The Audit Process for a Hong Kong Company: What Happens, What to Prepare and How Long It Takes
Every Hong Kong company has its annual financial statements audited, and for a small company the audit is usually the biggest piece of year-end work. It goes much more smoothly when you know what the auditor is looking for. Here's the process from start to finish.
Why there's an audit
Under the Companies Ordinance, an auditor must be appointed for each financial year (section 394), and must report to the members on the financial statements the directors prepare (section 405). The audited accounts are also what goes with the profits tax return.
1. Appoint the auditor
- Who can do it: only a practice unit, meaning a practising CPA, CPA firm or corporate practice (section 393). An officer or employee of the company can't, and nor can their partner or employee.
- The first auditor is usually appointed by the directors (section 395).
- After that, the members appoint the auditor for each year: at the annual general meeting, or by a resolution at a general meeting or a written resolution if the company doesn't hold an AGM (sections 396 and 612).
- A casual vacancy, for example if the auditor resigns, can be filled by the directors (section 397).
Appoint early, before the year end if you can, and agree the scope, timetable and fee in an engagement letter. Changing bookkeeper or auditor? The outgoing auditor can pass on work-related information to the new one (section 414; see switching bookkeepers).
2. Close the books and prepare the year-end pack
Before the auditor starts, the books for the year should be complete and reconciled (see the year-end checklist). The auditor will usually ask for:
- the trial balance and general ledger for the year;
- bank statements and reconciliations for every account at the year end;
- lists of receivables and payables by customer and supplier, agreeing to the ledger;
- a fixed asset register, the stocktake results if you hold inventory, and schedules of accruals, prepayments and deposits;
- the director's current account and any intercompany balances, agreed;
- contracts, loan and lease agreements, board minutes, and the source documents behind the transactions they pick.
What "audit-ready" means in practice is in audit-ready books.
3. Fieldwork: what the auditor checks
The law sets the questions the auditor has to answer. Under section 407 they must investigate whether adequate accounting records have been kept and whether the financial statements agree with those records. Under section 406 they give an opinion on whether the statements are properly prepared under the Ordinance and, unless the company uses the reporting exemption, give a true and fair view (see SME-FRS vs HKFRS).
To get there, auditors typically:
- test samples of sales, purchases and expenses back to invoices, receipts and bank lines;
- confirm balances directly with banks, and sometimes with customers, suppliers or lenders;
- review year-end items: cut-off, accruals, bad debts, inventory, depreciation;
- ask questions, usually as a list of queries to answer and documents to find.
The auditor has a legal right of access to the company's accounting records and can require information from related entities (section 412). In practice, the speed of the audit depends mostly on how quickly the queries are answered.
4. Adjustments, signing and the report
- Proposed adjustments: the auditor may find items to correct, such as a missed accrual or a misclassified cost. You agree them, and the books are updated.
- The financial statements are finalised and approved by the directors.
- A representation letter, in which the directors confirm to the auditor that they have provided all relevant information, is usually signed at the same time.
- The auditor's report is issued and dated.
A typical timeline
| When | What |
|---|---|
| Before the year end | Auditor appointed or reappointed; engagement letter signed; year-end stocktake planned if you hold inventory |
| Month 1–2 after | Books closed and reconciled; trial balance, ledgers and schedules sent to the auditor |
| Month 2–4 | Fieldwork: samples, bank and customer confirmations, questions answered |
| Month 4–6 | Adjustments agreed; draft financial statements; representation letter and accounts signed; auditor's report issued |
| Then | Accounts sent to members and the profits tax return filed with them |
A small company with tidy books is often done within a few weeks of fieldwork; the time goes on missing documents and unanswered questions. Work back from your profits tax return deadline, which depends on your year end.
What the auditor's report can say
- An unmodified ("clean") opinion: the statements are properly prepared and, where required, give a true and fair view.
- A modified opinion: the auditor disagrees with something, or couldn't get enough evidence for it.
- Specific statements the law requires: if adequate accounting records weren't kept, if the statements don't agree with them, or if the auditor couldn't obtain all the information and explanations needed (section 407).
How Certanta helps
- Books closed every month, so the year end is the last month, not a reconstruction (see the month-end close).
- A source document behind every line, linked in the ledger, so samples are answered with a link.
- The audit pack: trial balance, ledgers, reconciliations and schedules, prepared for your auditor.
- An independent auditor: the audit itself is done by an independent CPA firm, your own or one we refer, because the firm that keeps your books shouldn't audit them.
Frequently asked questions
Does every Hong Kong company need an audit?
The Companies Ordinance requires an auditor to be appointed for each financial year of a company (section 394), and the auditor must report on the financial statements the directors prepare (section 405).
Who can audit a Hong Kong company?
Only a practice unit (a practising CPA, CPA firm or corporate practice) is eligible (Companies Ordinance, section 393). An officer or employee of the company, or their partner or employee, is disqualified.
What does the auditor check?
Whether adequate accounting records have been kept, whether the financial statements agree with them, whether the statements are properly prepared under the Companies Ordinance and, unless the reporting exemption applies, whether they give a true and fair view (sections 406 and 407).
What documents does the auditor need?
Usually the trial balance and general ledger, bank statements and reconciliations, lists of receivables and payables, the fixed asset register and stocktake, schedules of accruals and prepayments, the director's current account, contracts and minutes, and the source documents for the transactions they sample.
How long does an audit take?
For a small company with complete, reconciled books it is often a few weeks of fieldwork, and the whole process from year end to signed accounts a few months. Missing documents and slow answers to queries are the usual cause of delay.
What is a qualified or modified audit opinion?
A report in which the auditor disagrees with part of the financial statements or could not obtain enough evidence about it. The auditor must also state if adequate records were not kept, or if they could not obtain all the information and explanations needed (section 407).
Books your auditor can work with
Certanta keeps your books reconciled every month, with the source document behind every line, so the year-end pack is ready for your auditor soon after the year end.
Open the demo See pricingThis article summarises the Companies Ordinance (Cap. 622) as published on e-Legislation on 29 October 2026, and describes common audit practice in general terms. It is general information, not legal or accounting advice. Each auditor plans their own work; the steps, documents and timing for your company will depend on your business and your auditor.