Table of contents
A Hong Kong limited company must be audited every year. The service covers the statutory audit report, profits tax computation and filing of the tax return. Audit fees depend on the company's size, the complexity of its business and the completeness of its accounts.
Key takeaways
- A qualified auditor examines the company's financial statements and issues a statutory audit report
- All Hong Kong limited companies must be audited and file tax returns every year
- Deliverables: statutory audit report, profits tax computation, tax return filed on your behalf
- Required documents: bank statements, purchase and sales invoices, expense receipts and various contracts
- Without an audit, you face fines from the Inland Revenue Department, compulsory estimated assessments or disruption to bank account operations
What is an audit? Does every Hong Kong company have to do one?
What an audit means
An audit is a review of a company's financial statements for the past year, usually carried out by a qualified third-party practising accountant. After the audit, the auditor issues a statutory audit report, which the company submits to the Inland Revenue Department as the basis for its tax filing.
Audit vs auditing
In Hong Kong, “Audit” and “auditing” refer to the same thing (both are Auditing). It is just that one term is more commonly used in spoken Hong Kong Cantonese, while the other is the more common term in written Chinese.
Does every company need an audit?
Under Hong Kong's “Companies Ordinance, every “Limited company”, whether or not it is trading and whether or not it makes a profit, must appoint a practising accountant to carry out an audit every year. An “unlimited company” (such as a sole proprietorship or partnership) does not need a statutory audit and only has to report tax truthfully on the basis of its accounting records.
What do audit services include?
Providing a statutory audit report
The auditor reviews the company's financial statements (including the balance sheet and the profit and loss account) and gives an opinion on whether the accounts are true and fair, finally signing a statutory audit report. This report is an important document submitted to the Inland Revenue Department and to shareholders.
Preparing and checking the profits tax computation
The “profit” in the accounts and the “assessable profits” as determined by the Inland Revenue Department are often calculated differently (for example, some expenses are deducted in the accounts but are not deductible for tax purposes). Audit services usually include preparing the profits tax computation (Tax Computation), to make sure the company neither overpays nor underpays tax.
Completing and submitting the profits tax return
Once the audit report and the tax computation are complete, the service team helps to complete the profits tax return (PTR), which is signed by the auditor or the tax representative and submitted together to the Inland Revenue Department, completing the annual filing process.
The full audit process and filing timetable
Preparation: list of required documents
An audit service will generally ask the company to provide the following information:
- Bank statements and reconciliation records
- Sales and purchase documents (invoices, contracts)
- Records of administrative expenses (rent, salaries, MPF)
- Previous year's audit report (if any)
Step 1: Engagement and quotation
Once both parties confirm the scope of service and the fees, the company must sign an engagement letter (Engagement Letter). This document sets out the responsibilities and rights between the auditor and the client.
Step 2: Submitting information
Submit the accounting records, financial statements and related documents prepared above (in paper or electronic form) to the audit team. If you normally engage an accountant to keep your books, this step can usually be handled by the accounting staff handing the information over directly.
Step 3: Review and queries
The auditor starts testing and checking. If any documents are unclear or there are questions about the accounts, the auditor will raise audit queries (Audit Queries). There is no need to worry: this is just a normal clarification process, and the company only needs to provide additional explanations or the missing documents.
Step 4: Signing and filing
When the audit work is complete, the auditor issues a draft report for the directors to sign and confirm. Once confirmed, the team submits the signed audit report and the tax return to the Inland Revenue Department, and returns the original report to the company for safekeeping.
Year-end dates and tax return deadlines
The tax return deadline depends on the company's “financial year-end date”. The three most common filing timelines are:
| Account category | Financial year-end date | Usual filing deadline (after extension) |
| Category N | 1 April – 30 November | No extension (usually early May) |
| Category D | 1 December – 31 December | Can be extended to 15 August of the following year |
| Category M | 1 January – 31 March | Can be extended to 15 November of the same year |
How much does a limited company audit cost?
Audit fees in the market currently range from HK$3,000 to HK$35,000. This is not a fixed price. The final quotation mainly depends on the actual time the auditor needs to spend, and is usually adjusted according to the following three factors:
The company's turnover and number of transactions
The higher the turnover and the greater the number of bank transactions and invoices, the more samples the auditor naturally has to check, so the fee is adjusted accordingly.
The complexity of the nature of the business and the organisational structure
A simple trading company, compared with a group that holds a lot of inventory, has foreign currency transactions or even has subsidiaries requiring consolidated statements, has a far less complex audit process. The latter demands more professional judgement, so its fees are also higher.
The completeness of the accounts and of the supporting documents
If the company's accounting records are clear and its documents are neatly categorised, the auditor can finish quickly and the fee is usually more favourable. Conversely, if the accounts are in a mess and the figures do not match, the auditor has to help tidy up loose ends or adjust the accounts, which often generates extra time costs.
Recommended Hong Kong audit service firm: SetupHK
SetupHK Since being founded in 2014, we have always upheld the service philosophy of “making the complicated simple”. We understand founders' pain points, and for audit procedures that give business owners a headache, we emphasise:
- Transparent fees: we assess the accounts beforehand and, if they need tidying up, quote first, so your budget is completely transparent.
- Plain language: no complicated jargon; we explain clearly the audit adjustments and their tax implications.
- Risk foresight: we check for missing documents in advance and do our best to avoid a “qualified opinion” in the report.
By choosing SetupHK, business owners get not just an audit report but a reassuring solution that saves communication costs and eliminates hidden expenses.
FAQ
What is the difference between an audit and an internal audit?
An audit (external audit) is a statutory requirement, and its main purpose is to prove to the public (shareholders, the tax authority) that the financial statements are true. An internal audit is a check carried out by the company itself (or outsourced), aimed at improving the company's internal operating processes and controls. The two have different purposes.
What risks might a company face if it does not undergo an audit?
These may include obstruction of tax filing, queries from the Inland Revenue Department, and even fines or compliance problems. In addition, a long-term lack of audit reports will also affect eligibility to open a bank account, apply for a loan or obtain government funding.
If you are unhappy with your current auditor, can you change midway?
Where statutory procedures are followed, a company may change its auditor at an appropriate time. In accordance with the code, the incoming auditor will send a “professional clearance letter” to the outgoing auditor to confirm that there is no reason preventing the appointment (such as unpaid fees or non-compliance), after which the handover can proceed smoothly.
How should I handle a back-tax letter or penalty notice from the Inland Revenue Department?
We suggest first clarifying the content of the letter and the reply deadline, then organising the information as appropriate. If necessary, a professional can help draft an explanatory letter or notice of objection, to seek a reduction of the penalty or payment by instalments.
Will losing some receipts or invoices lead to a qualified opinion in the audit report?
If what is missing is minor miscellaneous expenses, the impact is usually small. But if the supporting documents for a transaction of a significant amount are lost, and the auditor cannot verify that transaction by other means (such as bank records or contracts), the auditor may, in order to comply with standards, include a “qualified opinion” in the report.
SetupHK | Annual audit and tax filing specialists
If you are worried about an approaching year-end date, or would like to know which audit service plan suits your company's size, feel free to contact us at any time.SetupHK The team will give your company a preliminary assessment and plan the most suitable audit and tax filing arrangements, helping you handle every annual milestone with confidence and stability.
Further reading: “What do Hong Kong tax filing services include? Company tax filing process, fees and real benefits explained”
Further reading: “Hong Kong accounting services guide: services, process, fees and points to note”
