(Amount expressed in thousands of Hong Kong dollars, unless otherwise stated.)
The Office of the Telecommunications Authority (OFTA) Trading Fund was established on 1 June 1995 under the Legislative Council Resolution passed on 10 May 1995 pursuant to sections 3, 4 and 6 of the Trading Funds Ordinance (Cap. 430). By virtue of section 25 of the Communications Authority Ordinance (CAO) (Cap. 616) which came into operation on 1 April 2012, the OFTA Trading Fund was renamed as the Office of the Communications Authority (OFCA) Trading Fund (the Fund) on the same date. The OFCA serves as the executive arm of the Communications Authority (CA), which is a statutory body set up under the CAO to administer and enforce the Broadcasting Ordinance (Cap. 562), the Broadcasting (Miscellaneous Provisions) Ordinance (Cap. 391), the CAO, the Telecommunications Ordinance (Cap. 106) and the Unsolicited Electronic Messages Ordinance (UEMO) (Cap. 593), as well as the Trade Descriptions Ordinance (Cap. 362) and the Competition Ordinance (Cap. 619), and to perform any function under or by virtue of any Ordinance. The Fund, which is under the policy portfolio of the Commerce and Economic Development Bureau of the Government of the Hong Kong Special Administrative Region (the Government), supports the principal activities of the CA, as follows:
These financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong and all applicable Hong Kong Financial Reporting Standards (HKFRSs), a collective term which includes all applicable
individual HKFRSs, Hong Kong Accounting Standards (HKASs) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). A summary of the significant accounting policies adopted by the Fund
is set out below.
The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Fund. Note 3 provides information on the changes, if any, in accounting policies
resulting from initial application of these developments to the extent that they are relevant to the Fund for the current and prior accounting periods reflected in these financial statements.
The measurement basis used in the preparation of the financial statements is historical cost.
The preparation of financial statements in conformity with HKFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and 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 for making judgments 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.
There are no critical accounting judgments involved in the application of the Fund’s accounting policies. There are also no key assumptions concerning the future, or other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the next year.
The fixed assets appropriated to the Fund on 1 June 1995 were measured initially at deemed cost equal to the value contained in the Resolution of the Legislative Council passed on 10 May 1995. Fixed assets acquired since 1 June
1995 are capitalised at the actual costs of acquisition or installation.
The following items of property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses (note 2(d)):
Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, on a straight-line basis over their estimated useful lives as follows:
||over the unexpired term of lease|
||over the shorter of the unexpired term of lease and their useful lives|
||5 to 12 years
Gains or losses arising from the disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive
income on the date of disposal.
Intangible assets include acquired computer software licences and capitalised development costs of computer software programs. Expenditure on development of computer software programs is capitalised if the programs are technically
feasible and the Fund has sufficient resources and intention to complete development. The expenditure capitalised includes direct labour and cost of materials. Intangible assets are stated at cost less accumulated amortisation
and any impairment losses (note 2(d)).
Amortisation of intangible assets is charged to the statement of comprehensive income on a straight-line basis over the assets’ estimated useful lives of 5 to 12 years.
The carrying amounts of non-financial assets, including property, plant and equipment and intangible assets, are reviewed at the reporting date to identify any indication of impairment.
If any such indication exists, an impairment loss is recognised in the statement of comprehensive income whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the higher
of its fair value less costs of disposal and value in use.
The Fund’s financial assets comprise placement with the Exchange Fund, trade and other receivables, amounts due from related parties, interest receivables, bank deposits, and cash and bank balances.
The Fund’s financial liabilities comprise trade and other payables, provision for employee benefits and amounts due to related parties.
The Fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. At initial recognition, financial assets and financial liabilities are measured at
fair value plus or minus transaction costs that are directly attributable to the acquisition of the financial assets or the issue of the financial liabilities.
The Fund classifies all financial assets as subsequently measured at amortised cost using effective interest method, on the basis that they are held within a business model whose objective is to hold them for collection of contractual
cash flows and the contractual cash flows represent solely payments of principal and interest. The measurement of loss allowances for financial assets is based on the expected credit loss model as described in note 2(e)(iv).
