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 it? Section 359 of the Companies Ordinance lists companies that fall within the reporting exemption. These companies follow Part 1 of Schedule 4 only (not Part 2), and the requirements for a true and fair view in ss.380(1), (2), (5) and (6) do not apply to them (s.380(7)).
SME-FRF HKICPA's SME-FRF and SME-FRS are a simpler accounting framework for qualifying small and medium-sized entities that fall within the reporting exemption. HKICPA's SME-FRF & SME-FRS page lists the qualifying criteria, which follow s.359 of the Companies Ordinance. HKICPA notes that applying the SME-FRS gives a proper presentation for SMEs but not a true and fair view.
The audit still happens The Registry's FAQ says audit is required for all companies including those in the reporting exemption. The differences are:
- The auditor does not have to give a true and fair view opinion (s.406(1)(b)).
- The accounts are simpler and need fewer notes, which can mean less audit work.
Filing If the exemption relies on members' agreement or resolution, the agreement or resolution must be delivered to the Registrar within 15 days.
Excluded Banks, insurers, SFC-licensed corporations and companies that take loans of money at interest by way of business cannot use it (s.359(4)).
This is a reporting simplification, not an exemption from audit.
Legal basis
- Companies Ordinance (Cap. 622), ss.359-366, 380(7), 406
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.
- 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 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.