Audit in Hong Kong

When you need an audit, who can do it, and what happens if you skip it. 50 questions answered.

Does every Hong Kong limited company need an audit?Yes. Every Hong Kong company must have an auditor for each financial year and its financial statements audited, whatever its size or whether it trades. The only company that escapes is a qualifying private company that has validly become dormant under s.5 and s.447 of the Companies Ordinance.
Why does Hong Kong require even a small private company to be audited?Hong Kong's Companies Ordinance makes audit a universal requirement for companies, because an independent report on the accounts protects members, creditors, lenders and the tax authority. Small companies get simpler reporting rules, not an audit exemption.
Do I still need an audit if my company had no revenue or no business activity?Yes, unless the company has formally become dormant. Having no sales does not make a company dormant in law. If it had any expenses, bank charges or other recorded transactions, the audit duty continues for that year.
Does a newly incorporated Hong Kong company need an audit in its first year?Yes. The first financial year is audited like any other. The directors can appoint the first auditor, and the first accounting period may be longer than 12 months, with its own filing timetable.
My company is loss-making. Do I still need to audit it?Yes. Profit or loss has no bearing on the audit requirement. A loss-making company is audited every year, and the auditor will also look closely at going concern.
What is the dormant company audit exemption in Hong Kong?A qualifying private company that has become dormant under s.5 of the Companies Ordinance does not need to appoint an auditor or have its accounts audited while it stays dormant. The exemption is in s.447, not in s.448, which deals with false statements in reports.
How do I make my Hong Kong company dormant to avoid the audit?Check the company qualifies, pass a special resolution declaring it will become dormant from a stated date, and have the directors deliver that resolution to the Companies Registrar. Dormancy takes effect from the delivery date or the later date in the resolution.
What ends a Hong Kong company's dormant status, and what are the risks?A company stops being dormant if it passes and delivers a special resolution saying it intends to transact, or if it actually enters an accounting transaction. From then on the audit duty returns, and directors and knowing members are personally liable for debts from that transaction.
Does a dormant Hong Kong company still have to file a profits tax return?Dormancy under the Companies Ordinance relieves the company from audited accounts, and IRD accepts a profits tax return from it without the audited statements. It does not by itself cancel the duty to file a return when IRD issues one.
Should I make my company dormant or deregister it (NDR1)?Dormancy keeps the company alive but pauses audit and some filings; deregistration (Form NDR1) removes it from the register. If the business is finished for good and the conditions are met, deregistration ends the yearly obligations for good.
Who is allowed to audit a Hong Kong company?Only a practice unit can be appointed as auditor of a Hong Kong company: in practice a certified public accountant (practising) or a CPA firm or corporate practice registered with the Accounting and Financial Reporting Council. An employee or officer of the company cannot be its auditor.
What is the difference between AFRC and HKICPA for auditors?Since 1 October 2022 the AFRC licenses and disciplines audit firms and practising accountants, inspects practice units and oversees HKICPA. HKICPA still registers CPAs, runs the qualification and CPD, and sets accounting, auditing and ethics standards.
How do I check that my auditor is properly registered in Hong Kong?Search the public registers kept by the AFRC for practising CPAs and for registered practice units, and ask the firm for the signing accountant's practising certificate number. The number is normally printed on the audit report.
Can an overseas or group auditor audit my Hong Kong company instead of a local one?Not for the statutory audit. Only a practice unit can be appointed as auditor of a Hong Kong company, so an overseas firm would need to be a Hong Kong registered practice unit. A group auditor can still work with the local auditor on group reporting.
Who is disqualified from being the auditor of my company?The auditor cannot be an officer or employee of the company, or a partner or employee of such a person. The same applies to people disqualified for a parent or subsidiary. Professional ethics rules add further independence limits beyond the statute.
Can the same firm do my bookkeeping, tax and the audit?Sometimes, but it needs care. The HKICPA Code of Ethics treats services such as preparing the accounts the firm later audits as a self-review threat, which must be eliminated or reduced with safeguards, or the work declined. Check the specific firm's policy before combining services.
How does a Hong Kong company appoint its auditor each year?Members appoint the auditor by resolution at the AGM held for the previous financial year. A private company that skips the AGM can appoint at a general meeting before the appointment period ends, or the auditor can be deemed reappointed unless an exception applies.
