Bookkeeping for a Hong Kong company what records you must keep

Bookkeeping for a Hong Kong Company: Records and Compliance

Every Hong Kong company must maintain accounting records that accurately reflect its transactions and financial position. This is a statutory duty under the Companies Ordinance (Cap. 622). The Ordinance dictates what counts as sufficient records, how long to keep them, and the consequences of falling short. Accounting standards and audit procedures are separate matters.

What the Companies Ordinance Requires

Section 373 of the Companies Ordinance (Cap. 622) imposes a clear duty: a company must keep accounting records sufficient to show and explain its transactions and disclose, with reasonable accuracy, its financial position at any time. The records must enable directors to ensure the financial statements comply with the Ordinance.

The records must contain:

• Daily entries of all sums received and expended, with details of the matters giving rise to them.
• A record of the company's assets and liabilities.
• Where the company deals in goods, statements of stock held at each financial year-end. Except for retail sales, records of all goods sold and purchased showing the buyers and sellers in sufficient detail.

Hong Kong Bookkeeping Requirements: What Counts as Sufficient?

The phrase "sufficient to disclose the financial position" is intentionally broad. The Inland Revenue Department and your auditor will expect a complete set of source documents supporting every book entry.

These documents include sales invoices and customer receipts. Purchase invoices and supplier receipts. Bank statements and passbooks for all accounts in Hong Kong or overseas. Corporate credit card statements. Petty cash vouchers. Payroll records such as salary slips, MPF contribution statements and tax deduction records. Loan agreements and promissory notes for any borrowings. A fixed asset register listing office equipment, vehicles, and leasehold improvements.

These documents feed into a ledger or accounting software. From that ledger, you prepare a trial balance. The trial balance forms the basis for the statutory financial statements.

Intercompany transactions are a common failure point. When a Hong Kong company transacts with a related entity, the records must show the nature, amount, and terms of each transaction. Unsupported journal entries between group companies frequently cause audit qualifications. Auditors will expect a written agreement or board minute authorising the transaction, a clear commercial rationale, and evidence of arm's length terms. Without these, the records are insufficient.

Distinguishing capital from revenue expenditure causes similar difficulty. Misclassifying a capital item as an expense misstates both the fixed asset register and the profit-and-loss account. Your records must contain enough detail to allow correct classification. Retain supplier quotations, purchase orders, and delivery notes that show what was bought and why.

Hong Kong Accounting Records: Location and Retention

Accounting records must be kept for seven years after the end of the relevant financial year. This obligation covers all records, not just the final accounts. The seven-year clock starts from the financial year-end, not the document creation date.

Records may be kept outside Hong Kong. However, the company must send to Hong Kong, and retain here, accounts and returns sufficient to disclose its financial position at intervals not exceeding six months. A company using an overseas cloud-based system must still produce and retain local copies of its accounts every six months.

The penalty for failing to keep proper records is a fine at level 4 (currently HK$25,000) under section 373(6) of the Companies Ordinance. Every director who is in default commits an offence.

The seven-year rule applies even after the company is dissolved. Under section 752, a director who was in office immediately before dissolution must keep the company's books and records for at least seven years from the dissolution date. Failure to do so is an offence. This catches directors who assume their duty ends when the company is struck off.

Hong Kong Bookkeeping Checklist: What to Do Each Month

A practical monthly bookkeeping checklist for a Hong Kong company:

1. Record all sales invoices issued and receipts received.
2. Record all purchase invoices and payments made.
3. Reconcile bank statements against the cash book.
4. Reconcile credit card statements.
5. Post payroll entries, including salaries tax and MPF.
6. Update the fixed asset register for any additions or disposals.
7. Review and post any intercompany transactions.
8. Prepare a trial balance and review for obvious errors.

This monthly discipline serves two purposes. It ensures the records are complete at year-end, allowing the auditor to start work without delay. It also helps directors meet their duty to ensure accounting records are kept at all times.

A quarterly review of the trial balance by someone who understands the business prevents year-end problems. The reviewer should check that key account balances, trade debtors, trade creditors, bank balances, director current accounts, match their understanding of the company's position. An overdrawn director's current account without a board minute authorising the loan is a red flag. An unexplained credit balance in a supplier account may indicate a missing invoice. Catching these quarterly allows correction while the facts are fresh.

Hong Kong Bookkeeping Services: When to Outsource

Many small and medium-sized Hong Kong companies outsource bookkeeping to a licensed provider. The provider handles data entry, bank reconciliation, and trial balance preparation. The director reviews and approves the figures. The company remains legally responsible for the records' accuracy, even if a third party maintains them.

When engaging a bookkeeping service, confirm the provider understands Hong Kong's statutory requirements. Two points are critical: the seven-year retention rule and the need to produce accounts in Hong Kong dollars. The service should also provide reports in a format the auditor can use directly.

Confirm the provider's approach to the six-month rule for overseas-held records. If the provider uses an overseas cloud platform, the engagement letter must state who is responsible for producing and retaining the local copies required by the Ordinance. The company cannot delegate this obligation. The director must be satisfied the copies exist and are accessible in Hong Kong.

Consequences of Non-Compliance

Failure to keep proper accounting records can lead to a qualified or adverse audit opinion. This may affect the company's ability to obtain bank financing or trade credit. The Companies Registry or the Inland Revenue Department may impose penalties. Directors who fail to ensure compliance face personal liability.

The Inland Revenue Department routinely checks accounting records during a profits tax audit. If the records are incomplete, the Department may estimate the tax liability and impose penalties for late or incorrect returns.

The consequences extend beyond fines. Under section 728 of the Companies Ordinance, a director who fails to take all reasonable steps to secure compliance with the accounting records requirements may be disqualified from acting as a director for up to five years. The court may make a disqualification order on the application of the Financial Secretary or the Official Receiver. This is a separate risk from the level 4 fine under section 373(6). Paying the fine does not resolve the underlying breach, and the disqualification jurisdiction remains available.

Practical Summary

Bookkeeping for a Hong Kong company is not optional. The Companies Ordinance requires records sufficient to show transactions and disclose the financial position. Those records must be kept for seven years. They must be accessible in Hong Kong even if stored overseas. A monthly checklist and, where necessary, outsourced bookkeeping services help directors meet these obligations without unnecessary cost or risk.