How do I prepare for my first Hong Kong company audit

How Do I Prepare for My First Audit

Every Hong Kong company must have its financial statements audited annually by a practising certified public accountant registered with the HKICPA. As your first financial year end approaches, preparation is everything. Work through this practical checklist before the auditor arrives.

First Audit Preparation Hong Kong

Start with complete accounting records. The Companies Ordinance (Cap. 622) requires a company to keep records that show and explain its transactions and disclose its financial position with reasonable accuracy. Keep these records for seven years. For a first audit, the auditor will expect a full set from your date of incorporation to the financial year end.

Hong Kong Company Audit Checklist

Focus on these core items for statutory audit preparation:

• Trial balance and draft financial statements. Prepare a trial balance that agrees to the general ledger. Draft the profit and loss account and balance sheet in the format required by your accounting framework. This may be full HKFRS, HKFRS for Private Entities, or SME-FRF and SME-FRS if the company qualifies for the reporting exemption under section 359.
• Supporting documents for major transactions. Gather sales invoices, purchase invoices, contracts, loan agreements, lease agreements and any correspondence evidencing significant income or expenditure.
• Bank confirmations. The auditor will request direct confirmation from your banks. Authorise the auditor to send bank confirmation letters and ensure all bank statements are reconciled to the trial balance.
• Physical inventory count. If the company holds stock, perform a physical count at the financial year end. Retain the count sheets. The auditor will test inventory valuation and existence.
• Fixed asset register. Maintain a register showing cost, additions, disposals and accumulated depreciation for each asset category.
• Director and shareholder records. Provide the register of members, register of directors and minutes of board meetings that approved transactions or resolutions.

What to Prepare for Company Audit HK

Engage the auditor early. A practising certified public accountant from a registered HKICPA practice unit must sign the auditor's report. Early appointment clarifies their specific requirements sooner.

Most auditors issue an audit pack - a structured request list covering:

• Completed trial balance and draft financial statements
• General ledger and subsidiary ledgers
• Bank reconciliations and bank confirmations
• Aged listings of trade receivables and trade payables
• Inventory count records and valuation schedules
• Fixed asset register and depreciation calculations
• Tax computation and supporting schedules
• Minutes of board meetings and shareholder resolutions
• The company's articles of association

The auditor will also assess whether the company is a going concern. Be ready to discuss your trading outlook and any factors that could cast doubt on your ability to continue operating.

Supporting Documents and Records

You may keep accounting records outside Hong Kong, but accounts and returns sufficient to disclose the financial position must be sent to and kept in Hong Kong. For a first audit, keeping all records locally simplifies the process.

The auditor will review the directors' report and the financial statements for compliance with the Companies Ordinance. If the auditor cannot obtain sufficient evidence or disagrees with management's treatment of a transaction, the auditor's report may carry a modified opinion. A modified opinion is not a penalty but a statement that the accounts do not present a true and fair view in all material respects.

Final Steps Before the Audit

Confirm the audit timeline with the auditor. The directors must lay the audited financial statements before the members, or send them to members where the annual general meeting is dispensed with. Allow sufficient time for the auditor to complete fieldwork, review the draft report and discuss any adjustments with management.

A well-prepared company reduces the risk of delays and additional fees. The first audit sets the foundation for all subsequent audits. Invest the time to get the accounting records right from the start.