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating and recognising the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset or
to the amortised cost of the financial liability. When calculating the effective interest rate, the Fund estimates the expected cash flows by considering all contractual terms of the financial instrument but does not consider
the expected credit losses. The calculation includes all fees received or paid between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
The Fund classifies all financial liabilities as subsequently measured at amortised cost using effective interest method.
The Fund reclassifies a financial asset when and only when it changes its business model for managing the asset. A financial liability is not reclassified.
A financial asset is derecognised when the contractual rights to receive the cash flows from the financial asset expire, or where the financial asset together with substantially all the risks and rewards of ownership have been
A financial liability is derecognised when the obligation specified in the contract is discharged or cancelled, or when it expires.
The Fund applies a three-stage approach to measure expected credit losses on financial assets (other than trade receivables) measured at amortised cost and to recognise the corresponding loss allowances and impairment losses or
reversals, with the change in credit risk since initial recognition determining the measurement bases for expected credit losses:
Stage 1: 12-month expected credit losses
For financial instruments for which there has not been a significant increase in credit risk since initial recognition, the portion of the lifetime expected credit losses that represent the expected credit losses that result from
default events that are possible within the 12 months after the reporting date are recognised.
Stage 2: Lifetime expected credit losses – not credit impaired
For financial instruments for which there has been a significant increase in credit risk since initial recognition but that are not credit impaired, lifetime expected credit losses representing the expected credit losses that result
from all possible default events over the expected life of the financial instruments are recognised.
Stage 3: Lifetime expected credit losses – credit impaired
For financial instruments that have become credit impaired, lifetime expected credit losses are recognised and interest income is calculated by applying the effective interest rate to the amortised cost rather than the gross carrying
Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses.
Determining significant increases in credit risk
At each reporting date, the Fund assesses whether there has been a significant increase in credit risk for financial instruments since initial recognition by comparing the risk of default occurring over the remaining expected life
as at the reporting date with that as at the date of initial recognition. The assessment considers quantitative and qualitative historical information as well as forward-looking information. A financial asset is assessed
to be credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred.
The Fund assesses whether there has been a significant increase in credit risk since initial recognition on an individual or collective basis. For collective assessment, financial instruments are grouped on the basis of shared
credit risk characteristics, taking into account investment type, credit risk ratings and other relevant factors.
Placements with banks with an external credit rating of investment grade are considered to have a low credit risk. Other financial instruments are considered to have a low credit risk if they have a low risk of default and
the counterparty or borrower has a strong capacity to meet its contractual cash flow obligations in the near term. The credit risk on these financial instruments is assessed as not having increased significantly since
When a financial asset is uncollectible, it is written off against the related loss allowance. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent
recoveries of amounts previously written off are recognised in the statement of comprehensive income.
Measurement of expected credit losses
Expected credit losses of a financial instrument are an unbiased and probability-weighted estimate of credit losses (i.e. the present value of all cash shortfalls) over the expected life of the financial instrument. A cash
shortfall is the difference between the cash flows due to the Fund in accordance with the contract and the cash flows that the Fund expects to receive. For a financial asset that is credit impaired at the reporting date,
the Fund measures the expected credit losses as the difference between the asset's gross carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate.
If a customer pays consideration, or the Fund has an unconditional right to consideration, before the Fund transfers a service to the customer, the Fund recognises its contract liability as deferred income. The Fund derecognises
the deferred income and recognises revenue when the Fund transfers the service and, therefore, satisfies its performance obligation.
The Fund recognises revenue from contracts with customers when it satisfies a performance obligation by transferring a promised service to a customer, at the amount of consideration to which the Fund expects to be entitled
in exchange for the service.
Interest income is recognised as it accrues using the effective interest method.
Other income is recognised on an accrual basis.
The employees of the Fund comprise civil servants and contract staff. Salaries, staff gratuities and annual leave entitlements are accrued and recognised as expenditure in the year in which the associated services are
rendered by the staff. For civil servants, staff on-costs, including pensions and housing benefits provided to the staff by the Government, are charged as expenditure in the year in which the associated services are
For civil servants employed on pensionable terms, their pension liabilities are discharged by reimbursement of the staff on-cost charged by the Government. For other staff, contributions to the Mandatory Provident Fund
Scheme are charged to the statement of comprehensive income as incurred.
