Accounting and bookkeeping requirements for Hong Kong companies
A complete guide to accounting and bookkeeping for Hong Kong companies, covering record-keeping, audit requirements, and compliance.
Accounting and Bookkeeping for Hong Kong Companies
Every Hong Kong incorporated company must maintain proper accounting records and prepare audited financial statements each year. The full accounting lifecycle covers bookkeeping, record retention, selecting a financial reporting framework, audit preparation, and the statutory audit itself. Understanding the complete scope of accounting and bookkeeping for Hong Kong companies lets directors meet their obligations under the Companies Ordinance (Cap. 622) and the Hong Kong Institute of Certified Public Accountants (HKICPA) without last-minute scrambling.
The audit requirement applies to all Hong Kong companies, regardless of size or profitability. Directors must lay the audited financial statements before the members, or send them to members where the annual general meeting is dispensed with. A practising certified public accountant registered with the HKICPA must carry out the audit. Only a registered practice unit may sign a Hong Kong statutory audit report.
Hong Kong Accounting Requirements
The Companies Ordinance (Cap. 622) provides the legal framework. A company must keep accounting records sufficient to show and explain its transactions and to disclose its financial position with reasonable accuracy. Keep these records for seven years. Records may be kept outside Hong Kong, but accounts and returns sufficient to disclose the financial position must be sent to and kept in Hong Kong.
Directors must approve the financial statements and the directors' report before they are laid before the members. The financial statements must give a true and fair view of the company's financial position and comply with the applicable financial reporting framework. The Companies Registry provides guidance on statutory requirements, while the HKICPA issues the accounting standards companies must follow.
Hong Kong Bookkeeping Services
Many Hong Kong companies outsource bookkeeping to licensed providers. Hong Kong bookkeeping services cover recording transactions, maintaining ledgers, preparing bank reconciliations, and generating management accounts. The bookkeeper must record all significant accounting transactions promptly and accurately. These records must be sufficient to support the preparation of financial statements that comply with HKFRS or the applicable framework.
Outsourced bookkeeping can reduce the burden on directors and keep the company's accounting records audit-ready. The provider should understand the specific requirements of the Companies Registry and the HKICPA. The company remains responsible for the accuracy and completeness of its accounting records, even when services are outsourced.
Hong Kong Company Audit Preparation
Audit preparation begins with maintaining complete and accurate accounting records throughout the year. Before the audit starts, the auditor will request a prepared-by-client (PBC) list of documents and schedules. Common items include trial balances, bank confirmations, fixed asset registers, debtors and creditors listings, and supporting schedules for revenue and expenses.
Directors must ensure all significant accounting transactions are properly recorded and that the financial statements are prepared in accordance with the chosen framework. The auditor will assess whether the company is a going concern and whether any material uncertainties require disclosure. The auditor's report will include an opinion on whether the financial statements give a true and fair view.
Hong Kong Accounting Compliance
Compliance with Hong Kong accounting requirements involves several ongoing obligations. The company must file an annual return with the Companies Registry using Form NAR1 within 42 days of the return date. The annual return must be accompanied by the audited financial statements and the auditor's report. The company must also file a profits tax return with the Inland Revenue Department using Form BIR51.
Directors must ensure the financial statements are prepared in accordance with the applicable framework. The options are:
| Framework | Applicable to |
|---|---|
| Full HKFRS | All companies, including those with public accountability |
| HKFRS for Private Entities | Entities without public accountability |
| SME-FRF and SME-FRS | Companies qualifying for the reporting exemption under section 359 |
The reporting exemption under section 359 allows qualifying companies to prepare financial statements under the SME Financial Reporting Framework and Standard rather than full HKFRS. Disclosure requirements are reduced. This exemption does not remove the audit requirement.
Financial Reporting Frameworks
The HKICPA issues three main frameworks for Hong Kong companies. Full HKFRS is the most comprehensive and is required for companies with public accountability or those that choose to apply it. HKFRS for Private Entities is a reduced framework for entities without public accountability. SME-FRF and SME-FRS are for companies that qualify for the reporting exemption under section 359.
