+ (852) 5110 3944


+ (852) 2804 0889



Audit report in Hong Kong | HKWJ Tax Law

Audit report in Hong Kong

Every Hong Kong incorporated business, unless having obtained a dormant status from the Hong Kong Companies Registry, must do a financial audit, which is done by someone outside the business. This statutory requirement exists, regardless of the stage or scale of your company or whether your business operations are in Hong Kong or overseas.

Auditing in Hong Kong

In Hong Kong, every registered company is mandated by law to go through an annual audit of their financial statements. These audits are not mere formalities; they serve as independent assessments and ensure compliance with the Hong Kong Companies Ordinance and the Inland Revenue Ordinance.

The financial reports in general include the balance sheet, income statement, statement of changes in equity, and the cash flow statement.

Importantly, audits are conducted by third-party firms to guarantee an impartial representation of the company’s financial health.

When to do an audit?

Generally, company audit reports in Hong Kong are annual.

Your company’s audit report serves as a cornerstone for your Profits Tax Return (PTR), which is sent to you by the Inland Revenue Department (IRD). The deadlines for these submissions vary according to your company’s financial year-end.

If your company is newly setup, expect to receive your first PTR form around 18 months after the company incorporation. Once received, the PTR must be submitted alongside the audit report and the accompanying tax computations within three months from the date of issuance of the PTR.

Hong Kong standards on auditing

The Hong Kong Institute of Certified Public Accountants (HKICPA) lays down the Hong Kong Auditing and Assurance Standards, also referred to as the Hong Kong Standards on Quality Control, Auditing, Assurance, and Related Services.

Since 2005, these standards have aligned with the International Financial Reporting Standards (IFRS), elevating Hong Kong’s standing in terms of international financial compliance.

HKICPA members must observe these standards for auditing and accounting.

While some may wonder if they could perform the auditing in-house, Hong Kong’s regulations stipulate that only a third-party Certified Public Accountant (CPA) can conduct the annual audit.

It is also ­important to note that there is a distinction between the Hong Kong and mainland China systems. Each have different financial, tax, and legal frameworks. In Hong Kong, the Companies Ordinance is the law that rules over registered companies.

The auditing (and tax filing) process in Hong Kong

Executing an audit is a rigorous and meticulous task, taking considerable time and effort from both the company and the auditor. Typically, the process follows these steps:

  1. The company organises its financial statements and supporting documents (such as sales invoices, bank statements, and contracts) for the CPA.
  2. The CPA undertakes an initial review to understand the company’s business activities.
  3. A detailed examination of the financial documents ensues to identify potential errors or inconsistencies that could affect the financial statements.
  4. Upon completion, the auditor issues an audit report and audit opinion, reflecting the accuracy and presentation of the financial statements.
  5. The company’s director signs off on the audited documents.
  6. The CPA receives the signed audit report and he/she also signs, prepares the PTR and tax computation and submits all necessary paperwork to the IRD.

The company might need to wait several weeks or even months for the IRD to assess the submitted PTR and tax computation supported by the audit report before issuing a tax assessment, tax bill or statement of loss whichever is applicable.

Given the complexity, preparing in advance can significantly reduce stress and streamline the process.

How to prepare for an audit

Preparation is vital. Ensuring you keep records of your business operations and have all necessary documents on hand can make the entire process more efficient. These documents include:

  • General Ledger & trial balance
  • Balance Sheet
  • Income Statement
  • Bank and trading account statements
  • Invoices and Receipts
  • Copy of Licences
  • Contracts or agreements
  • Copy of Company Registration Documents, such as Business Registration and Annual Return.

Moreover, keeping additional records like travel receipts and organisational charts can be highly beneficial.

Understanding audit opinions

Auditors provide one of four types of opinions in the audit report:

  1. Unqualified Report: A green light indicating that the financial statements are prepared, in all material respects, in accordance with Hong Kong’s financial reporting standards.
  2. Qualified Report: The financial statements contain material misstatements, say not in accordance with the financial accounting/reporting standards, or the auditor is unable to obtain sufficient appropriate audit evidence for conducting the audit/forming an unqualified opinion. A qualified report may still be acceptable to creditors, lenders, and investors.
  3. Adverse Report: Indicates severe issues in financial statements, such as misrepresentation or inaccuracy.
  4. Disclaimer Report: Essentially, no opinion can be formed because the auditor was not allowed or able to carry out the planned audit procedures. This can be rectified if the planned audit takes place.

Finding the right auditor

Selecting an appropriate Hong Kong CPA is a decision of considerable importance.

First of all, the CPA must be registered with the HKICPA.

Furthermore, ensure your auditor is well-versed with your industry and is adept at using the accounting software your company employs. A good rapport and clear communication channels are also vital for a fruitful auditing relationship.

HKWJ Tax Law & Partners can help

Managing the complexities of annual audits and tax compliance in Hong Kong can be a demanding task – especially when you have a business to run.

Our certified public accountants and tax specialists are highly knowledgeable in both the Hong Kong Companies Ordinance and Inland Revenue Ordinance, as well as the international financial reporting standards.

Whether your business is based in Hong Kong or operates internationally, we can streamline your audit process, ensure compliance and optimize your tax position.

Please don’t hesitate to contact us via the form below to inquire about our services.

    Ready to Get Started?

    Leave a comment

    Your email address will not be published. Required fields are marked *