Statutory audit is unavoidable for a Hong Kong limited company. Section 394 of the Companies Ordinance requires an auditor to be appointed for each financial year, and section 405 requires the financial statements to be audited. Section 429 requires the directors to lay the reporting documents before the company — a breach carries a fine of up to HK$300,000, and up to 12 months' imprisonment where the offence is committed wilfully.
This applies whether or not the company traded. A dormant company still needs an audit unless it has formally been made dormant under section 447.
On this page
- What is included
- The legal basis
- The audit process
- Documents required
- Types of audit opinion
- Fees and what drives them
- Common questions
What is included
- Preparation of the financial statements to be audited
- Engagement of a practising CPA holding a valid AFRC practising certificate
- Preparation of audit schedules, lead schedules and analyses
- Handling auditor queries, bank confirmations and management representations
- Review of the draft report before signature
- Delivery of the signed auditor's report and audited statements
- Hand-off straight into the profits tax return
The legal basis
| Provision | Requirement |
|---|---|
| Companies Ordinance s.394 | Appoint an auditor for each financial year |
| Companies Ordinance s.405 | Financial statements must be audited |
| Companies Ordinance s.429 | Directors must lay reporting documents; fine up to HK$300,000 |
| Companies Ordinance s.447 | Dormant company exemption, by special resolution |
| Inland Revenue Ordinance s.51C | Keep business records for 7 years; fine up to HK$100,000 |
Further detail is in why Hong Kong companies must be audited every year.
The audit process
- Accounts finalised — ledgers closed, bank reconciled, statements drafted.
- Engagement — auditor appointed, engagement letter signed, scope agreed.
- Fieldwork — vouching, bank and debtor confirmations, cut-off testing.
- Queries — the auditor raises points; we answer with supporting documents.
- Draft report — reviewed with the directors before signing.
- Signature and filing — signed report attached to the profits tax return.
Typical turnaround is three to six weeks from complete records for a small company.
Documents required
Prepare in this order — bank first, then income and expenditure, then balance sheet items. That sequence saves the most time:
- Bank statements for every account, full year, plus year-end balance confirmations
- Sales invoices, receipts and revenue records
- Purchase invoices, expense receipts and supplier statements
- Fixed asset invoices and depreciation schedule
- Loan agreements, lease agreements, director's account movements
- Stock count sheets at year end, if applicable
- Payroll and MPF records
The full checklist is at annual audit document checklist.
Types of audit opinion
| Opinion | What it means |
|---|---|
| Unmodified (clean) | The statements give a true and fair view |
| Qualified | Misstatement or scope limitation, material but not pervasive |
| Adverse | Misstatement is material and pervasive |
| Disclaimer | Auditor could not obtain sufficient evidence to form an opinion |
How to read one is explained in our guide to audit reports.
Fees and what drives them
Audit fees reflect professional hours. The main drivers are turnover, transaction volume and how complete your records are.
| Company profile | Indicative fee |
|---|---|
| Dormant / no trading activity | From HK$2,000 |
| Small trading company, tidy records | From HK$4,500 |
| Trading company with stock or staff | From HK$8,000 |
A large part of any audit fee is time spent tidying up disorganised records. Complete bookkeeping keeps the fee close to the base rate — see how audit fees are calculated.
Common questions
My company never traded. Do I still need an audit?
Yes, unless a special resolution has been passed and filed to make it dormant under section 447.
What if several years are overdue?
They must be done in order, oldest first. See the consequences of late audit and how to fix it.
How do I verify the auditor is licensed?
Check the AFRC register of practice units and the practising certificate number. Our guide is at choosing a licensed auditor.
Call 3687-1127 or tell us your year end for an audit quote.