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.
Why they arise Examples include missing accruals, wrong stock values, unrecorded liabilities, depreciation errors, misclassified director loans, and income recorded in the wrong period.
Process (HKSA 450)
- The auditor accumulates the misstatements found, other than those that are clearly trivial, tells management in good time and asks for them to be corrected.
- If management refuses, the auditor seeks to understand why and takes that into account.
- The auditor judges whether uncorrected items are material, alone or together, by size and nature.
- If material items remain uncorrected, the auditor considers a modified opinion (see the audit opinion answer) and tells those charged with governance about uncorrected items.
- Management is asked in the representation letter whether it believes the effects of uncorrected items are immaterial, with a summary of those items attached.
Effect on you
- Profit and tax: adjustments change the accounting profit that feeds into the tax computation, so the tax numbers should be finalised after them.
- Bank and reporting: last-minute changes after management accounts have gone to a bank can cause confusion; tell lenders if the final figures differ.
- Fees: heavy adjustments mean more audit time, which can affect fees (see the fee answer).
Reducing them Close the books properly before fieldwork, reconcile bank accounts, and review stock, payables and accruals.
Adjusting entries should be posted in the company's accounting records, so the accounts continue to agree with the records (s.407).
Legal basis
- Companies Ordinance (Cap. 622), s.407
- HKSA 450 Evaluation of Misstatements Identified during the Audit
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- 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 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.
- 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.
- 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.
- 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.