A Brief Guide to Hong Kong Company Audits
As companies in Hong Kong prepare for the annual profits tax return filing, we provide a brief guide on Hong Kong audit requirements, including appointing auditors, required materials, and filing audited documents.
Companies whose financial year ends on March 31 and have applied for an extension will have until November 15 to file their annual profits tax return (PTR). In addition to filing the requisite tax form, most companies are also required to file audited financial statements and an auditor’s report, which should be prepared a few months in advance of the PTR deadline.
Moreover, starting from April 1, 2023, small companies will also be required to file supporting documents, audited financial statements, and tax computations with the Profits Tax returns.
In addition to the audits associated with filing the PTR, Hong Kong requires companies to undergo yearly statutory audits and appoint a certified auditor every year.
As the deadline for some companies to prepare audited financial statements approaches, we provide an overview of Hong Kong’s requirement for yearly statutory audits and PTR filing. We also offer some basic tips for companies to maintain healthy bookkeeping and audit practices.
Who needs to conduct financial audits in Hong Kong?
Under Hong Kong’s Companies Ordinance (CO), a yearly statutory audit of financial statements is required for all companies in Hong Kong. This includes companies that are eligible for certain reporting exemptions and simplified reporting procedures but excludes dormant companies. The audits must be conducted in accordance with the disclosure requirements of the CO.
In addition to the yearly statutory audit, the Inland Revenue Ordinance (IRO) requires corporations in Hong Kong to submit audited financial records and an auditor’s report as supplementary material when filing their PTR. As of April 1, 2023, small companies with a gross income of under HK$2 million (approx. US$256,628) are also required to submit audited financial statements along with the PTR.
Note that as of April 1, 2023, all required supplementary forms and other forms must be submitted electronically. The tax return and supporting documents can be submitted in paper, with a signed Control List for supplementary form uploaded.
Dormant companies, companies incorporated in a jurisdiction that don’t require audited financial statements, and Hong Kong branches of a foreign company are not required to submit audited financial statements and an auditor’s report along with the PTR.
However, it is important to note that Hong Kong branches of foreign companies are only exempt from submitting audited financial statements and an auditor’s report if the following information is submitted along with the tax return:
- The place of incorporation of the foreign company;
- Whether the laws of that country require a statutory audit of the worldwide financial statements of the company;
- Whether that audit has been conducted; and
- A brief summary of the financial and accounting records maintained by the Hong Kong branch.
|Audit Requirements for Companies in Hong Kong|
|Requirements under Companies Ordinance (CO)||Requirements under Inland Revenue Ordinance (IRO)|
|Type of audit||Yearly statutory audit||Statutory audit for PTR filing|
|Mode of submission||To the company members at the company AGM or other general meeting||Along with the PTR to the Hong Kong Inland Revenue Department|
|Timeline for submission||Within nine months after the company’s financial year-end||Within one month from the date of issue of the PTR; or, if granted an extension:
|Applicability||All companies, excluding:
||All corporations, excluding:
Preparing for the yearly statutory audit in Hong Kong
Appointing an auditor
Under the CO, all companies in Hong Kong are required to appoint an auditor.
The auditor must be a certified public accountant (CPA) who is registered with the Hong Kong Institute of Certified Public Accountants (HKICPA). The auditor cannot be an officer or employee of the company, or be a partner or employee of an officer or employee of the company.
An auditor must be appointed for each financial year (Hong Kong’s financial year runs from April 1 to March 31). The company directors can appoint the first auditor at any time before the annual general meeting (AGM) in their first financial year. (Companies in Hong Kong are required to hold an AGM at least once in a financial year, with at least one held within nine months after the end of the financial year.)
The first auditor holds the position until the end of the first AGM. The auditor can then be reappointed by the Board of Directors at the AGM and will hold the position until the end of the following AGM. If an auditor resigns from the post, a new auditor must be appointed within one month.
Issuing an auditor’s report for statutory audit
The company’s auditor is responsible for auditing the financial statements prepared by the company’s directors, and for producing a report, which includes the auditor’s “opinion” on the accuracy and honesty of the financial statements.
A copy of this report must be laid before the members at the AGM or another general meeting.
Under the CO, the report must include the auditor’s opinion on:
- Whether the financial statements have been properly prepared in compliance with the CO; and
- Whether the financial statements:
- give a true and fair view of the financial position and financial performance of the company as required by the CO; and
- in the case of annual consolidated financial statements, give a true and fair view of the financial position and financial performance of the company and all the subsidiary undertakings as required by the CO.
