Which accounting records a Hong Kong company must keep and for how long

Which Accounting Records to Keep in Hong Kong

Every Hong Kong company must maintain proper accounting records. The legal requirement is set out in section 373 of the Companies Ordinance (Cap. 622). These records must be sufficient to show and explain the company’s transactions and to disclose, with reasonable accuracy, the financial position of the company at any time.

Hong Kong Accounting Records Requirements

Section 373 of Cap. 622 imposes two core obligations on directors. The accounting records must show and explain every transaction. They must also enable the directors to ensure that any balance sheet or profit and loss account prepared under the Ordinance gives a true and fair view of the company’s financial position.

The records must contain:

• entries showing all sums of money received and expended, and the matters in respect of which the receipt and expenditure took place
• a record of the assets and liabilities of the company
• where the company deals in goods, statements of stock held at the end of each financial year and stocktaking records, and statements of goods sold and purchased (except retail sales) identifying the buyers and sellers

Directors are responsible for ensuring that the records are kept. Failure to comply is an offence. Every director in default is liable to a penalty.

Hong Kong Record Retention Period

The Companies Ordinance requires accounting records to be kept for seven years from the date on which they are made. This is a minimum period. A company may choose to retain records for longer.

The Inland Revenue Department may expect records to be kept for longer than seven years where a profits tax return is still open to assessment. The seven-year retention period applies to all accounting records, not only to the final financial statements. Supporting documents must also be retained for the full period. Invoices, receipts, bank statements, contracts, and correspondence that explains a transaction all fall within this requirement.

If a company is wound up before the seven-year period has expired, the liquidator must ensure that the records are preserved for the remainder of the period.

Hong Kong Statutory Accounting Records

The term “statutory accounting records” refers to the records that a company is required to keep under section 373 of Cap. 622. These are distinct from the statutory registers that a company must maintain under other parts of the Ordinance, such as the register of members, the register of directors, and the register of charges.

The statutory accounting records are the primary source of information for preparing the financial statements. The auditor will rely on these records when carrying out the statutory audit. If the records are incomplete or inaccurate, the auditor may qualify the auditor’s report or refuse to issue an opinion.

The Companies Registry does not require companies to submit their accounting records. The records are kept at the company’s registered office or at another place that the directors consider appropriate. The directors must ensure that the records are accessible for inspection.

Hong Kong Companies Ordinance Records: Location and Access

Section 373 of Cap. 622 allows a company to keep its accounting records at a place outside Hong Kong. If the records are kept outside Hong Kong, the company must send to and keep in Hong Kong accounts and returns sufficient to disclose the financial position of the company at intervals of not more than six months.

The accounts and returns kept in Hong Kong must enable the directors to prepare the financial statements required for the annual audit and for laying accounts and returns before the members.

The directors have a right of access to the accounting records at all times. The auditor also has a right of access to the records and may require the directors to provide any information or explanation that the auditor considers necessary for the audit.

Penalties for Non-Compliance

If a company fails to keep proper accounting records, every director who is in default commits an offence and is liable to a fine. The maximum penalty under section 373 is HK$300,000. If the failure is intentional, the director may also be liable to imprisonment.

The Companies Registry may take enforcement action if it becomes aware that a company has not maintained proper records. The Inland Revenue Department may also impose penalties if the records are insufficient to support a profits tax return.

The obligation to keep records is ongoing. It does not end when the financial statements are prepared or when the audit is completed. The records must be retained for the full seven-year period.

Distinction From Statutory Registers

The accounting records required under section 373 are separate from the statutory registers that a company must maintain under the Companies Ordinance. The statutory registers include:

• the register of members (section 627)
• the register of directors and secretaries (section 643)
• the register of charges (section 343)
• the register of debenture holders (section 632)

These registers must be kept at the company’s registered office or at a specified alternative location. They are open to inspection by members and, in some cases, by the public. The accounting records, by contrast, are not open to public inspection.

Practical Considerations for Directors

Directors should ensure that the company’s accounting system is capable of producing records that meet the requirements of section 373. The records must be in English or Chinese, or both. If the records are kept in a language other than English or Chinese, the directors must ensure that a translation is available.

The records must be kept in a form that is legible and capable of being reproduced in printed form. Electronic records are permitted, provided that the system used to store them is reliable and the records can be retrieved without undue delay.

Directors should also consider the requirements of the Inland Revenue Ordinance (Cap. 112). That Ordinance requires records to be kept for seven years after the completion of the transactions to which they relate. The Inland Revenue Department may request records for a period that extends beyond the seven-year retention period under the Companies Ordinance if a tax assessment is under review.