The Fund is a separate accounting entity within the Government established under the Trading Funds Ordinance. During the year, the Fund has entered into transactions with various related parties, including government bureaux
and departments, other trading funds and financially autonomous bodies controlled or significantly influenced by the Government, in the ordinary course of its business.
Foreign currency transactions during the year are translated into Hong Kong dollars using the spot exchange rates at the transaction dates. Monetary assets and liabilities denominated in currencies other than Hong Kong
dollars are translated into Hong Kong dollars using the closing exchange rate at the reporting date. All foreign currency translation differences are recognised in the statement of comprehensive income.
Cash and cash equivalents include cash and bank balances, and other short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value, having
been within three months of maturity when placed or acquired.
Provisions are recognised for liabilities of uncertain timing or amount when there is 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.
The HKICPA has issued certain new or revised HKFRSs that are effective for the current accounting period. There have been no changes to the accounting policies applied in these financial statements for the years presented
as a result of these developments.
The Fund has not applied any new standard or interpretation that is not yet effective for the current accounting period (note 22).
|Telecommunications licence fees
|Licences – Public
|Licences – Private
|Broadcasting licence fees
|Services provided to related parties (note 19(a))||35,824||33,621|
The Fund supports the CA to administer and enforce various ordinances including the Broadcasting Ordinance and the Telecommunications Ordinance. The Fund’s performance obligations in contracts with customers mainly
involve licensing and regulating telecommunications services and broadcasting services. A licensee is required to pay service fee in advance. The Fund satisfies its performance obligation as the service is
rendered and recognises the fee over time on a straight-line basis.
For advisory and project, and frequency assignment and protection services provided to related parties, the Fund satisfies its performance obligation as the service is rendered and recognises a service fee over time on
a full cost recovery basis.
|Depreciation of property, plant and equipment||10,992||9,440|
|Amortisation of intangible assets||1,097||926|
|Interest income from financial assets not at fair value
|Placement with the Exchange Fund
|Sundry income (note 11)||3,976||6,967|
|Amount paid on settlement of restitution claims (note 20)||(52,517)||—|
The rate of return on fixed assets is calculated as total comprehensive income divided by average net fixed assets and expressed as a percentage. Total comprehensive income is adjusted by excluding interest income,
interest expenses and amount paid on settlement of restitution claims. Fixed assets include property, plant and equipment and intangible assets. The Fund is expected to meet a target rate of return on fixed
assets of 5.5% per year (2019: 5.5%) as determined by the Financial Secretary.
|At 1 April 2018
|At 31 March 2019||220,243||59,609||47,186||48,894||5,263||381,195|
|At 1 April 2019||220,243||59,609||47,186||48,894||5,263||381,195|
|At 31 March 2020||220,243||71,314||48,123||49,629||6,093||395,402|
|At 1 April 2018||98,769||51,867||38,428||47,025||4,726||240,815|
|Charge for the year||4,849||1,498||2,179||778||136||9,440|
|Written back on disposal||—||—||(1,731)||(24)||(559)||(2,314)|
|At 31 March 2019||103,618||53,365||38,876||47,779||4,303||247,941|
|At 1 April 2019||103,618||53,365||38,876||47,779||4,303||247,941|
|Charge for the year||4,849||2,519||2,669||614||341||10,992|
|Written back on disposal||—||—||(2,387)||—||(856)||(3,243)|
|At 31 March 2020||108,467||55,884||39,158||48,393||3,788||255,690|
|Net book value|
|At 31 March 2020||111,776||15,430||8,965||1,236||2,305||139,712|
|At 31 March 2019||116,625||6,244||8,310||1,115||960||133,254|
Computer software licences and system development costs
|At beginning of year
|At end of year||16,482||16,593|
|At beginning of year||13,161||12,284|
|Charge for the year||1,097||926|
|Written back on disposal||(369)||(49)|
|At end of year||13,889||13,161|
|Net book value|
|At end of year||2,593||3,432|
The balance of the placement with the Exchange Fund amounted to HK$525,122,000 (2019: HK$510,322,000), being the principal sum of HK$480,000,000 plus interest paid but not yet withdrawn at the reporting date of HK$45,122,000
(2019: HK$30,322,000). The term of the placement is six years from the date of placement, during which the amount of principal sum cannot be withdrawn.