What if my company has no auditor, or the auditor position becomes vacant?The directors can fill a casual vacancy; if they have not done so within one month, the members can by resolution at a general meeting. If nobody is appointed, a member can apply to the Court to appoint an auditor.
How can a Hong Kong company remove its auditor?Members can remove an auditor by ordinary resolution at a general meeting, after special notice. The company must send the auditor a copy of the notice and, if the resolution passes, file the prescribed notice (Form NA1) with the Registrar within 15 days.
What happens when the auditor resigns from a Hong Kong company?The auditor resigns by written notice with a statement of circumstances. The company must file a notification (Form NA2) with the Registrar within 15 days of receiving the notice, or face an offence. The company then needs a new auditor.
What information must directors and staff give the auditor, and what if they refuse?The auditor has a right to access the company's accounting records and can require officers, employees and other related people to provide information they reasonably need. Not providing it is an offence, and so is knowingly or recklessly giving false or misleading answers.
What does a statutory audit involve, step by step?The auditor accepts the engagement, plans around risks, tests balances and transactions with evidence, obtains third-party confirmations, reviews events after year-end, agrees adjustments, obtains a management representation letter and issues a signed report. The directors approve the accounts.
How long does an audit take in Hong Kong?There is no official duration. A small company with tidy records may take a few weeks from the day the auditor has everything, but late or missing records, stock, groups and queries add time. The legal limits are the filing and tax deadlines, not the audit length.
What documents will the auditor ask my Hong Kong company for?Expect to provide the accounting records and a trial balance, bank statements and reconciliations, sales and purchase documents, contracts, fixed asset and stock records, payroll and MPF records, loan and related-party details, and statutory records. Exact lists vary by firm and business.
What are audit confirmations, and why does the auditor write to my bank?The auditor sends requests directly to third parties, mainly banks, to confirm balances and facilities. Evidence received directly from outside parties is generally more reliable than company-held documents, and if management blocks a request the auditor must ask why.
Will the auditor attend our stock count and check our fixed assets?If stock is material, the auditor should attend the count or perform alternative procedures to check that it exists and its condition. For fixed assets, expect checks of ownership, additions, depreciation and disposals against invoices, contracts and registers.
How do auditors treat the director's current account and related-party transactions?Both attract extra attention. The auditor asks for balances, supporting documents and the terms of loans between the company and its directors, shareholders or connected companies, and the accounts must disclose them. Unsupported or undisclosed amounts can lead to a qualified opinion.
Will an audit check payroll and MPF contributions?Yes. Payroll is usually a material cost, so auditors test salary records, employer and employee MPF contributions, accruals for unpaid leave or bonuses, and director remuneration. It is an accounting check, not a full compliance review of employment law.
What is the management representation letter, and must I sign it?It is a written statement from management to the auditor confirming key matters, such as that all records were provided and transactions disclosed. The auditor needs it as audit evidence and will not issue the report without it; it cannot replace other evidence.
What are audit adjustments, and why would the auditor change my accounts?Audit adjustments are corrections the auditor proposes when testing shows an error or omission, such as unrecorded costs or wrong cut-off. Management usually corrects the books and the final accounts reflect them; uncorrected material items affect the audit opinion.
What are the types of audit opinion in Hong Kong and what do they mean?An unmodified (clean) opinion says the accounts are fairly prepared. A qualified opinion flags a material but limited problem, an adverse opinion says the accounts are materially and pervasively misstated, and a disclaimer means the auditor could not get enough evidence to form a view.
What does a qualified or adverse audit opinion mean for banks and IRD?It signals that the accounts may not be reliable, so lenders often ask questions, price risk higher or decline. IRD requires certified audited statements with the return and may query the accounts when the opinion is modified.
What is going concern in an audit and what happens if there is doubt?Going concern means the company can keep operating for the foreseeable future. Management assesses it and the auditor tests that assessment, covering at least twelve months from the date of the financial statements. Doubt must be disclosed, and the auditor's report may draw attention to it or be modified.
Do I have to submit audited accounts with my profits tax return (BIR51)?Yes, for companies with gross income, IRD's circular says audited financial statements should be submitted with the return, except for dormant companies and certain companies from jurisdictions that do not require audit. The BIR51 asks for a certified copy and the auditor's practising certificate number.
