How to Catch Up When a Hong Kong Company's Books Are Years Behind

Hong Kong law requires records that can explain transactions and show the position at any time (s.373), and it holds directors responsible. Backlog does not remove the duty, so the aim is to restore compliant records as early as possible.

A workable catch-up plan

1. Gather everything: request statements for all bank, card and payment-platform accounts for each year. Collect invoices, contracts, payroll and MPF records, and loan agreements.
2. Work in date order, one financial year at a time, so each year's closing balances become the next year's opening balances.
3. Start from the bank, because it is the most complete record. Code every line, then match to documents.
4. List the gaps: missing receipts, unexplained transfers, personal items. Ask the director to confirm, in writing, what each was.
5. Reconcile bank, receivables, payables, loans and payroll for each year-end.
6. Prepare the financial statements for each overdue year, then arrange the audit.
7. Tax filings: talk to your tax adviser early about late returns; the IRD can prosecute a failure to furnish a return in time (a fine of HK$10,000 plus treble the tax undercharged, s.80(2)) and may also impose additional tax under its Penalty Policy.

Section 433 also makes late delivery of reports to members an offence.

Once caught up, keep current with monthly reconciliation to avoid repeating the problem.