Running a company in Hong Kong means balancing growth with strict compliance. One of the most important obligations is preparing audited financial statements each year.
These statements are not just paperwork for the regulators — they are the foundation of financial transparency and trust. They assure investors, banks, and business partners that your numbers are accurate, while also ensuring you meet the legal requirements set out in the Companies Ordinance (Cap. 622) and the Inland Revenue Ordinance (IRO).
Globally, audits are recognised as a safeguard for stakeholders. Locally in Hong Kong, they are a legal necessity for almost all companies and a strategic tool for those seeking funding, scaling, or listing.
In this guide, we’ll walk through everything you need to know about audited financial statements in Hong Kong — what they are, why they matter, the audit process, reporting obligations, and how to stay compliant with confidence.
What is a Financial Statement Audit?
A financial statement audit is an independent examination of a company’s financial reports, carried out by a certified public accountant (CPA). The objective is to determine whether the financial statements:
- Present a true and fair view of the company’s financial position and performance.
- Comply with Hong Kong Financial Reporting Standards (HKFRS), which align with IFRS.
- Are free from material misstatements, whether due to error or fraud.
Legal Requirement in Hong Kong
Under the Companies Ordinance (Cap. 622), every Hong Kong-incorporated company — except dormant companies — must have its financial statements audited annually. These audited accounts must also be submitted together with profits tax returns to the Inland Revenue Department (IRD) under the Inland Revenue Ordinance (IRO).
Global Audit Standards
Audits follow a framework of generally accepted auditing standards (GAAS), which provide consistency, reliability, and professional guidance. In Hong Kong, these standards are issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) and are aligned with international auditing practices.
In short, a financial statement audit in Hong Kong is both a legal obligation and a trust mechanism that reassures stakeholders your numbers are reliable.
Purpose and Benefits of Audited Financial Statements
Audited financial statements serve more than a compliance function — they are a cornerstone of business credibility and decision-making.
1. Compliance & Risk Management
- Required under the Companies Ordinance (Cap. 622) and Inland Revenue Ordinance (IRO).
- Helps identify weaknesses in internal controls and detect potential fraud or misstatements.
2. Investor & Lender Confidence
- Essential when applying for bank loans, raising investment, or negotiating with partners.
- A clean audit opinion signals transparency and builds trust with stakeholders.
3. Better Decision-Making
- Provides management with an accurate, unbiased view of financial performance.
- Audit findings often highlight areas for improvement in reporting systems and efficiency.
4. Reputation & Growth
- Strengthens the company’s reputation in the market.
- Facilitates expansion, especially for businesses considering IPOs or cross-border operations.
In Hong Kong’s competitive business environment, audited financial statements are not just about staying compliant — they are a strategic tool for growth, funding, and long-term success.
Components of Audited Financial Statements
An audited financial statement is not a single document — it is a complete package that presents the company’s financial position, performance, and disclosures in line with HKFRS and the Companies Ordinance.
The core components include:
- Balance Sheet (Statement of Financial Position)
Snapshot of assets, liabilities, and equity at year-end. - Income Statement (Profit and Loss Account)
Summary of revenue, expenses, and net profit or loss for the financial year. - Cash Flow Statement
Breakdown of cash inflows and outflows from operating, investing, and financing activities. - Statement of Changes in Equity
Details movements in shareholders’ equity, including retained earnings and reserves. - Notes to the Financial Statements
Explanations of accounting policies, contingent liabilities, related party transactions, and other critical disclosures.
Hong Kong Disclosure Rules
- Financial statements must comply with Schedule 4 of the Companies Ordinance.
- Additional disclosures are required for directors’ benefits, related party interests, and auditor’s remuneration.
- Even under simplified reporting exemptions, audit is still required (except for dormant companies).
Together, these components provide a full, verified picture of the company’s financial health — one that investors, lenders, and regulators can rely on.
