Appointing and Removing an Auditor in Hong Kong Company

Appointing and Removing an Auditor in a Hong Kong Company

Every Hong Kong company must appoint an auditor and follow a statutory procedure for removal. The Companies Ordinance (Cap. 622) sets out the rules governing who may act, how the appointment is made, and the steps required for removal.

Hong Kong Company Appoint Auditor

Directors appoint the first auditor. Section 394 of the Companies Ordinance (Cap. 622) grants this power, and the appointment holds until the company’s first annual general meeting. Directors must act within a reasonable time after incorporation. If they do not, shareholders may appoint an auditor by ordinary resolution.

The appointee must be a practising certified public accountant registered with the Hong Kong Institute of Certified Public Accountants (HKICPA) and hold a valid practising certificate. Before the appointment takes effect, the auditor must consent in writing. Retain that consent in the company’s records.

Minute the directors’ meeting and record the resolution. There is no statutory form to file with the Companies Registry for the first auditor’s appointment, but the company must note the auditor’s details in its statutory records.

Hong Kong Auditor Appointment Procedure

Subsequent appointments follow a different procedure. At each AGM, shareholders must appoint an auditor to hold office until the next AGM. An ordinary resolution, requiring a simple majority, makes the appointment.

Directors may fill a casual vacancy. A vacancy arises if the auditor dies, resigns, or ceases to be qualified before the next AGM. The directors’ appointee holds office until that AGM, where shareholders may confirm the appointment or choose another auditor.

Shareholders fix the auditor’s remuneration in general meeting, or they may delegate this power to the directors. When directors appoint the first auditor, they also set the remuneration. When shareholders appoint the auditor, they either set the remuneration or authorise the directors to do so.

The company must notify the Companies Registry of a change in the auditor’s details only if the auditor is also the company secretary or if the change affects the registered office address. No form is required for a simple appointment notification. However, if the company changes its auditor, it must file a notice of change of auditor with the Companies Registry using Form ND2A within 15 days of the change.

Remove Auditor Hong Kong Company

Removing an auditor before their term ends requires a formal process. Section 396 of the Companies Ordinance (Cap. 622) governs this. Shareholders may remove an auditor by ordinary resolution, but the resolution requires special notice.

Special notice means the company must receive notice of the intention to move the resolution at least 28 days before the general meeting. After receiving such notice, the company must give notice of the resolution to the members at least 14 days before the meeting. It must also send a copy of the special notice to the auditor.

The auditor may make written representations to the company and request their circulation to the members. If the company receives these representations in time, it must send them to every member entitled to notice of the meeting. The auditor also has the right to speak at the meeting, even if the resolution is to remove them.

If the company fails to circulate the representations because they arrived too late, the auditor may require them to be read out at the meeting. The auditor may also apply to the court for an order that the representations be circulated.

Hong Kong Company Change Auditor

A company may change its auditor at any time. If the change involves removing the existing auditor before their term ends, the removal procedure applies. If the auditor resigns, the procedure under section 395 applies, and the company must file a notice of resignation with the Companies Registry.

When a company changes its auditor, it must file Form ND2A with the Companies Registry within 15 days of the change. The form requires the date of the change, the name and address of the former auditor, and the name and address of the new auditor. The company must also obtain the new auditor’s consent to act.

Update the company’s statutory registers. If the auditor is also the company secretary, update the register of directors and secretaries. Record the change in the minutes of the board or general meeting where the appointment was made.

Practical Considerations

The auditor must be independent. The HKICPA’s Code of Ethics for Professional Accountants sets out these requirements. An officer or employee of the company, or a partner or employee of such a person, cannot act as auditor.

The auditor’s term runs from the conclusion of one AGM to the conclusion of the next. If the company does not appoint an auditor at the AGM, the existing auditor continues in office until a replacement is appointed.

The company must ensure the auditor has access to all books, accounts, and vouchers. The auditor has a right to attend any general meeting and to receive all notices and communications relating to it.

Failure to appoint an auditor breaches the Companies Ordinance. The company and every officer in default may be liable to a fine. The Companies Registry may also take enforcement action, including prosecution.

Filing Requirements with the Companies Registry

The following table summarises the key filing requirements related to auditor appointments and changes:

The Companies Registry does not require a filing for the initial appointment of the first auditor. However, if the auditor is also the company secretary, any change in the auditor’s details must be reflected in the register of directors and secretaries, and Form ND2A may be required if the change affects the registered office address.

Summary of Key Points

• The first auditor is appointed by the directors and holds office until the first AGM.
• Subsequent auditors are appointed by ordinary resolution at the AGM.
• Removal requires an ordinary resolution with special notice of at least 28 days.
• The auditor has the right to make representations and to speak at the meeting.
• Form ND2A must be filed with the Companies Registry within 15 days of a change.
• The auditor must be a practising certified public accountant with a valid practising certificate from the HKICPA.
• The auditor’s consent to act must be obtained before the appointment takes effect.