found.
The study by Deloitte China of the earnings of the top 100 Hong Kong-listed firms found the so-called fair-value rule had contributed to a combined write-down of HK$646 billion on bad debts and valuation losses in investment portfolios.
Fair-value accounting, which requires companies to value investments at current market prices, affected earnings at HSBC Holdings, China Mobile and Cheung Kong (Holdings).
The accounting rule requires companies to value their investment properties and stocks at market prices and book any paper gains or losses in their profit and loss accounts.
In the past, companies could book their gains and losses in a reserve on their balance sheets, so there was no impact on net profit.
The study found net profit for the top 100 locally listed companies dropped 23 per cent last year to a combined HK$1.12 trillion from HK$1.44 trillion in 2007. The firms saw their profits decline despite their core businesses performing well, with total revenue increasing 17 per cent to HK$9.68 trillion last year.
But with the mark-to-market rule, write-downs on bad debts and valuation losses on investment properties and stocks soared. Total impairment losses increased 113 per cent to HK$646 billion last year from HK$303 billion in 2007.