Types of Audit Opinions & What They Mean
The audit opinion is the final outcome of the audit process — a signal to shareholders, banks, and regulators on whether your financial statements can be trusted.
1. Clean (Unqualified) Opinion
- Meaning: Financial statements are free from material misstatements and present a true and fair view.
- Impact: Highest level of assurance, builds strong investor and lender confidence.
2. Qualified Opinion
- Meaning: Generally reliable, but with exceptions (e.g., incomplete disclosures, limited scope).
- Impact: Acceptable but raises caution; lenders and investors may request clarifications.
3. Adverse Opinion
- Meaning: Financial statements are materially misstated and do not present a true and fair view.
- Impact: Serious red flag, undermines credibility and may trigger regulatory or legal consequences.
4. Disclaimer of Opinion
- Meaning: Auditors cannot form an opinion due to insufficient evidence or lack of access to records.
- Impact: Creates uncertainty; often signals governance or transparency issues.
For Hong Kong businesses, aiming for a clean audit opinion is critical — it protects reputation, secures funding opportunities, and reduces regulatory risk. For a deeper dive into how audit reports are structured locally, see our guide on Audit Report in Hong Kong
The Audit Process: 5 Key Phases
Understanding the audit process helps companies prepare in advance and avoid unnecessary delays. A typical audit in Hong Kong follows five structured phases:
1. Planning
- Auditor accepts the engagement, ensures independence, and defines the audit scope.
- Company provides initial documents (financial statements, bank records, contracts).
2. Risk Assessment
- Auditor reviews the business, industry, and environment.
- Identifies areas most at risk of misstatement (e.g., revenue recognition, inventory, related-party transactions).
3. Audit Strategy & Plan
- A roadmap is developed: testing methods, reliance on internal controls, audit timeline.
- Plans are flexible and may be revised if new risks are identified.
4. Evidence Gathering
- Control testing: Evaluates effectiveness of internal systems.
- Substantive testing: Verifies balances through confirmations, inspections, and recalculations.
- Analytical procedures: Compares figures against industry benchmarks or external data.
5. Finalisation & Audit Opinion
- Auditor forms a conclusion and issues an opinion (clean, qualified, adverse, or disclaimer).
- Significant findings may also be communicated to management or the board.
Companies that keep records organised, maintain strong internal controls, and prepare early typically experience a smoother audit — and gain valuable insights to strengthen operations.
Hong Kong-Specific Requirements
Audited financial statements in Hong Kong must comply with both the Companies Ordinance (Cap. 622) and relevant Hong Kong Financial Reporting Standards (HKFRS). Key requirements include:
1. Companies Ordinance (Cap. 622)
- Directors’ Duty: Directors must prepare financial statements for each financial year.
- True & Fair View: Unless exempted, accounts must present a true and fair view of the company’s financial position and performance.
- Consolidation: Holding companies must prepare consolidated financial statements unless exempt.
- Directors’ Report: Non-exempt companies must include a business review, risks, future outlook, and director disclosures.
- Audit Requirement: All companies (except dormant ones) must have their financial statements audited.
2. Reporting Exemptions
Certain private or guarantee companies may qualify for simplified reporting if they meet size criteria (revenue, assets, employees). Exemptions include:
- No “true and fair view” requirement.
- Exemption from preparing a business review in the directors’ report.
- Simplified disclosure requirements for directors’ interests, donations, and auditor remuneration.
However, audit is still required even if a company qualifies for reporting exemption.
3. Inland Revenue Ordinance (IRO)
- Financial statements audited by a Hong Kong-registered CPA must support Profits Tax Returns.
- IRD uses audited accounts to verify reported taxable profits and ensure compliance.
4. Annual Filing & Compliance
- Public companies and companies limited by guarantee must file annual returns with audited financial statements.
- Private companies must maintain audited accounts internally, available for inspection by shareholders.
