Under the Companies Ordinance, a Hong Kong company must have its annual financial statements audited by a certified public accountant who holds a practising certificate, apart from limited exemptions such as dormant companies. The audit speed depends mostly on the quality of your books at year-end, not on the auditor.
The Companies Ordinance requires every company to prepare financial statements that give a true and fair view, to have them audited and to send them to members. The auditor must be a certified public accountant (practising) registered with the Hong Kong Institute of Certified Public Accountants, and cannot be a director or employee of the company. The first auditor is usually appointed by the directors and later auditors by the members.
Private companies prepare their statements under the Hong Kong Financial Reporting Standard for Private Entities or full HKFRS, and eligible small and medium-sized entities can use the SME financial reporting framework. The directors' report and auditor's report accompany the statements. A private company generally has nine months after its year-end to send the statements to its members, much longer than the deadline for a company with public accountability.
Exemptions are narrow. A dormant company can be exempt from audit under conditions in the Ordinance, and your accountant can tell you whether the conditions are met. Do not assume that being small or having low turnover relieves you of the audit.
The auditor's report may be unmodified, or it may carry a qualification, an emphasis of matter or a statement about the company's ability to continue as a going concern. A qualified report worries banks and investors, so ask the auditor early about any issue that could lead to one, such as inventory that was not counted or balances that cannot be confirmed.
The audited financial statements are not only a company law document. A corporation generally submits them to the Inland Revenue Department with its profits tax return, and they are the starting point for the tax computation. Banks ask for them when granting facilities, landlords ask for them when assessing tenants and acquirers rely on them in due diligence.
An audit also shapes how the company is run during the year. An auditor needs evidence that revenue is complete and properly dated, that expenses relate to the business, that assets exist and are correctly valued, and that liabilities are recorded. Companies that already collect that evidence as they go find the audit uneventful; companies that rebuild it afterwards pay in fees and time.
The audit is not a tax review, a fraud investigation or a legal compliance check, even though auditors may report breaches they notice. If you need advice on the structure of a transaction or the deductibility of a cost, ask your tax adviser separately.
A workable timeline starts before the year ends. In the final month, confirm the stock count date, collect confirmation of the major customers' balances, agree a cut-off rule for goods shipped and services delivered, and finish payroll and MPF reconciliations. After the year-end, the books are closed in stages: bank reconciliations, accruals and prepayments, depreciation, tax provisions, and the director's current account.
The auditor then sends a request list. It normally covers the trial balance and ledgers, bank statements and reconciliations for every account, a fixed asset register, listings of debtors and creditors with ageing, stock listing, payroll summaries, MPF remittance records, loan agreements, board minutes and significant contracts. The auditor will send bank confirmation requests directly to the banks, so make sure the bank can answer promptly.
Fieldwork, queries and clearing of review points typically occupy several weeks. Agree in advance who answers queries and within what time. A director who is abroad for the entire audit period, with no delegate, is the most common reason a simple audit takes months.
A sample timetable for a 31 March year-end shows the rhythm. In April the team closes the books and reconciles every bank account; in early May the auditor receives the trial balance and the request list; fieldwork and queries run through May and June; the directors review the draft in July; and the signed statements are ready for the profits tax return and for the members. If the year-end falls in December, shift every step by nine months, but keep the order.
Four problems recur. First, unreconciled bank accounts, which force the auditor to test everything else harder. Second, missing supporting documents, especially for cash expenses, director's advances and overseas payments. Third, related-party transactions that are not clearly labelled, such as loans from shareholders or charges between group companies. Fourth, inconsistent versions of the books, with Excel schedules that do not agree to the ledger.
Revenue cut-off is the next most frequent argument: an invoice dated 31 March for work done in April, or a delivery note dated after year-end. The cure is a written cut-off rule applied consistently, and delivery or acceptance evidence filed with each invoice.
If a prior-year error is found, the accounts are restated and the tax position may change. It is cheaper to find and fix it while the previous year is still open than to correct it during the next audit.
4softerp is a multi-company financial ERP and accounting module that keeps one set of books for each company, which helps avoid the version problem of competing spreadsheets. It does not prepare audit-ready financial statements automatically, it does not give the auditor a read-only role and it does not reconcile bank accounts for you, so agree with your auditor how data will be exported and supplied.
4hosting provides web hosting and VPS, which some companies use to keep their own document archive reachable. Whatever the storage, keep the signed financial statements, the auditor's report, the engagement letter and the management representation letter together, and keep them for at least seven years.
Missing receipts and unreconciled bank lines surface at year-end, the auditor keeps sending queries and the audit drags on.
Reconcile bank accounts and attach documents throughout the year, and give the auditor the access you agree. The 4b2b products have no read-only auditor role and no automatic reconciliation.
Books kept in several Excel files with no clear final version.
Keep a single set of books in 4softerp instead of several spreadsheets, and confirm with your auditor what evidence of changes they need.
In general yes. The Companies Ordinance requires companies to have their financial statements audited by a practising certified public accountant, with narrow exemptions such as dormant companies. Smaller companies may use simplified reporting frameworks, but that does not remove the audit. Your accountant can check whether any relief applies before you commit to a timetable.
A certified public accountant holding a practising certificate and registered with the Hong Kong Institute of Certified Public Accountants. The auditor cannot be a director or employee of the company. Directors normally appoint the first auditor, and the members appoint those who follow. Choose one early, because the auditor can advise on year-end preparation.
A private company generally has nine months after the end of its financial year to send the financial statements, the directors' report and the auditor's report to its members. The profits tax return deadline is a separate and earlier pressure, so do not wait. Ask your auditor for a written timetable at the start of the year-end process.
Expect requests for the trial balance and ledgers, bank statements and reconciliations, a fixed asset register, debtor and creditor listings, stock records, payroll and MPF records, loan agreements, board minutes and key contracts. The auditor contacts your banks directly for confirmations. Having these ready on the first day usually saves weeks.
It should be, because a corporation generally attaches audited accounts to the return. Plan the audit so the signed statements are ready before the return deadline, or arrange an extension through a tax representative. If the audit slips, tell your accountant straight away rather than letting the deadline lapse. A realistic plan has the books closed within four weeks of year-end, fieldwork in the following month and directors' sign-off before the return is due.
One financial ERP for your books; the audit is carried out by your CPA.
