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 is lighter
- The financial statements follow Part 1 of Schedule 4 only, so fewer disclosures.
- The auditor's report need not state whether the accounts give a true and fair view (s.406(1)(b)). It still states whether they were properly prepared in compliance with the Ordinance.
- The simpler accounting framework (for example fewer fair value and deferred tax complications) can reduce work.
What stays the same
- The auditor still decides risk and materiality, tests transactions and balances, obtains confirmations, and gets a representation letter.
- The auditor still reports on records, information obtained and consistency of the directors' report (s.407).
- Audit independence, eligibility and appointment rules are unchanged.
Fees Any saving depends on the firm and on your records; the quality of bookkeeping often matters more than the framework used.
Filing If the exemption relies on a members' agreement or resolution, the document goes to the Registrar within 15 days.
Ask the auditor in writing which framework they will use and whether the exemption applies to you before the audit starts.
Legal basis
- Companies Ordinance (Cap. 622), ss.359, 380(7), 406(1)(b), 407
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.
- 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.
- 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.