If you run a company in Hong Kong, preparing an annual audit report is a legal requirement. No matter the size, industry, or location of your business operations, every Hong Kong-incorporated company must undergo an independent financial audit.

But what exactly does this process involve, and how can you prepare for it? Here’s everything you need to know.

Hong Kong’s financial system is built on transparency and accountability. That’s why all registered businesses must submit their financial statements for auditing each year.

The annual audit ensures compliance with the Hong Kong Companies Ordinance and the Inland Revenue Ordinance while providing an independent assessment of a company’s financial health.

An audit report includes essential financial statements such as:

• Balance Sheet – A snapshot of the company’s financial position.

• Income Statement – A summary of revenue and expenses.

• Statement of Changes in Equity – Details of any changes in ownership.

• Cash Flow Statement – Tracks cash movements within the business.

Since audits must be conducted by third-party firms, this guarantees an unbiased review of financial records.

In Hong Kong, companies are required to conduct audits annually. Your audited financial statements play a crucial role in filing your Profits Tax Return (PTR) with the Inland Revenue Department (IRD).

The deadlines for these submissions vary according to your company’s financial year-end.

If you have a newly setup business, expect to receive your first PTR around 18 months after incorporation. Once you receive the form, you must submit it along with your audited financial statements and tax computations.

Audits in Hong Kong follow strict guidelines set by the Hong Kong Institute of Certified Public Accountants (HKICPA). These standards align with the International Financial Reporting Standards (IFRS), ensuring that Hong Kong maintains high levels of financial credibility on the global stage.

It’s important to note that only third-party Certified Public Accountants (CPAs) registered with HKICPA are authorized to conduct audits. You cannot conduct an in-house audit or have it done by an unqualified accountant.

Hong Kong vs. Mainland China Auditing

While Hong Kong operates under its own Companies Ordinance, mainland China has a completely different financial and tax framework. If your business operates in both regions, it’s essential to comply with each jurisdiction’s separate auditing requirements.

An audit is a detailed and time-consuming process. Here’s a breakdown of what typically happens:

1. Preparation of Financial Documents – The company gathers financial statements and supporting documents (e.g., bank statements, invoices, contracts).

2. Preliminary Review – The CPA studies the company’s business operations and financial activities.

3. In-Depth Examination – The auditor verifies the accuracy of financial records and identifies any discrepancies.

4. Audit Report Issuance – The auditor issues an audit report and audit opinion, assessing the company’s financial statements.

5. Director’s Approval – The company’s director reviews and signs off on the audited report.

6. Submission to IRD – The CPA finalizes tax computations and submits the required documents to the IRD.

7. IRD Review – The IRD evaluates the submission, which may take several weeks to months, before issuing the tax assessment.

To ensure a smooth audit process, it’s best to maintain organized financial records. Some key documents you should have ready include:

• General Ledger

• Balance Sheet & Income Statement

• Bank & Trading Account Statements

• Invoices & Receipts

• Company Registration Documents (Business Registration Certificate, Annual Return)

• Contracts & Agreements

• Copy of Business Licences

Additional records, such as travel receipts and organizational charts, can also help streamline the audit process.

At the end of the audit, the auditor will issue an audit opinion in one of four categories:

1. Unqualified Opinion – A clean report, confirming the financial statements are accurate.

2. Qualified Opinion – The report is mostly accurate but contains minor discrepancies.

3. Adverse Opinion – Serious misrepresentations or inaccuracies are present in the financial statements.

4. Disclaimer of Opinion – The auditor is unable to complete the audit due to missing information or restrictions.

Receiving an adverse or disclaimer opinion can raise red flags for tax authorities, investors, and business partners.

Read here more about audit opinions in Hong Kong.

Selecting the right Certified Public Accountant (CPA) is crucial. When choosing an auditor, consider the following:

• HKICPA Registration – Ensure the CPA is licensed to conduct audits in Hong Kong.

• Industry Experience – Look for auditors familiar with your business sector.

• Accounting Software Proficiency – If your company uses specific accounting software, make sure the CPA can work with it.

• Clear Communication – A good auditor should be easy to communicate with and provide transparent guidance.

Annual audits might seem like a tedious requirement, but they’re essential for ensuring financial transparency and maintaining regulatory compliance in Hong Kong.

By preparing ahead of time and working with a qualified CPA, you can avoid unnecessary delays and potential tax complications.

Need help with your company’s audit? blynq is here to assist you every step of the way—from financial statement preparation to audit report submission.

Contact us today for expert support for all your audit and accounting needs.