Hong Kong Limited Company Audit – Requirements & Process

Mastering the technicalities of a Hong Kong limited company audit requirement is no easy task. That is why Relin Consultants have prepared a comprehensive guide on the key aspects that you will need to know when it comes to the audit requirements of a Hong Kong limited company.

WHAT EXACTLY IS AUDITING IN HONG KONG?

An audit, by definition, is a third-party official inspection and verification of accounting. The goal of auditing in Hong Kong is to acquire a truthful and accurate assessment of a company’s financial accounts, free of any internal prejudice.

Unlike in some other nations, financial accounts, earnings, and taxes payable to the government in Hong Kong are routinely examined and audited by a third party. The goal is to guarantee that Hong Kong’s relevant tax regulations are followed. Otherwise, firms may purposefully or inadvertently modify their financial statistics in order to present a deceptive image of their company’s financial status.

As a result, it would result in an inadequate system for adequately checking and complying with the Inland Revenue Department, or IRD, for Hong Kong’s hundreds of thousands of businesses. Consequently, corporations must have their company accounts and financial statements examined or audited.

HOW DO AUDITING AND TAX COMPLIANCE WORK IN HONG KONG?

According to the Hong Kong Companies Ordinance, all Hong Kong-incorporated companies must have an annual audit of their financial statements done by a Hong Kong-practicing Certified Public Accountant (CPA).

The first tax return form will be provided by the Inland Revenue Department around 18 months after the firm is incorporated in Hong Kong. When you have finished filling out the PTR form, you must submit it together with the audit report and tax computation.

REQUIRED DOCUMENTS FOR AUDITING IN HONG KONG

Every company should give financial statements to the auditor in order to demonstrate their entire activities. If feasible, the financial statements should include a balance sheet, an income statement, and a general ledger of company activities.

An auditor is responsible in Hong Kong for analyzing the company’s finances and acquiring adequate audit documents for each organization. This is not just to keep a watch on the company finances, but also to maintain adequate records when the IRD asks for more paperwork. This is especially true if the corporation is attempting to obtain offshore tax exemption.

The following documents should be completed or prepared for auditing in Hong Kong so that a CPA may undertake the audit efficiently: –

• Every bank statement
• All purchase invoices/invoices from subcontractors
• Every financial statement and management account
• All receipts for expenses
• Any merchant account statements, as well as all sales invoices, consulting service invoices, and contracts
• All additional essential financial papers

AUDITING PROCESS OF A COMPANY IN HONG KONG

Listed below are some of the processes involved in the auditing process in Hong Kong.

• The financial statement and related documentation are typically prepared by the company’s management and then provided to the CPA along with any other relevant accounting information.
• The CPA will next study and get a grasp of the individual company’s actions, as well as other important elements such as the industry as a whole, which may impact their audit.
• Auditors will identify each key transaction in the financial statements and then examine any uncertainties or inaccuracies that may have a substantial or material impact on the company’s financial accounts.
• As per the related information, auditors will estimate what the firm has done in order to ensure that all financial statements are correct, and they will analyse any supporting documentation.
• The auditors issue an opinion on the correctness and fair portrayal of the company’s financial accounts once they have completed their examinations of all documents.
• The auditors will prepare an audit report based on the financial statements.
• Following that, they would prepare the tax computation form and send it to the government together with the completed Profits Tax Return (PTR).

At Relin Consultants, we are always looking forward to assisting our clients no matter where they are. If you would like to know more about Hong Kong Company Incorporation or our other services, drop us an inquiry at enquiry@relinconsultants.com.

WHAT ARE THE BASIC ONGOING COMPLIANCE REQUIREMENTS IN HONG KONG?

Let us first look at the operations that a corporation must perform in relation to tax filing and audits in Hong Kong. In terms of auditing duties in Hong Kong, a private limited corporation must:

1. Maintain a designated auditor unless the organization is declared “dormant” under the Companies Ordinance.
2. Maintain documents such as share certificates, up-to-date financial records, an audit report, minutes of all meetings, and registers at all times.
3. Follow the Companies Registry and Hong Kong’s Tax Authority’s yearly account filing procedures and deadlines.
4. Maintain complete and precise accounting reports, as well as an audit report, so that the company’s assessable earnings may be established instantly.

WHAT ARE THE ROLES OF AUDITORS IN HONG KONG?

The auditors are responsible for determining the scope and kind of audit procedures that will be done, which are determined by the controls and the uncertainties that have been recognized.

Procedures could include:

1. Asking a lot of questions – Many questions would be raised by the organization’s members. These inquiries might range from formal written questions to casually spoken queries.
2. Analyzing accounting and financial records, as well as other associated paperwork and tangible assets like equipment and plants.
3. Making judgments based on significant estimates or hypotheses established by the company’s management when preparing the financial report.

WHAT ARE THE COMPANY’S RESPONSIBILITIES FOR AN AUDIT?

• Be willing to be upfront and provide a clear picture of the company’s financials.
• Don’t assume the task is over once you’ve paid. Accounting is a process rather than a result. Even though the CPA gets compensated for their efforts, they cannot generate the figures out of thin air.
• Keep meticulous records of your papers in case the auditor needs them to verify statistics in the accounts.

WHAT ABOUT OFFSHORE COMPANY AUDITS IN HONG KONG?

• If the earnings accrued inside the special administrative jurisdiction, an offshore corporation in Hong Kong must declare them to the IRD.
• Any offshore firm that has produced profits in the jurisdiction of Hong Kong is subject to profits tax and must prepare an audit report in this respect.