Many Hong Kong employers that never carried a long service payment liability now need to measure one. Since the abolition of MPF offsetting took effect on 1 May 2025, auditors are asking for independent HKAS 19 assessments. Valtech Valuation provides long service payment (LSP) and severance payment valuation in Hong Kong, built for audit review.
Why Hong Kong Employers Now Need an LSP Valuation
LSP and severance payment are statutory entitlements under the Employment Ordinance. Because the eventual amount depends on future wages and length of service, HKAS 19 (equivalent to IAS 19) treats the obligation as a defined benefit plan, measured with actuarial techniques rather than a simple accrual.
In the past, accrued benefits from employers' mandatory MPF contributions could offset these payments, so most companies recognised little or nothing. From 1 May 2025, mandatory MPF benefits can no longer offset the portion relating to service after that date. Companies that previously recognised nothing may now have a material liability to measure and disclose.
The change is not retrospective. For employees who joined before 1 May 2025, the pre-transition portion – based on wages immediately before the transition date and pre-transition service – can still be offset by mandatory MPF benefits. Voluntary contributions and service-based gratuities can offset both portions. Splitting the two portions correctly is central to the calculation.
What the Valuation Involves
- Employee census data – date of birth, date of joining, wages, employment terms and MPF arrangements
- Salary increase assumption – projected wage growth within the statutory mechanics
- Withdrawal and mortality assumptions – how and when employees are expected to leave
- Discount rate – based on high-quality corporate or government bond yields matched to the obligation's term
- MPF offset modelling – projecting accrued benefits available for the pre-transition portion
- Government subsidy scheme – the treatment of the 25-year subsidy for the post-transition portion, agreed with your auditor
What You Receive
- Present value of the defined benefit obligation at the reporting date
- Current service cost and interest cost
- Reconciliation of the movement in the obligation, including remeasurements
- Sensitivity disclosures required by HKAS 19 and the maturity profile
- A full assumption schedule written for audit review
Data, Confidentiality and Timing
A de-identified census is sufficient – employee names are not needed – and data is handled under the engagement's confidentiality terms. The census is usually the bottleneck, so engaging before your reporting date makes the biggest difference to turnaround. Groups with several Hong Kong employing entities normally need a separate figure for each entity.
Frequently Asked Questions
Does every Hong Kong company need an LSP valuation?
Not automatically – it depends on materiality. Companies with a sizeable workforce, long average tenure or labour-intensive operations are most likely to have a material provision. If your auditor has raised it, they usually expect an independent assessment.
Does it need to be done every year?
Generally yes, where material. HKAS 19 requires remeasurement at each reporting date. Subsequent years are faster because the data structure and assumptions are already in place.
Why Hong Kong Companies Choose Valtech
LSP provisions are new territory for many finance teams and are reviewed closely by auditors – and by overseas parent companies and group auditors for multinational subsidiaries.
- A strong team with outstanding international credentials – our directors hold CPA, CFA, FRM, MRICS, ABV (AICPA) and China Certified Public Valuer qualifications, giving your provision credibility with local auditors, group auditors and international stakeholders.
- Senior members closely monitor every valuation – a director oversees each assessment and signs the report. Your concerns about assumptions, data or disclosure are addressed by an experienced professional.
- Built for audit challenge – every assumption documented with its basis, and auditor queries handled within the engagement.
- ISO 9001 certified quality management – defined review steps before any report is released.
- Proven track record – more than 1,000 valuations and 18 years serving Hong Kong companies.
Request an LSP Valuation Quotation
Tell us the number of employees, the number of employing entities and your reporting date. A director-level valuer will reply with scope, fee and turnaround. Call +852 2388 9262 or email admin@valtech-valuation.com.
More detail: LSP valuation – Valtech Hong Kong
Valtech Valuation Advisory Ltd, Unit 2106, 21/F, Futura Plaza, 111-113 How Ming Street, Kwun Tong, Kowloon, Hong Kong. This article is general information, not valuation, accounting, tax or legal advice for any specific entity.