Directors must select the appropriate framework and apply it consistently. The financial statements must include a statement of compliance with the chosen framework. The auditor will verify that the framework has been applied correctly and that the financial statements give a true and fair view.
Statutory Audit Process
A practising certified public accountant registered with the HKICPA must carry out the statutory audit. Only a registered practice unit may sign a Hong Kong statutory audit report. The auditor will examine the accounting records and financial statements and issue an auditor's report expressing an opinion.
The auditor's report may be unmodified , a clean opinion , or modified. A modified opinion may be qualified, adverse, or a disclaimer of opinion. A modified opinion can affect the company's ability to obtain bank financing, secure trade credit, or maintain compliance with regulatory requirements. The auditor will also assess whether the company is a going concern and whether any material uncertainties require disclosure.
Dormant Company Exemption
A company may declare itself dormant under the Companies Ordinance where it has no significant accounting transactions. A private company that has declared itself dormant is exempt from delivering an annual return. The company must still maintain accounting records and prepare financial statements if it has any transactions.
The dormant company exemption does not remove the audit requirement unless the company has no transactions at all. Directors must ensure the company meets the definition of dormant under the Companies Ordinance and that the declaration is properly made. The Companies Registry provides guidance on the dormant company provisions.
Accounting Reference Date
A company chooses its accounting reference date when it is incorporated. This date determines the end of the financial year. Changes to the accounting reference date are notified to the Registrar on Form NAC4. The company must file its annual return and financial statements within the prescribed period after the accounting reference date.
Directors should select an accounting reference date that aligns with the company's business cycle and reporting requirements. The date can be changed, but the company must comply with the procedures set out in the Companies Ordinance. Form NAC3 is the statement of revision of financial statements if the company needs to correct previously filed accounts.
Directors' Responsibilities
Directors are responsible for ensuring the company maintains proper accounting records and prepares financial statements that comply with the Companies Ordinance. They must approve the financial statements and the directors' report before they are laid before the members. They must also ensure the audit is completed on time and that the audited financial statements are filed with the Companies Registry.
The directors' report must include a fair review of the company's business and a description of the principal risks and uncertainties facing the company. The report must also include details of any significant accounting transactions that occurred during the year. Directors must act in the best interests of the company and ensure the financial statements give a true and fair view.
Record Retention
Keep accounting records for seven years from the date of the transaction or the end of the financial year to which they relate. The records must be sufficient to show and explain the company's transactions and to disclose its financial position with reasonable accuracy. Records may be kept in electronic form, but the company must be able to produce them in a legible format if required.
The Companies Registry and the Inland Revenue Department may request access to the accounting records during an investigation. Directors must ensure the records are retained in a secure location and are available for inspection. Failure to maintain proper accounting records is an offence under the Companies Ordinance.
Choosing an Auditor
The auditor must be a practising certified public accountant registered with the HKICPA. Only a registered practice unit may sign a Hong Kong statutory audit report. Directors should evaluate the auditor's qualifications, experience, and independence before appointing them. The auditor must be independent of the company and its directors.
Members will appoint the auditor at the annual general meeting or by written resolution. Members may remove or replace the auditor in accordance with the Companies Ordinance. Directors should consider the auditor's fees, the scope of the audit, and the auditor's ability to complete the audit on time.
Audit Fees
The cost of a statutory audit in Hong Kong depends on the size and complexity of the company, the volume of transactions, and the quality of the accounting records. Companies with well-maintained records and simple structures pay lower fees. The auditor will provide a fee quotation before the audit begins.
Directors should budget for the audit fee and ensure the company has sufficient funds to pay the auditor. The fee is an expense of the company and must be disclosed in the financial statements. Compare fee quotations from different practice units to ensure the cost is reasonable.
Consequences of Non-Compliance
Failure to comply with the accounting and audit requirements of the Companies Ordinance can result in penalties and legal action. The company may be struck off the register if it fails to file its annual return and financial statements. Directors may be personally liable for the company's debts if they continue to trade while the company is non-compliant.
The Companies Registry may impose late filing fees for annual returns and financial statements. The Inland Revenue Department may impose penalties for late filing of profits tax returns. File all returns on time. Maintain proper accounting records throughout the year.