Does a dormant company need audited accounts

Does a Dormant Company Need Audited Accounts?

No. A company that has declared itself dormant under the Companies Ordinance (Cap. 622) and has no significant accounting transactions is exempt from the statutory audit requirement. Section 361 of the same Ordinance answers the question does a dormant company need audited accounts, removing the obligation on a private company to deliver audited financial statements to the Registrar where the company has been dormant since its incorporation or since the end of the previous financial year.

Dormant Company Audit Exemption Hong Kong

The Companies Ordinance sets out the audit exemption for dormant companies. A company qualifies as dormant if it has had no significant accounting transactions during the relevant period. "Significant accounting transaction" excludes the filing fee paid to the Companies Registry, penalties for late filings, and any payment made to comply with the Ordinance.

Only private companies may claim this exemption. A company limited by guarantee, a public company, or a company that has never commenced business may also qualify under similar conditions, but a private company that has declared dormancy is the most common case. The exemption must be renewed each year. Conduct a significant transaction in any period, and the audit requirement revives for that year.

Hong Kong Dormant Company Accounts

A dormant company must still prepare financial statements that comply with the Ordinance. The exemption removes only the audit requirement, not the duty to keep proper accounting records. Directors must continue to prepare accounts that give a true and fair view. They need not appoint an auditor or engage a practising certified public accountant to sign off the accounts.

The annual return (Form NAR1) exemption for dormant companies is separate. A private company that has declared itself dormant is not required to deliver an annual return to the Companies Registry. It must file NAR1 for the year in which the dormancy declaration is made if the declaration falls after the 42-day period from the return date has passed.

Audit Requirement for Dormant Company

The audit requirement for a dormant company is effectively suspended while the dormant status is maintained. Directors must pass a resolution declaring dormancy and record that resolution in the minutes. There is no requirement to file the resolution with the Companies Registry, but the company must be able to produce it on demand.

Dormant status ends the moment a company conducts any significant accounting transaction. The directors must then appoint an auditor and prepare audited financial statements for the period in which the transaction occurred. The company may again declare dormancy after the transaction period ends, provided no further transactions take place.

The exemption does not extend to the Inland Revenue Department. A dormant company must still file profits tax returns (Form BIR51) if the Department issues one, and must respond to any enquiry about its tax position. The Inland Revenue Department treats a dormant company as having no assessable profits, but the filing obligation remains.

If a dormant company holds a bank account, the directors should check whether the account activity counts as a significant accounting transaction. Passive receipt of interest may be caught, depending on the amount and the auditor's interpretation. The Companies Ordinance does not define "significant" by a monetary threshold, so professional advice from an HKICPA-registered accountant is recommended before relying on the exemption.