Interest on the placement is payable at a fixed rate determined every January. The rate is the average annual investment return of the Exchange Fund’s Investment Portfolio for the past six years or the average annual
yield of three-year Government Bonds for the previous year subject to a minimum of zero percent, whichever is the higher. The interest rate has been fixed at 3.7% per annum for the year 2020 and at 2.9% per annum
for the year 2019.
|Less: allowance for impairment loss
|Deposits and other receivables||214
The movement in the allowance for impairment loss during the year is as follows:
|At beginning of year
|Unused amount reversed
|At end of year||—||—|
The loss allowance of HK$5,097,000 on an amount due from a company in financial difficulties was reversed in the year ended 31 March 2019 when the amount was received by the Fund, with corresponding income included under
sundry income (note 6).
(a) Receivables and contract assets
For services provided to licensees, the balance of receivables at the reporting date is presented as trade receivables in note 11. The Fund does not have any contract assets.
(b) Contract liabilities
The Fund’s obligations to provide services to licensees for which the Fund has received advance payments from the licensees are presented as deferred income in the statement of financial position. Licensees are required
to pay annual licence fees upon issue of the licence, and on each anniversary thereafter during the validity period of the licences. Licence period for each type of licence varies, ranging from 1 to 15 years. When
a licensee does not pay licence fee on an anniversary date, the licence may be suspended or revoked and the contract with the licensee would become unenforceable. The balances of deferred income represent the aggregate
amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially satisfied) at the reporting date. The Fund expects to recognise the deferred income as revenue within
one year. No consideration from contracts with customers is not included in the transaction price.
Significant changes in the balances of deferred income during the year are shown below:
|Decrease due to recognition as revenue during the year that was included in the balances of deferred income at beginning of year
|Increase due to advance payments received during the year
This represents the estimated liability for employees’ annual leave and obligations on contract-end gratuities payable to contract staff for services rendered up to the reporting date (see note 2(h)).
This represents the Government’s investment in the Fund.
This is a reserve serving as a regulating mechanism to meet the target return as well as to reduce the need for future fee increases.
|Balance at beginning and end of year
|Balance at beginning of year
|Total comprehensive (loss) / income for the year
|Target returns required by the Government
|Balance at end of year
In January 2020, the Government directed the transfer of the target returns of HK$25,322,000 in total (see note 7) for the three years ended 31 March 2019 into General Revenue pursuant to section 10(1) of the Trading Funds
Ordinance. The transfer was completed in April 2020. As at 31 March 2020, the Fund had set aside retained earnings of HK$7,672,000, being the calculated amount of target return for the year ended 31 March
2020, for future transfer to the Government. The actual amount and timing of future transfer will be subject to the direction by the Government. While the target return is entrusted to be retained in the Fund,
it will become payable to the Government upon receiving direction from the Government and is not subject to the Fund’s disposal pursuant to section 6(6)(c) of the Trading Funds Ordinance.
Apart from the target return, the Fund had also set aside retained earnings of HK$30,442,000 (2019: HK$82,959,000) for restitution of excessive licence fees paid by licensees (see note 20).
|Cash and bank balances
|Less: Bank deposits with original maturities over three months||(670,000)||(494,000)|
|Cash and cash equivalents
At 31 March 2020, the Fund had capital commitments, so far as not provided for in the financial statements, as stated below:
|Authorised and contracted for
|Authorised but not contracted for
To help resolve billing disputes in deadlock between telecommunications service providers and their customers outside the judicial system, a voluntary Customer Complaint Settlement Scheme (the scheme) was set up in November
2012 by the Communications Association of Hong Kong, the industry association. By a Memorandum of Understanding signed on 30 April 2015, the Fund will provide recurrent funding for the long term operation of the
scheme in the amount not exceeding HK$2,000,000 per annum. During the year, the Fund had contributed HK$981,000 (2019: HK$954,000) to the scheme.
