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.
Why they are sensitive Related-party and director balances are not done at arm's length by default, can hide personal spending, and the accounts must disclose them.
What the auditor typically asks for
- A ledger of the director's current account with the movements for the year.
- Agreements, board approvals and repayment terms for loans.
- Details of connected parties: companies owned by the same people, family members and key management.
- Explanations for large or unusual transactions, such as payments with no business purpose.
Disclosure The notes to the financial statements must disclose loans, quasi-loans and other dealings in favour of directors, companies they control and connected entities, alongside directors' emoluments (s.383(1)(d)).
The law on director loans A company must not lend to a director, or to a company the director controls, without the prescribed approval of its members, subject to exceptions such as aggregate amounts up to 5% of net assets (Part 11, ss.500 and 505). A loan made in breach is voidable at the company's instance (s.513).
HKSA 550 The auditor asks management who the related parties are, what they transacted and why, then evaluates whether these are accounted for and disclosed under the reporting framework (paras 13 and 25).
Management's role Management will be asked for a written representation that all related-party relationships and transactions have been disclosed (HKSA 550 para 26 and HKSA 580).
Tip Keep personal and business payments separate and record each director payment in the books at the time, with a reason.
Legal basis
- Companies Ordinance (Cap. 622), ss.383, 500, 505, 513
- HKSA 550 Related Parties
- HKSA 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.
- 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.
- 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.