Arrangement of Assurance Services
Every fiscal year, companies of any size need to submit an audit report during the tax filing process. Finding an experienced accountant firm to properly handle the audit process and complete tax returns will help the company’s financial development.
In view of this, this article will explain some common audit problems and help companies understand Hong Kong’s audit requirements.
Why you need audit?
According to the “Hong Kong Companies Ordinance” and “Inland Revenue Ordinance”, companies established in Hong Kong are required to conduct compliance audits on their financial reports in each fiscal year in order to fulfill relevant tax reporting obligations.
Among them, after the company receives the profits tax return, it must be submitted to the Inland Revenue Department for evaluation together with the audit report reviewed by the certified accountant. In addition to ensuring the fairness and accuracy of the company’s finances, it also finalized the company’s total tax payment for the fiscal year.
Once the company ignores auditing for a long time, the legality of the company’s finances may be questioned by the Inland Revenue Department or the bank, and then the company’s accounts may be audited. In severe cases, it may be charged with criminal crimes such as money laundering, which will affect the company’s development.
Hong Kong audit requirements
According to the law, a company established in Hong Kong must audit its financial statements every year, and the financial statements must be audited by a Hong Kong-registered accountant (CPA).
The audit requirements of all companies or entities’ financial statements must comply with the Companies Ordinance and the Hong Kong Financial Reporting Standards. If it is a company listed in Hong Kong, it must meet the relevant audit requirements of the “Hong Kong Stock Exchange Limited Rules.”
Documents required for audit
The relevant regulations stipulate that generally companies need to keep accounting records for up to 7 years, and important documents such as the shareholder/director roster and board meeting minutes, etc., need to be properly kept.
In order to help auditors accurately review the company’s finances, the company has the responsibility to prepare relevant documents before the audit. For example, it needs to provide the business running account of the previous fiscal year, including the operating company’s expenditure documents and financial records.
Regardless of physical or electronic format, it specifically includes all financial statements, bank statements, sales/service/lease agreements or contracts, quotations, purchase invoices, order receipts, copies of profits tax returns, etc.
In addition to financial information, the audit process may require the company to provide copies of registration documents, including business registration certificates, company articles of association, copies of special permits, and so on.
The first audit report?
For companies that have not been audited, as long as they are established in Hong Kong and have substantial business, the Inland Revenue Department will generally issue the first profits tax return within about 18 months after the establishment of the company.
At that time, the proprietor of the company is obliged to submit the company’s first audit report, together with the completed tax return, to the Inland Revenue Department for review within 3 months of the issuance of the tax return.
Since then, every fiscal year, the company should receive a profit tax return, which means that the company needs to prepare an audit report every year.
Does “Closed” or “No revenue” need to be audited?
In some cases, the company does not need to submit an audit report, that is, when the company is “not in operation”. Once the company has not opened a business, it can declare the status of “closed” to the Inland Revenue Department, and the audit will be exempted after consideration of the situation.
In addition, if the company unfortunately does not earn any income in the fiscal year, does it still need to file tax returns for audit? Unfortunately, when the company has no income, it still needs to fill in the tax return according to the facts and attach the relevant audit report.
Does offshore companies need to be audited?
Whether an offshore company needs to be audited depends on the jurisdiction in which the company is registered and the nature of the Hong Kong business in which the company participates.
If the company is registered in the British Virgin Islands, Seychelles, etc., as long as the company is not involved in business from Hong Kong, it will basically not receive tax returns from the Inland Revenue Department, and there is no need to submit audit reports in disguise.
The above information is for reference only. If you have any questions, we welcome your inquiries.