The CO also states that the auditor must make clear in the report if they believe that the information provided in a directors’ report for a financial year is not consistent with the financial statements for the financial year. The auditor may also bring that opinion to the attention of the company members at a general meeting.
Finally, during the audit, the auditor should also form an opinion on the following matters:
- Whether the company has kept adequate accounting records; and
- Whether the financial statements are in agreement with the accounting records.
The auditor is required to state in the report if they believe that the company has not met the above two requirements. In addition, the auditor must also state if they have been unable to obtain all the information required or any explanations that may be necessary for the audit.
Materials required for the statutory audit
Companies must keep accounting records that are sufficient to show and explain the company’s transactions and disclose the company’s financial position and performance with reasonable accuracy. The records must also enable both directors and auditors to ensure that the financial statements comply with the CO.
In particular, the accounting records must contain:
- Daily entries of all sums of money received and expended by the company, and the matters in respect to which the receipt and expenditure took place; and
- The assets and liabilities of the company.
The specific types of documents that companies should maintain for the purpose of formulating accurate financial statements is listed in the table below.
|Documents to be Maintained for Financial Statements|
|Type of transaction||Record to be maintained|
|Goods return note|
|Daily receipt record|
|Petty cash voucher|
|General expenses||Expenses invoice|
|Bank transaction||Bank statements|
|Bank paid-in slip and related receipt details|
|Check stub and copy|
|Tangible assets||Purchase and sale agreement|
|Invoice and receipt|
|Check stub and copy|
|Inventory||Purchase and sale agreement|
|Invoice and receipt|
|Check stub and copy|
|Inventory list (including quantity and unit cost on every item)|
|Obsolete or slowing-moving inventory|
|Investment||Security ask/bid confirmation slip|
|Purchase and sale agreement|
|Capital inspection report (apply for PRC investment)|
Note that penalties for not complying with bookkeeping requirements may include a fine of up to HK$300,000 (approx. US$38,494).
Preparing audited financial statements for PTR
As stated above, many companies in Hong Kong are required to submit audited financial statements and an auditor’s report as supplementary material when filing their annual PTR. The audited documents and reports compiled for the statutory audit can also be used for the PTR.
Hong Kong’s tax year normally follows the fiscal year. However, companies can choose to keep their own financial year, which is usually either in accordance with the calendar year (January 1 to December 31) or the fiscal year. The period for filing the PTR will therefore depend on the period of the company’s own financial year.
Companies are normally required to fill in and submit the requisite tax forms within one month from the date of issue of the PTR (hence, at the end of April or January, depending on the company’s chosen financial year). However, companies can apply for certain extensions, which would push the filing deadline back to August 15 for companies whose financial year ends on December 31, and November 15 for those whose financial year ends on March 31.
Companies should prepare all the financial documents for audit at least a few months before the deadline of the PTR filing—preferably early June for companies with a financial year-end of December 31 and early September for companies whose financial year-end is March 31.
Note that for a newly established company, the first PTR must usually be filed 18 months after the company’s date of incorporation. After the first PTR filing is completed, subsequent filings will follow the timeline described above.
As with the statutory audit, the audit of financial documents and auditor’s report for submission with the PTR must comply with the requirements set out in the CO and IRO.
Considerations for audits for Hong Kong companies
In order to ensure a smooth audit procedure and desirable outcome of the audit, it is crucial for companies to keep accurate and up-to-date accounting records that are in compliance with the Hong Kong Financial Reporting Standards (HKFRS) or International Financial Reporting Standards (IFRS). This also means that the internal accountants should stay brushed up on the latest changes to the reporting standards and ensure that the financial statements comply with the latest requirements.
It is also important to plan ahead and ensure that all documentation is ready for the auditor to look at well in advance of submission deadlines. As mentioned above, financial statements should be prepared a few months in advance of the PTR submission deadline, for instance. This will provide the auditor with enough time to get an accurate assessment of the statements and give the company enough time to produce any missing documents or information.
For this same reason, maintaining close communication and cooperation with the auditor throughout the audit procedure can help to prevent irregular outcomes of the audit.
The yearly audits also provide an opportunity for companies to address issues raised in previous audits or implement recommendations, thereby showing the auditor that the company is striving to comply with audit requirements.
If you need assistance with accounting, audit, or financial review for your company in Hong Kong, contact us at firstname.lastname@example.org.
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