3 Questions About Auditing: When Is Auditing Needed? Why do you need an audit? What needs to be prepared?

Regardless of the size of the limited company and the stage of its business development, the importance of auditing has never diminished. Audit work must “come in handy” almost every year, and it is also indispensable for company operators and for maintaining Hong Kong’s tax system. Therefore, this article will answer 3 questions about auditing:

Why do an audit?

From the perspective of the rule of law, regular audit work is to comply with the laws and tax requirements of Hong Kong. According to Section 622 of the Companies Ordinance, any limited company incorporated in Hong Kong is required to entrust an audit of its financial statements in each financial year and submit it together with the Profits Tax Return (BIR51) to the Inland Revenue Department as required. The company’s financial situation can only be assessed.

From the perspective of operating the company, the directors and shareholders of the management company should take into account the current operating conditions of the company, regularly review the company’s accounts and details on the premise of limited disclosure of sensitive internal financial information, and plan for the long-term development and self-interest, At the same time, it also ensures that the company’s compliance is legal, fair and reliable, and has the effect of monitoring and improvement.

When should an audit be done?

New companies established in Hong Kong are required to prepare accounting information for that period within 18 months of the start of business in accordance with the requirements of the Companies Ordinance.

And, within 3 months of receipt of the first profits tax return, arrange for an audited financial statement to be returned to the Inland Revenue Department together with the return. The company is required to prepare audited financial statements for each financial year thereafter.

Generally speaking, the audited financial statements will be handed over to shareholders for review within 21 days before the annual general meeting, and the report will be approved by voting at the general meeting, and the company is responsible for paying attention to the time limit for submitting the audited financial report.

What documents do I need to prepare for the audit?

The documents that need to be reviewed during an audit are different and depend on the organization and company industry, but generally, before the audit process, the following accounting information or details will be a list of commonly required documents:

Copies of company registration documents, etc.:

• The latest business registration certificate;

• Articles of Association and Articles of Association;

• Certificate of Incorporation;

• Annual Return;

• Any licenses applied for, etc.

Copy/Original of Accounting Information:

• Company accounts or details, cash book;

• Financial statements including balance sheet, income statement, cash flow statement, etc.;

• Bank statement, and related credit card statement (if any);

• All invoices, receipts, delivery notes issued and received;

• All signed agreements and contracts (sales, services, employees, leases, etc.);

• Profits tax return;

• Warehouse entry and exit, inventory amount;

• Audited financial statements of subsidiaries (if any);

• If transferring to auditors, prepare audited financial reports of previous years, etc.

To avoid the company being fined by the Hong Kong government for delaying the audit process, the proprietor should properly handle the accounting and audit work before the deadline, prepare the audited financial statements, and return them to the Inland Revenue Department together with the profits tax return.

The above information is for reference only. If you have any questions about auditing and auditing work, we welcome your inquiries.