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.
Audit The highest level of assurance: testing records and evidence, third-party confirmations, and a signed opinion. This is the statutory requirement (ss.394, 405).
Review A lower, "limited assurance" engagement under HKSRE 2400, carried out by a practitioner who is not the company's auditor. The procedures do not provide all the evidence an audit would, and the conclusion is in negative form: nothing has come to the practitioner's attention that causes belief the statements are not prepared, in all material respects, under the framework. Often used for interim reports or lender requests.
Compilation Under HKSRS 4410 the accountant uses accounting expertise to collect, classify and summarise information you supply, without testing what lies behind it. No assurance is given and no opinion is expressed. Independence is not required, but any lack of it must be stated in the accountant's report.
Which are acceptable for legal purposes?
- Company law: audit, unless the company is dormant under s.5 and s.447.
- IRD: audited statements are expected with the return for companies with gross income, except dormant companies and a few cases.
- Neither a review nor a compilation (nor management accounts) replaces a statutory audit.
Where reviews and compilations help A bank, investor or manager may want interim numbers; a review or compilation is cheaper and faster, but only as an extra.
HKSRE 2400 (reviews) and HKSRS 4410 (compilations) have been revised by HKICPA since their first issue, so your accountant will apply the edition in force.
Legal basis
- Companies Ordinance (Cap. 622), ss.394, 405, 447
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
- 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.
- 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 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.
- 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.
- 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.