These local requirements ensure financial transparency and align Hong Kong businesses with international governance standards. All companies (except dormant ones) must have their financial statements audited. Dormant companies are exempt — see our guide on declaring a dormant company in Hong Kong
Going Concern and Auditor’s Judgement
The Going Concern Assumption
Financial statements are usually prepared on the basis that a company will continue operating in the foreseeable future. This assumption underpins how assets and liabilities are valued — i.e., recorded at amounts expected to be realized and settled in the normal course of business.
If management intends to liquidate the company or cease operations, or has no realistic alternative but to do so, the financial statements must instead be prepared on a liquidation (break-up) basis, reflecting fire-sale values and higher settlement risks.
Management’s Responsibility
- Assess the company’s ability to operate as a going concern.
- Disclose any material uncertainties affecting the assumption, such as reliance on new financing, litigation risks, or volatile market conditions.
- Prepare revised financial statements if liquidation is more appropriate.
Auditor’s Role
- Evaluate whether management’s going concern assessment is reasonable.
- Identify and assess risks of material misstatement, especially when future funding, solvency, or operational continuity is uncertain.
- If uncertainties exist, highlight them in the audit report through an “emphasis of matter” paragraph or a modified opinion if disclosure is inadequate.
Judgement and Risk
The going concern evaluation requires significant professional judgement, since no forecast is guaranteed. Risks may include:
- Economic downturns affecting cash flow.
- Regulatory changes impacting business models.
- Dependence on external financing with no binding agreements.
- Multi-location operations with varied legal and market conditions.
Auditors must apply professional scepticism, weighing evidence carefully and remaining alert to potential bias in management’s outlook.
The going concern assessment is one of the most sensitive areas of an audit, as it directly affects how stakeholders perceive the company’s stability.
Public vs. Private Companies: Differences in Audit Scope
Public Companies
- Higher Stakeholder Impact: Public companies serve a wider audience — shareholders, regulators, banks, suppliers, analysts, and the general public. Their audited financial statements are usually made publicly available.
- Stricter Regulations: Must comply with additional reporting and disclosure requirements under local laws (e.g., Hong Kong Listing Rules, HKFRS/IFRS).
- More Complex Audits: Multi-location operations, international subsidiaries, and diversified business models often require expanded procedures and involvement of multiple audit teams.
- Audit Oversight: Subject to closer monitoring by regulators and audit committees, with heightened expectations for independence, transparency, and governance.
Private Companies
- Narrower Stakeholder Base: Typically limited to owners, lenders, and selected business partners. Financial statements may not always be publicly disclosed.
- Simpler Requirements: Compliance obligations and disclosure requirements are less demanding compared to listed entities.
- Reduced Audit Scope: Audits often focus on areas directly relevant to lenders or owners’ needs rather than broader market transparency.
- Flexibility: May benefit from simplified reporting frameworks (e.g., SME Financial Reporting Standards) depending on jurisdiction.
Key Takeaway
While both public and private companies benefit from audited financial statements, public company audits are more rigorous, heavily regulated, and widely relied upon. Private company audits, though narrower in scope, still provide essential assurance to stakeholders such as lenders and shareholders.
In Hong Kong, even private companies often seek independent audits to build credibility with banks, investors, and regulators.
Conclusion: Why Audited Financial Statements Matter
Audited financial statements are more than a compliance requirement — they are a strategic asset. By providing independent assurance, they build trust with shareholders, attract investors, secure financing, and strengthen relationships with regulators, suppliers, and customers. For management, the audit process also highlights opportunities to improve internal controls, risk management, and operational efficiency.
In today’s business environment, where transparency and accountability drive long-term success, companies that embrace rigorous financial audits position themselves for growth and resilience. Whether public or private, the assurance of audited accounts supports stronger decision-making and sustainable value creation.
At FastLane Group, we help businesses navigate every step of the audit and financial reporting process — ensuring compliance, enhancing credibility, and supporting your journey toward sustainable growth.
