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.
Auditors in Hong Kong follow the Hong Kong Standards on Auditing (HKSAs), based on international standards.
Typical stages
- Acceptance. Independence and identity checks, engagement letter, and the fee (the members fix it, s.404).
- Planning and risk assessment. Understand the business, controls and key risks; set a materiality level.
- Fieldwork. Test revenue, expenses, assets and liabilities against documents such as bank statements, invoices, contracts, and payroll.
- External evidence. Bank and other confirmations (HKSA 505), attending a stock count where stock matters (HKSA 501).
- Going concern and subsequent events. Looks at the period after the year-end.
- Adjustments. Differences are discussed; the company corrects or the auditor assesses their effect.
- Representation letter. Written confirmations from management (HKSA 580).
- Opinion and report. The auditor signs the report (s.409) on the accounts the directors approve (s.387) with the directors' report (ss.388-391).
After the audit The accounts are laid before members and sent to them, and the tax return is filed with audited accounts where required.
An audit gives reasonable assurance, not a guarantee that there is no error. Its aim is an opinion on whether the statements are free of material misstatement.
Legal basis
- Companies Ordinance (Cap. 622), ss.387-391, 404, 405-409
- HKSA 200, 501, 505, 580
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
- 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.
- 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.
- 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.