Annual audits in Hong Kong are essential for regulatory compliance and maintaining banking relationships. This guide outlines the audit process, required documents, and potential penalties for non-compliance.

Why Annual Audits Are Necessary

• To comply with the requirement of filing a tax return and submitting an audit report to the Hong Kong Inland Revenue Department (IRD) in accordance with the Hong Kong Companies Ordinance.
• To meet compliance procedures in banks when opening and maintaining corporate accounts.
• To increase the transparency and credibility of the company in the eyes of partners and counterparties.

Penalties and Liability

• In case of delayed or non-submission of reports, a fine of up to HK$50,000 (~US$6,400) may be imposed.
• If the violation is ongoing, an additional penalty of HK$1,000 (~US$130) will be charged for each day of delay.

All penalties and liabilities are regulated by Section 622 of the Hong Kong Companies Ordinance.

When the Company Must Submit an Audit Report

The Hong Kong Inland Revenue Department (IRD) issues the first tax return within 18 months of incorporation and thereafter shortly after the end of each financial year.

The company is required to submit an audit report upon receiving a notice from the Hong Kong Inland Revenue Department (IRD):

• For the first submission – within three months
• For subsequent submissions – within one month

Audit Process and Timeline

• The company collects the required documents — 1-3 weeks.
• A certified accountant reviews the documents and sends the financial report to the company for approval — 2 weeks.
• The accountant prepares the audit report, profit tax return (PTR), and offshore tax exemption statement — 2-4 weeks.
• The company’s director and shareholder sign the audit opinion and send the original to Hong Kong — 1-2 weeks.
• The accountant signs the audit opinion and submits it to the Hong Kong Inland Revenue Department (IRD) — 1-2 weeks.
• The Hong Kong Inland Revenue Department (IRD) reviews the documents, stamps them, and sends the completed documents to the company secretary — 1-2 weeks.

In total, the preparation of the audit report takes an average of 2.5 months.

Required Documents

• Bank statements for all corporate accounts in all currencies in PDF or CSV format.
• Invoices for all payments reflected in the bank statements.

Result

• PDF file of the audit report.
• PDF file of the profit tax return (PTR).

Cost

The cost depends on the annual turnover and the number of transactions:

For companies with an annual turnover exceeding $1,000,000, the cost is calculated on a case-by-case basis, depending on the company’s assets, investments, and other holdings.