What is the profits tax return deadline and how does the block extension scheme work?For 2025/26, represented companies with December year-ends had until 31 August 2026 (2 October if e-filed), and January to March year-ends until 30 November 2026 (30 December if e-filed). April to November year-ends got no block extension. Check IRD for later years.
What is the reporting exemption and the SME-FRF for small Hong Kong companies?The reporting exemption lets qualifying companies prepare simpler financial statements and directors' reports, usually under HKICPA's SME Financial Reporting Framework. The company is still audited, but the auditor need not give a true-and-fair-view opinion.
Who qualifies for the reporting exemption, and what are the size limits?A private company qualifies as small if it meets any two of three tests: revenue up to HK$100 million, total assets up to HK$100 million, and no more than 100 employees. Other routes exist for single-owner companies and larger eligible companies with member approval.
Is the audit simpler for a small company under the reporting exemption?Somewhat. The accounts follow the simpler SME framework and the auditor need not express a true-and-fair-view opinion, but the auditor still tests records, balances and disclosures and reports on proper preparation. The saving depends on the firm.
What affects the audit fee for a Hong Kong company?Fees reflect the time and risk involved: the size and complexity of the business, quality of records, number of transactions, stock, group structure, prior-year issues and the seniority of the staff used. Fees differ by firm and engagement, so get written quotes.
What is the difference between an audit, a review and a compilation?An audit gives reasonable assurance and a formal opinion. A review gives limited assurance, mainly through enquiry and analysis. A compilation gives no assurance at all. Only an audit satisfies the Companies Ordinance's requirement for most companies.
How do I change auditors in Hong Kong?Appoint the new firm at the right point (usually the AGM or an equivalent general meeting), remove or accept the resignation of the old auditor, file Form NA1 or NA2 within 15 days, and arrange for the old auditor to share work-related information. The new auditor normally contacts the old one under the ethics code.
What happens if my Hong Kong company does not get audited?The directors are exposed to fines under the Companies Ordinance for failing to take reasonable steps to prepare compliant financial statements, and the accounts cannot be properly laid before members. IRD can also pursue the missing return. There is no separate offence for failing to appoint an auditor; the exposure arises through the accounts and filing duties.
What does IRD do if I do not file the return or audited accounts?Failing to comply with a notice to file a profits tax return without reasonable excuse is an offence, and IRD can raise an estimated assessment and pursue penalties. Filing without the required audited accounts invites queries.
What is the deadline for completing audited accounts and sending them to members?For a private company that is not a subsidiary of a public company, the financial statements, directors' report and auditor's report must be laid before members and sent to them within nine months after the year-end. Other companies have six months.
Do I need consolidated accounts if my Hong Kong company has subsidiaries?A holding company must normally prepare consolidated statements and have them audited. There are exceptions for wholly owned subsidiaries and, with notice, partly owned ones, and for reporting-exempt groups, which may exclude some subsidiaries.
My Hong Kong company claims its profits are offshore. Do I still need an audit?Yes. An offshore claim is a tax position; it does not change the Companies Ordinance audit duty. IRD still expects audited accounts with the return, plus a statement of reasons and supporting details for the offshore claim.
Will banks accept my audited accounts for a business loan, and do I need them?Lenders commonly ask for the latest audited accounts and recent management accounts, but each bank sets its own requirements. The statutory audit exists regardless; it is not a loan-specific document, and a qualified opinion or going-concern note can affect credit decisions.
Does the audit cover the Significant Controllers Register?Not as a stated part of the audit report. The Significant Controllers Register is a separate Companies Ordinance duty of the company. Auditors may still ask who owns and controls the company when assessing related parties and client acceptance.
Why does my auditor ask for ID and source-of-funds information?Audit firms are regulated for anti-money laundering and counter-terrorist financing, and AFRC inspects firms' compliance. Firms therefore verify who owns and controls a client before accepting it, which is separate from the audit tests.
What are the directors' responsibilities for the accounts, and the auditor's?Directors prepare, approve and sign the financial statements and directors' report and must keep proper accounting records. The auditor forms and reports an independent opinion. Audit does not shift the directors' responsibility to the auditor.