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Audit Requirements in Hong Kong – Basic Guide

No matter what stage your company is currently at, auditing is an important aspect of the business that you shouldn’t neglect. Even though it is not that much exciting of a topic for most business owners, it is something that you need to consider from the moment you step into the business world. 

Audit Requirements in Hong Kong

And trust us, without proper understanding in this area, it may be hard to operate your Hong Kong company and end up costing a lot of unnecessary expenses.  This article will provide you an overview of essential auditing in Hong Kong for your business entity. 

What is Auditing in Hong Kong?

Before diving deep into the article to understand the requirements, let’s get some understanding about auditing in Hong Kong.

By definition, an audit is an official review and verification of accounts completed by a third party.  The purpose of auditing in Hong Kong is to obtain a true and accurate view of the financial statements of a company, without any internal bias. 

In Hong Kong, the financial statements, profits, and taxes payable to the government are usually verified and audited by a third party, unlike some other countries. The aim is to ensure compliance with the relevant taxation laws in Hong Kong.  Otherwise, the companies may alter their financial information either intentionally or unintentionally, in order to provide a false view of the financial information of their company. 

As a result, it would lead to an ineffective system for properly checks and compliance with the Inland Revenue Department, or IRD, for the hundreds of thousands of companies in Hong Kong. Therefore, it is mandatory for companies to get checked or audited for their company accounts and financial statements.

Audit and Tax Compliance in Hong Kong

As per the Hong Kong Companies Ordinance, all incorporated companies in Hong Kong are required to have an annual audit of their financial statements performed by a Hong Kong practicing Certified Public Accounts (CPA).

Approximately 18 months after the incorporation of the company in Hong Kong, you will receive the first tax return form, issued by the Inland Revenue Department. Once you are done with the completion of the PTR form, you need to submit it along with the audit report and tax computation. 

Auditing in Hong Kong

Documents Required for Auditing in Hong Kong

In order to show the overall operations of the business, every company should provide their financial statements to the auditor. The financial statements should incorporate a balance sheet, an income statement, and even general ledger of the business transactions, if possible. 

Then the auditor would review all these statements, along with the supporting documents, plus their accounts. If there is a need of amendments, then they will offer their opinion on the accuracy of the financial statements. 

In Hong Kong, an auditor is liable for reviewing the company’s accounts and obtaining sufficient appropriate audit documentation for each organization. This is not only for them to have an eye on the company accounts, but also for them to have appropriate records when the IRD requests for further documentation. This may be especially true if the company is applying for offshore tax exemption.

The company should complete or prepare the following documents for auditing in Hong Kong, so that a CPA can conduct the audit efficiently-

  • All bank statements
  • All purchases invoice/ subcontractor’s invoices
  • All financial statements/management accounts
  • All expense receipts
  • All merchant account statement
  • All sales invoices/ consulting service invoices/ contracts
  • All other relevant accounting documents

The aim of collecting these documents by the CPA is not restricted to only the financial information and supporting documents. In fact, it is also important for how well your internal system and organization of the company operations are.

The Process of Auditing for a Company

Now that you have got a good idea about the required documents for auditing in Hong Kong, the next thing is to get some information about the process of auditing a company. 

The process involves various steps for the auditor to precisely check and verify not only the financial figures, but also the company as a whole.  Every document and information provided by the company plays an important role to provide confidence that the financial statements show an accurate representation of the company.

Below are some of the steps involved in the process of auditing in Hong Kong or any other country.

  • The company’s management usually prepares the financial statement and supporting documents, and then gives these to the CPA with any other relevant accounting information.
  • The next step is for the CPA to review and get an understanding of the specific company’s activities, as well as other essential factors such as the industry as a whole, which may affect their audit.
  • Auditors will identify every significant transaction in the financial statements, and then evaluate any uncertainties or errors which could have a significant or material influence on the financial accounts of the company.
  • As per the relevant information, auditors will estimate what the company has done just to make sure that all the financial statements are accurate, and examine all the supporting evidence.
  • Once they are done with the examinations of all documents, an opinion is made by the auditors on the accuracy and fair representation of the financial statements for the company.
  • The auditors then make an audit report based on the financial statements.
  • All audit reports and other necessary audit documents will be signed by the directors and sent back to the auditor.
  • After that, they will create the tax computation form and will submit these documents with the completed Profits Tax Return (PTR) to the government.
accounting auditing in Hong Kong

The steps mentioned above will help you to get a better understanding of the process of the audit as performed by a CPA. And if you want to gather all the important information about auditing in Hong Kong, then Startupr can help you.

Audit Report, Tax Computation and Tax filing with the IRD

As soon as the auditing is finished and the CPA received all the returned signed audit reports and audit documents, they will send the completed audit report and tax computation to the IRD. 

It is pertinent to work with the auditor in Hong Kong in order to provide them the signed audit reports and other necessary auditor documents. Only the original hard copy of the signed audit report from the company directors will be accepted by the IRD. 

When the IRD receives these documents, they will take some time to review the figures, and in the case where the company has assessable profits, then they provide the tax payable schedule. 

The whole process could take a few weeks or even a few months for the IRD to review the audit report, as the IRD may be busy with other tax filings, especially around April, August, and November.

Once you are done with the completion of the very first initial audit of your company, your CPA would advise you on time in order to prepare the company documents and statements for the next audit. But trust us, it would be better to prepare all these documents ahead of the time. 

When a company waits till the time when they will receive the PTR, then they will be left with only one month to prepare the file the audit report and tax filings. This is often not enough time to gather all the required documents, and perform all the relevant audit procedures. Therefore, it would be better for all companies to prepare the documents ahead of time.

How Can Startup Help you?

By now, you should have a better idea for the field of auditing, and how it impacts your company and tax responsibilities. If you are new in this field, don’t feel stressed. Startupr will help you sail through this system and help with all the compulsory procedures for auditing in Hong Kong. 

As the field of accounting & auditing is deep and takes some people years to study and understand, we provide comprehensive bookkeeping services at a fair price, for those needing their financial accounts in place. We can also help appoint independent CPA to deal with your company’s audit and tax filings. 

Feel free to contact us for a free quote, tax information or tax status for your company.

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