Apart from those separately disclosed in the financial statements, the other material related party transactions for the year are summarised as follows:
Services provided by or to related parties were charged at the rates payable by the general public where such services were also available to members of the public, or on a full cost recovery basis where such services were
only available to related parties. Fixed assets supplied by related parties were charged at full cost.
Balances with related parties as at 31 March 2020 are set out in the statement of financial position.
As at 31 March 2019 and 2020, there were several outstanding litigation cases filed with the court by licensees, claiming for restitution of excessive licence fees paid by them. The Government intends to vigorously
contest these claims and will be responsible for claims for those amounts related to notional profits tax and dividends which have been paid to the Government by the Fund. In October 2018, the Government and the
CA decided that out of the retained earnings of the Fund as at 31 March 2018, HK$82,959,000, being the total amount of notional profits tax and dividend retained in the Fund after deduction of target returns required
by the Government, would be set aside for refund of licence fees to the licensees, pending resolution of the claims for restitution. The Fund considers that, based on the legal advice obtained, the overall financial
effect of the claims cannot be estimated reliably.
During the year, the Fund paid a total of HK$52,517,000 (2019: nil) on settlement of part of the restitution claims and the remaining balance of retained earnings set aside for restitution claims as at 31 March 2020 was
HK$30,442,000 (2019: HK$82,959,000).
To provide an ancillary source of income, surplus cash is invested in a portfolio of financial instruments. The portfolio includes fixed deposits and placement with the Exchange Fund. It is the Fund’s policy that all investments
in financial instruments should be principal-protected.
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in currency exchange rates.
The Fund does not have significant exposure to currency risk as substantially all of its financial instruments are denominated in Hong Kong dollars.
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
The Fund’s credit risk is primarily attributable to placement with the Exchange Fund, trade and other receivables, amounts due from related parties, interest receivables, bank deposits and bank balances. The Fund has
a credit policy in place and the exposure to these credit risks is monitored on an ongoing basis.
To minimise credit risks, all fixed deposits are placed with licensed banks in Hong Kong. These financial assets are considered to have a low credit risk. The loss allowances are measured at amounts equal to 12-month
expected credit losses, which are assessed to be immaterial by the Fund.
The credit quality of bank deposits and bank balances, analysed by the ratings designated by Moody’s or their equivalent, is shown below:
|Aa1 to Aa3
|A1 to A3
While other financial assets are subject to the impairment requirements, the Fund has estimated that their expected credit losses are minimal and considers that no loss allowance is required.
The maximum exposure to credit risk of the financial assets of the Fund at the reporting date is equal to their carrying amounts.
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The Fund manages liquidity risk by forecasting the amount of cash required and monitoring the working capital of the Fund to ensure that all liabilities due and known funding requirements could be met. As the Fund
has a strong liquidity position, it has a very low level of liquidity risk.
Interest rate risk refers to the risk of loss arising from changes in market interest rates. This can be further classified into fair value interest rate risk and cash flow interest rate risk.
Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market interest rates. Since all of the Fund’s bank deposits bear interest at fixed rates,
their fair values will fall when market interest rates increase. However, as they are all stated at amortised cost, changes in market interest rates will not affect their carrying amounts and the Fund’s profit
Cash flow interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Fund’s exposure to cash flow interest rate risk is small as
it has no major floating-rate investments.
The Fund is exposed to financial risk arising from changes in the interest rate on the placement with the Exchange Fund which is determined every January (note 10). It was estimated that, as at 31 March 2020, a 50
basis point (2019: 50 basis point) increase / decrease in the interest rates for 2019 and 2020, with all other variables held constant, would decrease / increase the loss for the year by HK$2,626,000 (2019: increase
/ decrease the profit for the year by HK$2,552,000).
The fair values of financial instruments quoted in active markets are based on their quoted prices at the reporting date. In the absence of such quoted market prices, fair values are estimated using present value or
other valuation techniques, using inputs based on market conditions existing at the reporting date.
All financial instruments are stated in the statement of financial position at amounts equal to or not materially different from their fair values.
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 2020 and which have not been
early adopted in these financial statements.
The Fund is in the process of making an assessment of the expected impact of these amendments, new standards and interpretations 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 financial statements.