Tax authorities around the world like to use a "standard-of-living" test to assess whether taxpayers are declaring all of their income. Essentially, someone with a low earning should not be living in a mansion - unless there's some sort of decent explanation e.g. inheritance.
In Israel, the system is more formalised with the tax office asking taxpayers to produce a statement of their assets and liabilities worldwide on a periodic basis. The idea is to compare the overall movement between the two statements with reported income and known or expected expenses (e.g. taxes, regular living expenses, one-off large expenses such as weddings/bar mitzvahs, etc.), and to see if the overall picture is logical. This is a widely-used tool in any audit carried out by the tax authority, and so its importance cannot be understated.
One important point to note - anyone entitled to the 10-year exemption on tax on their foreign income (i.e. new olim or veteran returning residents who came/moved back to Israel in 2007 or later) is not required to report overseas assets or liabilities during the 10-year period. The one exception would be an asset for which the income is being voluntarily declared in Israel.
The form itself it a complicated looking thing (see here for an example), and I would strongly recommend that you ask a professional to review your work before filing. This is especially so if you are filling in a subsequent (i.e. not first) form, so that any pitfalls can be forseen and forestalled.
On the form, you list all of your personal assets (i.e. what you own and what is owed to you) and liabilities (i.e. what you owe), with amounts, as at the requested date. This is always 31st December, so just double-check the year being requested. It is important to note that you put down only capital amounts (e.g. deposits do not include accrued interest, and only the capital owing on a mortgage/loan is put down) that you paid (e.g. pension funds ignore employer contributions, and property is listed at cost price, not current value).
There is a section for loans/mortgages/other amounts owed - so the figures that go there should all be positive - the tax computer knows to deduct these figures from your assets.
The deadline for filing the Hatzharat Hon is four months from the end of the month in which the form was requested. However, since the tax offices generally send out requests at the start of the month, you typically have five months to complete. For example, any requests sent out during December will have a filing deadline of 30 April. If you file within a month late, late-filing fines are not usually levied; otherwise they will be, based on the number of months late. If you think you are going to miss the deadline, you can always send in a letter requesting an extension. Usually the tax office will agree to such an extension by two-three months.
As explained, perhaps the most important part of the work is not what is actually filed, but rather the explanations of income and expenses over the period between two reports. It is therefore very important to keep paperwork regarding exempt income (such as presents from family or inheritances) and large expenses (e.g. renovations, family trips abroad, weddings etc).