Hong Kong Company Audit

Hong Kong Company Audit

Doing a company audit in Hong Kong is a part you cannot ignore. You should think about auditing and accounting as soon as you establish your business. You do not want to procrastinate as any postponement might bring you additional costs and penalty for the future.

Following the implementation of the Hong Kong Companies Ordinance on March 3, 2014 by the government, Hong Kong has required companies to submit a Statutory Audit in line with the Hong Kong Financial Reporting Standards.

Audit Services in Hong Kong

If you are going to do business in Hong Kong, you should be familiar with the accounting, bookkeeping, and auditing standards in Hong Kong since the wrong tax filings could incur a risk. The only body in Hong Kong charged with the duty of registering and certifying accountants as licensed is the Hong Kong Institute of Certified Public Accountants.

It issues Hong Kong Standards on Auditing, Quality Control, Assurance and Related Services which is reported as an annual tax assessment by the Inland Revenue Department (IRD). These accounting and auditing standards should also be followed by members of the Hong Kong Institute of Certified Public Accountants (HKICPA).

Where auditing rules in Hong Kong are concerned, a Hong Kong incorporated company is required to have its financial statements audited by a registered and qualified public accountant.

Audits are performed to verify that the information and documentation provided to the IRD in the financial statements is true and fair with no internal bias. The audit of taxes, profits and financial statements is performed by an external party (CPA) to make sure that all the tax laws are observed in Hong Kong.

To avoid any errors and inaccurate audit reviews, the IRD mandates that a third-party audit review of accounts and financial statements of companies in Hong Kong is done.

Company Audit

The Auditing Report Tax Computation, and Tax Filing in Hong Kong Company Audit

After the auditing has been completed and the CPA has received all the returned signed audit reports and audit documents, they send the completed audit report and tax computation to the IRD.

Moreover, it is recommended that you cooperate with auditors in Hong Kong so that you can properly submit the signed audit reports and the other required auditor documents that have the key information to the authorities. The IRD does not accept a copy, it may even be a photocopy, of the end signed audit report from the top officials of the company.

Upon receipt of the documents at the IRD office, the officials need some time to go over all the numbers. Where a company has assessable profits, they provide the tax payable schedule.

Depending on the processing time, this can be a matter of few weeks to few months (performed by the IRD). Remember that the authorities tend to be much slower in April, August, and November because of other tax filings.

Once, the first, audit of the company is finished, the CPA would advice the owners when to have the company documents and the statements ready for the subsequent audit. Nevertheless, it is advisable to have these documents ready ahead of time.

Important note: Those companies, which receive the PTR at the eleventh hour, have only one month to get the file, audit report and tax returns ready. Be informed that this period of time is insufficient to obtain the required documents and complete the appropriate audit procedures.

Compliance with Auditing and Tax Regulations in Hong Kong Company Audit

The business gets the first tax return form from the IRD 18 months after the incorporation. After completion, the form of Profit Tax Return is submitted with the audit report and tax computation.

Required Documents

Financial statements to be presented to auditors should include:

  • Balance sheet
  • Income statement
  • Ledger of business transactions
  • All financial statements
  • All sales and purchase invoices
  • All expenditure receipts
  • All consulting service invoices
  • All bank statements
  • All contracts
  • All subcontractor’s invoices
  • All merchant account statements
  • All management accounts
  • All relevant accounting documents

A Hong Kong company is recommended to maintain additional records of documents that support all company transactions and activities, including:

  • Organisation chart that shows the location of the company operations overseas
  • Travel receipts and passport copies as proof of visit
  • Shipping documents
  • Sales orders
  • Itemised telephone bills and faxes as proof of official call records

Once documents are received, the auditor examines the statements, accounts and supporting documents and provides audit opinions on their reliability. The documents are necessary for the adequate audit of the company’s accounts.

Hong Kong Company Audit Process

The entire audit procedure consists of a number of steps in which the CPA correctly reviews and verifies several information like financial statements, figures, and the whole company. This is necessary to make sure that the financial statements presented reflect the true picture of your business.

Prior to submission of the documents to the CPA, the company management prepares the financial statements and supporting documents. Upon receipt of the documents, auditors will commence the documents review. They also seek to comprehend the company operations and take into account the relevant factors that may impact the audit.

  • The CPA discovers and assesses any errors in the financial statements that can distort the financial records.
  • Upon evaluation, they analyze the activities of the company to ascertain the correctness of the financial statements. All the supporting documents are also verified.
  • The auditor then expresses their view about the reliability and fairness of financial statements.
  • The second stage is to develop an audit report depending on their opinion.
  • The audit reports along with other important audit documents should be signed off by the directors of the company before being sent back to the auditor.
  • All these papers namely Profits Tax Return and computed tax form filed by the CPA are sent to the IRD.

The Hong Kong incorporated company is obliged by local law to engage the CPA to guarantee that the information contained in the audit reports is correct. The company is required to submit signed audit reports together with the required auditor documents. The IRD only accepts the original hard copy of the audit report signed by the company directors.

In case of any assessable profits, it may take some weeks or months for IRD to review the audit figures and determine the tax payable schedule for the company.

In terms of the preparation of financial statements, the company should prepare documents and statements for the year immediately following the initial audit.

This is best done early since if the company decides to wait for the PTR, it will be too late. With that, the company will have only one month to submit the audit report and tax.

In Hong Kong every startup must have profit and loss account, balance sheet, general ledger, and trial balance so that the books of accounts should be prepared in accordance with the local accounting standards.

Offshore Company Audit in Hong Kong

A Hong Kong- based offshore company should provide IRD with a report about the profits accumulated in the SAR. Any offshore company that has earned profits within the territory of Hong Kong is subject to profits tax and has to comply with the requirement to prepare an audit report in this regard.

How FastLane Group Can Help?

FastLane Group, certified public accountant in Hong Kong, provides comprehensive audits for companies to meet their auditing and tax regulations compliance. From conducting comprehensive audits to preparing financial statements that are correct, our CPAs assist businesses in meeting their audit requirements efficiently and effectively, thus relieving them from the burden of wondering whether they are meeting all the requirements and enabling them to smoothly carry out their operations. Contact us now.