Does every Hong Kong company need an audit

Does Every Hong Kong Company Need an Audit

Yes. Every Hong Kong incorporated company must have its financial statements audited annually by a practising certified public accountant registered with the HKICPA. Some companies qualify for reduced reporting requirements, but those reductions do not remove the statutory audit itself. The Companies Ordinance (Cap. 622) sets the audit requirement and it applies regardless of company size, turnover or number of shareholders. Directors must lay the audited financial statements before the members, together with the directors' report and the auditor's report.

Hong Kong Audit Exemption

There is no general audit exemption for small companies in Hong Kong. A company that qualifies under section 359 of the Companies Ordinance may prepare its financial statements under the reporting exemption, but that exemption only reduces the disclosure content of the accounts. The audit requirement remains. A reporting-exempt company applies the SME Financial Reporting Framework and Standard (SME-FRF and SME-FRS) rather than full HKFRS, and the disclosure notes are shorter. The auditor still examines the financial statements and issues an auditor's opinion. A company that mistakenly believes it is exempt from audit because it is small or has few transactions risks penalties for failing to appoint an auditor and file audited accounts.

SME-FRS Audit Requirement

The SME-FRS audit requirement is the same as for any other company. The SME-FRF and SME-FRS are the financial reporting frameworks a reporting-exempt company uses, but they do not alter the statutory audit obligation. The audit must still be carried out by a practice unit holding a practising certificate from the HKICPA. The auditor's report will refer to the SME-FRS as the applicable framework rather than HKFRS, but the scope of the audit work and the legal requirement to have the accounts audited are unchanged. A company that qualifies for the reporting exemption should confirm with its accountant that the accounts are prepared under SME-FRF and SME-FRS, and that the audit engagement letter reflects that framework.

Section 359 Reporting Exemption

Section 359 of the Companies Ordinance sets the criteria for the reporting exemption. A company qualifies if it meets the size thresholds or is a member of a group that meets them on a consolidated basis. The exemption allows the company to prepare financial statements with reduced disclosure, but it does not exempt the company from audit. The section 359 reporting exemption is often confused with an audit exemption because the financial statements are shorter and the reporting burden is lighter. The distinction matters. A company that relies on section 359 to avoid preparing full HKFRS accounts must still engage an auditor and file audited financial statements with the Inland Revenue Department along with its profits tax return on Form BIR51.

Dormant Company Audit Hong Kong

A dormant company may declare itself dormant under the Companies Ordinance if it has no significant accounting transactions. A private company that has declared itself dormant is exempt from delivering an annual return on Form NAR1, but that exemption does not extend to the audit requirement. If the dormant company has any significant accounting transactions during the year, it is not dormant for that period and must have its financial statements audited. Even a company that has been dormant for a full year should confirm with its auditor whether a statutory audit is required. The audit requirement for a dormant company that has no transactions is minimal, but the auditor must still be appointed and the accounts must be signed off. A company that ceases trading but remains on the register is not automatically dormant and must continue to file audited accounts until it is deregistered or struck off.